Contract Risk Checklist for EPC

For Suppliers

This checklist helps mid-sized suppliers identify hidden risks in contracts with EPC contractors, end-users, and large buyers. Review before signing-fixing contract problems during execution is far more expensive than negotiating upfront.

Risks in Contracts

Dealing with Professional Buyers

Working with major EPC contractors (Bechtel, Technip, Saipem, etc.) or end-users (Shell, Saudi Aramco, ADNOC) means better payment reliability and larger volumes. It also means dealing with procurement departments that draft contracts heavily favoring the buyer.

Their General Terms and Conditions (GTCs) didn’t appear by accident-they were written by lawyers whose job is to shift risk to suppliers. Hidden in those 30-page documents are clauses that can turn a profitable job into a disaster.

The risks aren’t exotic. They’re predictable: scope creep, payment delays tied to vague “approvals,” unlimited liability exposure, one-sided termination rights. You can spot most of them with a systematic review before signing anything.

What Actually Forms the Contract

The “contract” isn’t just the Purchase Order-it’s three things combined:

Component	What It Contains
Purchase Order / Contract	Quantities, prices, delivery dates, specifications
General Terms and Conditions (GTCs)	Liability, payment, warranties, termination rights
Prior communications	Emails, meeting minutes, technical clarifications

All three are legally binding. A verbal agreement in a meeting that contradicts the written PO can create disputes. Document everything.

Pro Tip

Create a “project correspondence log” from day one. Log every email, phone call, and meeting with date, participants, and summary of what was discussed or agreed. When disputes arise months later, this log becomes your best defense - memory fades, but written records don’t.

Contract Review Process

Before signing anything:

1. Gather all communications - Emails, meeting notes, technical clarifications exchanged during negotiation
2. Compare PO to negotiations - Does the written scope match what was discussed?
3. Request the GTCs - If not provided, ask. Never assume “standard terms”
4. Run this checklist - Flag every risk item below
5. Document findings - Create a “Contract Risks” memo
6. Consult legal - For significant contracts, lawyer review is worth the cost
7. Negotiate amendments - Push back on unacceptable terms before confirming
8. Confirm in writing - Order confirmation only after risks are resolved

Golden Rule

Better to walk away from a bad contract than to sign and pay the consequences during execution.

Contract review takes time, but fixing contract problems during execution takes money; often far more than the contract was worth. A systematic review of scope, payment, liability, and termination clauses before signing protects against predictable risks that can turn a profitable job into a disaster.

Contractual Risks Checklist

1. Scope of Supply

The Risk: “Scope creep”-buyer expects more than you priced, and vague language lets them claim it was always included.

The contract must clearly define:

• What’s included in the price
• What’s excluded and cannot be provided
• What’s available as extras at additional cost

Red Flag Language

Watch for phrases like:

• “adequate to meet project needs”
• “all services and materials necessary for completion”
• “ball valves and ancillary equipment”
• “inclusive of all items required”

These phrases transfer unlimited scope risk to you.

Minimum requirements:

• Detailed item-by-item list of deliverables
• Clear exclusions stated explicitly
• Defined change order / variation order procedure

2. Payment Terms

The Risk: Payment tied to vague “approvals” that buyer controls, extended terms that strain cash flow, or excessive penalty deductions.

Contract should specify:

• Exact payment milestones and timing
• Late payment interest and collection costs
• Supplier’s right to suspend work for non-payment
• Specific conditions allowing buyer to withhold payment

Red Flag Language

• “Payment subject to client approval”
• “Payment upon final acceptance” (with no acceptance criteria)
• Penalties exceeding 10% of contract value
• Unlimited deduction rights for “defects”

See payment terms guide for standard payment instruments.

Common Mistake

Assuming “Net 60 days from invoice” means you’ll get paid in 60 days. Many GTCs add conditions like “subject to receipt of final documentation” or “upon project completion.” Read the fine print - that 60-day term may actually become 180 days if documentation approval drags on.

3. Consequential Damages

The Risk: A failed valve causes a refinery shutdown. Buyer claims lost production profits-potentially millions-from your $50,000 supply.

