A construction project, specifically for an EPC project, is typically conducted by contractors in a consortium. The implementation of the EPC Contract was often changed or adjusted according to the project circumstances.
In some situations, a disagreement between the consortium members related to the contract amendment was unavoidable. For example, we had a client (contractors, consortium members) who needed to change a provision regarding the retention money and was willing to replace the retention money with a warranty bond, which is our client’s obligation according to the EPC Contract. The employer agreed, but the other consortium members did not want to participate in the contract amendment, considering it to not be their liability. This situation raised a question of whether the client could amend the EPC contract with the employer?
This article will explain how we advised our client to resolve this issue. Legally speaking, our client cannot amend the EPC Contract without involving the other consortium members. Even though the EPC Contract had individual contractors’ liabilities, the contract was executed between the employer and the consortium contractors, not a separate contractor.
Our client’s only option was to execute a separate agreement with the employer in this situation. Yet, the employer questioned whether such individual agreement is valid according to the Law of the Republic of Indonesia.
Article 1338 of the Indonesian Civil Code states the following:
“All legally executed agreements shall bind the individuals who have concluded them by law. They cannot be revoked otherwise by mutual agreement or under reasons legally declared to be sufficient. They shall be in good faith.”
According to the above, any agreement executed between the client and the employers will have legal effect and be legally binding. That shall only apply to the client and the employers, not the consortium.
Thus, according to the law, our client can execute a separate agreement with the employer if it does not affect the other consortium members.
How Schinder can help
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