Hidden costs in an EPC contract – Chapter I: Aligning development & construction goals
This is the first installment of a six-part series on energy infrastructure project delivery — from development alignment through construction, commissioning, and operations. Over the coming weeks, I’ll be covering EPC selection and contracting, execution discipline, dispute avoidance, and handover — drawing on three decades of experience across gas-fired generation, P3 structures, and campus utility platforms. I hope it’s useful to developers, constructors, financiers, and owners who are navigating these projects in an increasingly demanding market.
Chapter I: Aligning Development and Construction Goals
The energy infrastructure lifecycle is long, complex, and unforgiving of misalignment. A project that clears every development hurdle (permits secured, financing closed, offtake contracted) can still fail to deliver on its promise if the people who built the business case never sat in the same room as the people who have to build the plant.
The Asymmetry Problem
Development teams are optimized for a specific kind of success: getting to financial close. That is not a criticism, it is simply what the incentive structure demands. Construction and operations teams, however, inherit the consequences of every assumption baked into that development process. Schedule commitments made to satisfy a lender’s model become contractual milestones. Equipment specifications locked in to hit a capital cost target become field realities a project manager has to live with. A site access provision negotiated quickly to satisfy a permitting deadline becomes a serious logistics constraint once mobilization begins.
The asymmetry is structural: developers are rewarded at financial close, while constructors and operators bear the downstream cost of development-era decisions. Left unaddressed, this turns the handoff from development to execution into less a baton pass and more a collision.
Construction and Operations Must Have a Seat at the Table
The most effective development teams do not treat construction and operations as downstream recipients of a completed package. They treat them as co-authors of it.
This means bringing construction expertise into the process early to stress-test its assumptions before they harden into contracts. A construction lead reviewing a preliminary site layout can flag crane swing radius constraints that would otherwise surface as a costly change order. An operations lead reviewing equipment selection can identify a maintenance access issue that would require a capital modification in year three. These are not theoretical risks; they are the predictable consequences of keeping construction and operations at arm’s length during development.
In a P3 or joint venture structure, this challenge is compounded: development, construction, and operations may sit in different organizations with different contracts and different definitions of success. In those contexts, alignment requires not just good process design but contractual and governance mechanisms that create shared incentives across organizational boundaries.
Building Post-Development KPIs into the Development Process
Perhaps the most underutilized tool in development governance is the post-development KPI: a measurable standard, defined during development, against which the construction and operations phases will later be evaluated. These are distinct from the development team’s own success metrics. They answer a different question: not “did we get to financial close?” but “did we set up the project to succeed after financial close?”
Examples include constructability targets reviewed and validated before contract execution, operations readiness criteria embedded in equipment procurement specifications, and maintenance cost assumptions explicitly carried into the operations budget and tracked against actual performance.
Defining these metrics during development forces the team to make its assumptions explicit and to defend them to people who will be held accountable for delivering against them. It also creates a feedback loop: when post-development KPIs are tracked and reported, the development organization learns which of its assumptions hold and which do not. That institutional knowledge is the difference between a platform that improves with each project and one that repeats the same mistakes at scale.
Setting Up the Rest of This Series
The alignment failures described here do not announce themselves dramatically. They accumulate quietly, e.g. a schedule that was always slightly too aggressive, a specification’s budget impact underestimated, a risk that was always technically someone else’s problem. By the time they surface, they have usually become very expensive to fix.
The chapters that will follow in the coming weeks will examine how these dynamics play out in the contracting and execution phases.