An EPC contract in Bangladesh promises the employer a finished, working facility for a fixed price by a fixed date, with a single contractor responsible for design, procurement and construction. Whether that promise holds depends on how risk is allocated, and how well the international form has been adapted to Bangladeshi law.
- Bangladeshi law has no special EPC statute; the contract is governed mainly by the Contract Act 1872 and enforced through the courts or arbitration under the Arbitration Act 2001.
- FIDIC forms, especially the Silver Book and Yellow Book, are widely used but need careful particular conditions for local ground, permit, tax and currency risks.
- Liquidated damages are recoverable only as reasonable compensation up to the stated amount, so the damages schedule must be defensible.
- Public projects must also comply with the Public Procurement Act 2006 and the Public Procurement Rules 2025, which replaced the 2008 Rules.
- The special power-sector law of 2010 was repealed in 2024, so energy EPC contracts now follow ordinary procurement rules.
Under the Invest Bangladesh Act 2026, effective 23 August 2026, the Bangladesh Investment Development Authority (BIDA), the Bangladesh Economic Zones Authority (BEZA) and the PPP Authority were merged into a single body, Invest Bangladesh. References below to BIDA, BEZA or the PPP Authority should be read as references to Invest Bangladesh. BEPZA continues as a separate authority.
What an EPC contract in Bangladesh actually is
EPC stands for engineering, procurement and construction. Under an EPC contract in Bangladesh, a single contractor designs the works, procures equipment and materials, builds the facility, tests it and hands it over ready to operate. The employer pays a lump sum, often in milestones, and in return gets one party to hold responsible for the whole result.
The EPC contract in Bangladesh is used for power plants, solar parks, LNG and gas facilities, factories in economic zones, water treatment plants and many transport projects. It is attractive to lenders because cost and completion risk sit with a contractor whose obligations are backed by bonds and guarantees.
Turnkey compared with other models
In a traditional build-only contract, the employer designs and the contractor builds to that design. In a design-build contract, the contractor designs to the employer's requirements but an engineer still administers the contract. A full turnkey EPC contract goes furthest, moving almost all design, interface and site risk onto the contractor in exchange for a higher price.
The legal framework for an EPC contract in Bangladesh
There is no dedicated construction or EPC statute in Bangladesh. An EPC contract in Bangladesh is a commercial contract and is governed primarily by general law.
| Law | Relevance to EPC projects |
|---|---|
| Contract Act 1872 | Formation, performance, damages, penalties and liquidated damages, guarantees and indemnities |
| Specific Relief Act 1877 | Injunctions and specific performance, for example to restrain calls on bonds in narrow cases |
| Arbitration Act 2001 | Domestic and international arbitration, interim measures and enforcement of foreign awards |
| Public Procurement Act 2006 and Public Procurement Rules 2025 | Mandatory procurement rules for government and statutory employers |
| Bangladesh Public-Private Partnership Act 2015 | Framework for PPP projects in which an EPC contract sits beneath a concession |
| Income Tax Act 2023 and VAT and Supplementary Duty Act 2012 | Withholding tax, VAT deduction at source and contractor tax registration |
| Bangladesh National Building Code and Environment Conservation Act 1995 | Technical standards, building approvals and environmental clearance |
Public procurement reforms
Where the employer under an EPC contract in Bangladesh is a ministry, agency, state-owned company or statutory body, the procurement process is regulated. The Public Procurement Act 2006 was amended by ordinance in May 2025, and the Public Procurement Rules 2025 replaced the 2008 Rules from 28 September 2025. Reported changes include mandatory e-GP, beneficial ownership disclosure, mandatory price adjustment for longer works contracts, a debarment review board and rules on significantly low-priced tenders. An amending Act was also reported to have been passed in 2026, so check the current consolidated text.
The end of the special power law
For more than a decade, many power and energy projects were procured under the Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act 2010, which allowed negotiated awards. That Act was repealed by ordinance in late 2024. New energy EPC contracts should therefore assume ordinary procurement rules apply, and existing contracts awarded under the old law may face review.
Turnkey risk allocation in an EPC contract in Bangladesh
The value of a turnkey structure lies in clear risk allocation. Each risk should sit with the party best able to control it or price it. In an EPC contract in Bangladesh, the following risks deserve particular attention because local conditions differ from those assumed in international forms.