Consequential damages are indirect losses: lost profits, business interruption, reputation damage. Without explicit waiver, you can be sued for them.

Critical

The contract MUST include a mutual waiver of consequential damages. Both parties agree not to claim indirect losses from each other.

Silence on this topic = you’re exposed. A limitation of liability cap does NOT protect you from consequential damage claims unless explicitly stated.

4. Limitation of Liability

The Risk: Unlimited exposure. A $100K contract could trigger a $10M claim.

Every contract needs:

• Clear liability cap (typically 100% of contract value maximum)
• Specific triggering events defined
• Proportional relationship between liability and contract value

Red Flag Language

• No limitation of liability clause at all
• “Unlimited liability for defects”
• Vague language about “all damages arising from”
• Indemnification clauses that transfer buyer’s third-party risks to you

5. Dispute Resolution

The Risk: Disputes end up in expensive litigation in an inconvenient jurisdiction.

Contract should include:

• Mediation as first step (cheaper, preserves relationship)
• Arbitration clause specifying neutral venue
• Reasonable jurisdiction (accessible to both parties)

Red Flag Language

• Exclusive jurisdiction in buyer’s home country courts
• No mediation step before arbitration/litigation
• Arbitration in distant, expensive locations

6. Termination Rights

The Risk: Buyer terminates at will, leaving you with committed resources and no compensation.

Both parties need fair termination rights:

• Specific causes for termination listed (non-payment, material breach)
• Notice periods defined
• Compensation for work completed before termination
• Right to suspend (not terminate) for buyer’s breach

Red Flag Language

• “Buyer may terminate for convenience at any time”
• Termination rights only for buyer, not supplier
• No compensation for work-in-progress upon termination

7. Warranties and Guarantees

The Risk: Absolute language creates liability your insurance won’t cover.

Standard warranty: goods conform to specifications, free from defects in materials and workmanship. That’s defensible.

Red Flag Language

• “Guarantee complete ASME compliance”
• “Ensure fitness for purpose”
• “All materials shall be suitable”
• “To the satisfaction of the Client”
• “Highest standard of practice”

These words create perfection standards. Any minor defect = breach of warranty.

8. Third-Party Claims

The Risk: Third parties damaged by your products can sue you directly, even without a contract.

Contract should address:

• How third-party claims are handled
• Allocation of defense costs
• Coordination with insurance coverage

9. Regulatory Compliance

The Risk: Full compliance burden shifted to supplier for regulations they can’t control.

Fair allocation: supplier responsible for manufacturing compliance; buyer responsible for installation/operating permits.

10. Standard of Care

The Risk: Contract language elevates your performance standard above industry norms.

Professional standard of care = skill and care ordinarily exercised by others in the profession under similar circumstances.

Not perfection. Not “highest standard.” Not “to buyer’s sole satisfaction.”

11. Intellectual Property

The Risk: Buyer claims ownership of your proprietary methods or technology developed during the project.

If you’re bringing specialized know-how, IP ownership must be explicitly addressed.

12. Force Majeure

The Risk: Obligations continue even during events beyond your control (pandemic, war, natural disaster).

Contract should define force majeure events and specify obligation suspension during such events.

13. Confidentiality

The Risk: One-sided NDA that restricts you but not the buyer.

NDAs should be reciprocal-both parties bound to the same confidentiality standards.

Summary

Risk Area	What to Check
Scope	Detailed item list, exclusions, change order process
Payment	Clear milestones, limited withholding rights
Consequential damages	Mutual waiver clause present
Liability	Capped, specific triggers, proportional
Disputes	Mediation first, reasonable venue
Termination	Mutual rights, compensation for WIP
Warranties	No perfection language
Third-party	Addressed explicitly

Contract review takes time. Fixing contract problems during execution takes money-often far more than the contract was worth.

Field Note

Large buyers expect pushback on their GTCs - their procurement teams negotiate daily and know their terms are aggressive. Propose specific amendments in writing rather than vague objections. “We request liability be capped at 100% of contract value per clause 8.2” is negotiable; “these terms are unfair” gets ignored.