NEW BUILD | MANAGING EPC RISK
EPC contractors with the know-how to implement “first-of-a- kind” nuclear projects are increasingly demanding cost-plus or target price models. Source: Bouygues Construction
remedies and limitations on liability. As recognised by the US Supreme Court in Duke Power Company versus Carolina Environmental Study Group, 438 US 59 (1978), the PAA’s purpose is to ensure compensation to the public while encouraging private participation in nuclear energy development. The act does not prevent parties to contracts in the nuclear energy industry from allocating contractual risk between themselves. Accordingly, contractual indemnities, warranties, and liability caps in nuclear EPC contracts remain enforceable (or unenforceable) according to ordinary contract law, independent of the statutory cap on liability for claims from the public under the PAA. In practice, EPC contracting parties often choose
to limit contractual exposure as between themselves. Market practice in the nuclear EPC space reflects this, with contracts containing highly negotiated carve- outs from liability caps for nuclear safety, wilful misconduct, and regulatory violations as between contractor and owner. Nuclear EPC contractors should therefore recognise that they are permitted to limit their contractual exposure and that they are not precluded by the PAA when seeking to do so in contract drafting. They should also focus on negotiating bespoke arrangements allocating risk between themselves and owners, including negotiating liability caps or excluding specific categories of damages (as discussed below).
Liquidated damages, consequential damages, and overall liability caps Nuclear projects are at high risk for delays and performance or output shortfalls, and
18 | July 2026 |
www.neimagazine.com
underperformance can translate into substantial additional costs, lost tax credits, and replacement power expenses. As a result, liquidated damages regimes in nuclear EPC contracts are more complex than in other power generation projects. Another issue is whether delay or performance liquidated damages are included within, or are recoverable in addition to, an EPC contractor’s limitation of total liability. There is no single convention in the nuclear market, and contract language varies. Nuclear EPC contracts may include split caps, with
separate limits applicable to delay-related liquidated damages and performance-related or output-related liquidated damages. While the specific split caps may vary, EPC contractors may seek a lower cap for performance-related or output-related liquidated damages, because performance or output results often depend on original equipment manufacturer technology outside the EPC contractor’s full control. Regardless of the specific split cap negotiated, EPC contractors should negotiate a single, overall limitation of total liability (applicable to delay-related liquidated damages and performance, or output-related liquidated damages in aggregate). Contractors should also ensure that the EPC agreements with which they are associated provide that such damages are the owner’s sole remedy for issues related to output or delays and performance. As nuclear construction accelerates, EPC contractors
that proactively address these issues during contract formation will be better positioned to manage regulatory volatility, align liability with insurability, and avoid catastrophic exposure. ■
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