In EPC (Engineering, Procurement, and Construction) contracts, the allocation of risk regarding project delays often places the employer and the contractor on an unequal legal footing. While these contracts are designed to provide a "turnkey" solution with fixed timelines and prices, the burden of proof required to claim damages differs significantly between the two parties. For an employer, asserting a claim for liquidated damages (LD) is often a straightforward contractual trigger, whereas a contractor seeking compensation for employer-induced delays faces a rigorous evidentiary hurdle to prove actual loss and causation.
The primary disparity lies in how the "burden of proof" is applied during disputes. Employers typically rely on liquidated damages clauses, which pre-estimate losses for delays. Under Indian law, particularly following the principles in the ONGC v. Saw Pipes case, if a contract contains a genuine pre-estimate of damages, the employer may not be required to prove the exact "actual loss" suffered, provided the amount is reasonable. This allows the employer to withhold payments or encash bank guarantees relatively easily once a deadline is missed, effectively shifting the initial financial burden onto the contractor.
In contrast, a contractor claiming "prolongation costs" due to employer breaches—such as failure to provide site access or delayed approvals—must navigate a much more complex legal path. The contractor is required to provide meticulous evidence, including daily progress reports, correspondence, and expert delay analysis (like the "Critical Path Method") to demonstrate that the employer was the sole cause of the delay. Furthermore, courts often demand proof of actual expenditure, such as idle labor costs or unabsorbed overheads, making it difficult for contractors to recover damages without an exhaustive paper trail and high-level legal substantiation.
This imbalance often results in a "pay now, argue later" dynamic that favors the employer's cash flow. While the contractor may eventually win an arbitration award for damages, the years spent litigating and the strict standards of proof required can lead to severe financial strain. To level the playing field, legal experts suggest that contractors must be proactive in documenting every minor delay caused by the employer and ensuring that any extension of time (EOT) granted specifically reserves their right to claim damages, preventing a legal waiver of their compensation rights.