Expected Claims From Vendors to the EPC Contractor

Most of the EPC projects involves materials outsourcing from 20% to 80% of the entire project depending on the Industry. Procurement professionals know well the efforts involved in handling the procurement process. Vendors often file claims against EPC contractors due to various disruptions or contractual issues. Here's a more detailed look at common claims they may raise, expanded into specific categories.

1. Delay Claims

• Late Payments: Vendors often face cash flow problems when EPC contractors delay payments, leading to delays in production, material procurement, and supply chain disruptions.
• Late Delivery of Instructions: If vendors don't receive timely technical specifications or drawings, production can be delayed, impacting project schedules.
• Site Access Delays: Vendors may claim if the EPC contractor is unable to provide access to the site, forcing delays in deliveries or installations.

2. Payment Disputes

• Non-Payment or Underpayment: Payment disputes arise when the EPC contractor delays or disputes payment for delivered goods or services. Vendors will claim for full compensation.
• Retention Release: Vendors often have retention amounts withheld until project completion. Failure to release these funds on time can result in claims.
• Disputed Invoices: Vendors may challenge underpaid or disputed invoices, particularly when they have fully met their contractual obligations.

3. Variation Claims

• Change Orders: Variations in scope, such as changes in material specifications or quantities, can lead to additional costs, which vendors will claim.
• Increased Costs Due to Variations: If vendors are asked to supply higher-grade materials or more complex products, they will seek compensation for the increased costs.
• Impact on Delivery Timelines: Variations often extend delivery timelines, leading to additional costs for vendors, which can be claimed under the contract.

4. Claims for Acceleration

• Costs of Overtime Labor: If vendors are asked to accelerate deliveries, they may need to pay their workforce overtime, incurring extra costs.
• Expedited Shipping: Acceleration may require faster or priority shipping, which increases logistics costs for vendors.
• Additional Resources: Vendors may need to hire additional labor or equipment to meet accelerated timelines, which they can claim back from the EPC contractor.

5. Price Escalation Claims

• Rising Material Costs: In long-term projects, inflation or price hikes in raw materials can lead vendors to claim for price adjustments if allowed in the contract.
• Increased Labor Costs: Vendors may also claim if labor rates increase due to external factors like regulatory changes or economic conditions.
• Currency Fluctuations: In international projects, currency fluctuations can affect vendor costs, and they may seek compensation for such financial impacts.

6. Force Majeure Claims

• Time Extensions: Vendors may request time extensions due to force majeure events like natural disasters, pandemics, or political instability, which prevent them from delivering on time.
• Cost Recovery: Vendors may also claim for costs directly incurred due to the force majeure event, such as damaged materials or storage costs.
• Supply Chain Disruptions: If a force majeure event disrupts the global supply chain, vendors may seek compensation for delays and the associated financial impact.

7. Defective Material or Equipment Claims

• Faulty Installation by EPC Contractor: Vendors may claim if the EPC contractor’s improper handling or installation leads to equipment or materials being labeled defective.
• Replacement and Repair Costs: Vendors can seek compensation for costs incurred in repairing or replacing materials damaged due to no fault of their own.
• Warranty Voids: If the EPC contractor voids a product's warranty through improper use or handling, the vendor may claim the costs for warranty-related repairs.

8. Termination-Related Claims

• Compensation for Manufactured Goods: If the project is terminated before completion, vendors may seek compensation for goods already produced but not yet delivered.
• Loss of Future Profits: Vendors might claim for anticipated profits on undelivered goods, particularly if termination was unjustified or early.
• Cost of Materials in Transit: Vendors may also claim for transportation or logistics costs for materials in transit at the time of termination.

9. Logistics and Storage Claims

• Storage Fees for Delayed Deliveries: If vendors are unable to deliver materials due to site access or schedule delays, they may incur storage costs, which they will claim.
• Double Handling Costs: Vendors may claim compensation for extra handling or movement of materials due to site delays or storage issues.
• Damaged Goods During Storage: If goods are stored for extended periods due to EPC contractor delays and are damaged, vendors may claim for replacements or repairs.

10. Warranty-Related Claims

• Invalidated Warranties Due to Mishandling: Vendors may claim if the EPC contractor mishandles products and invalidates warranties, requiring replacement at the contractor's cost.
• Premature Failures: If materials or equipment fail prematurely due to improper use or installation by the contractor, vendors may seek compensation for the loss or replacement.
• Maintenance or Support Claims: Vendors may also file claims for additional support or maintenance that is required outside the scope of their warranty due to contractor mismanagement.

11. Commissioning Claims

• Delays in Commissioning: Vendors may claim additional costs if the EPC contractor delays the commissioning phase, requiring them to maintain resources, equipment, or personnel on standby.
• Additional Testing Costs: If the EPC contractor demands extra testing or re-commissioning due to changes or errors, vendors can claim the costs associated with these activities.
• Extended On-Site Support: Vendors often provide on-site technical support during commissioning. If this phase extends beyond the agreed timeline, vendors may claim additional costs for extended personnel deployment.

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