Ground and site conditions
Much of Bangladesh is deltaic, with soft soils, high groundwater and flood exposure. Under a pure Silver Book approach the contractor takes unforeseeable ground risk. Contractors will price that heavily or refuse it. A common compromise is to give the contractor a reference geotechnical report and share risk for conditions materially worse than the baseline.
Permits and approvals
Environmental clearance from the Department of Environment, building and land-use approvals, utility connections and import permits often take longer than planned. The contract should list which party obtains each permit, what happens if a permit is delayed by authorities, and whether the contractor gets time, money or both.
Land and access
Land acquisition, resettlement and access roads are almost always the employer's responsibility. Delay in handing over the site is one of the most frequent causes of claims. Phased access dates, with clear consequences for late handover, reduce that risk.
Currency and import risk
Much of the equipment supplied under an EPC contract in Bangladesh is imported. Exchange rate movements, letter of credit availability and customs delays can all affect cost and time. The contract should say which currency each payment is made in, how foreign exchange shortages are treated and who bears changes in customs duty.
Lenders review the risk matrix before anything else. If the EPC contract leaves major risks with the project company without a back-to-back mechanism, expect lenders to require changes or extra sponsor support. Agree the matrix early, before price negotiations harden.
FIDIC adaptations for an EPC contract in Bangladesh
FIDIC forms are the most common starting point for an EPC contract in Bangladesh, especially on donor-funded and internationally financed projects. The 2017 second editions introduced more detailed claims procedures and a standing Dispute Avoidance/Adjudication Board. Choosing the right book and drafting good particular conditions matters more than the form itself.
| FIDIC form | Who designs | Contract administration | Typical Bangladesh use |
|---|---|---|---|
| Silver Book (EPC/Turnkey) | Contractor | Employer's representative | Privately financed power, process plants, factories |
| Yellow Book (Plant and Design-Build) | Contractor | Independent Engineer | Public utility plants, substations, treatment works |
| Red Book (Construction) | Employer | Independent Engineer | Roads, bridges and civil works designed by the employer |
| MDB Harmonised Edition | Employer | Independent Engineer | Projects funded by multilateral development banks |
Adaptations we commonly make
- Choose the book carefully. Use the Silver Book only where the contractor has enough time and information to accept design and site risk; otherwise the Yellow Book is often better value.
- Fix law, language and precedence. State Bangladeshi governing law where the employer requires it, confirm English as the ruling language and set a clear order of precedence for documents.
- Rewrite local risks. Adjust ground conditions, permits, floods, hartals and site access clauses to reflect Bangladeshi conditions.
- Align delay damages. Calculate liquidated damages from a genuine pre-estimate of loss and set caps that survive scrutiny under the Contract Act 1872.
- Build in tax and change in law. Address withholding tax, VAT at source, customs duty and changes in tax law, including how price adjustment applies.
- Make disputes enforceable. Keep the DAAB, but make sure the arbitration clause names a seat, rules and institution, and works with the Arbitration Act 2001.
- Check security and insurance. Align performance and advance payment guarantees, insurances and lender step-in rights with the financing documents.
Liquidated damages, caps and performance guarantees
Delay damages and performance damages are the commercial heart of an EPC contract in Bangladesh. They give the employer a predictable remedy without proving actual loss, and they give the contractor a known maximum exposure.
Bangladeshi law, like the Indian law from which it derives, does not draw the English distinction between penalties and liquidated damages in the same way. Under the Contract Act 1872, where a contract names a sum payable on breach, the innocent party may recover reasonable compensation not exceeding that sum. Courts may therefore reduce a figure they find excessive, which is why the calculation behind the rate should be documented.
Performance tests
For plant, an EPC contract in Bangladesh should define performance tests, guaranteed output, efficiency or heat rate, and the damages for shortfall. A minimum performance threshold below which the employer may reject the plant is essential.
Overall caps
Contractors expect an overall cap on liability, commonly linked to the contract price, with exclusions for fraud, wilful misconduct and certain indemnities. Employers should check that the cap does not make delay damages illusory.
Payment, bonds and security
EPC projects usually combine milestone payments with retention, an advance payment and bank guarantees. In an EPC contract in Bangladesh, three practical points come up repeatedly.
- Bank guarantees. Performance and advance payment guarantees are typically issued or confirmed by a scheduled bank in Bangladesh. Courts are generally reluctant to restrain calls on unconditional guarantees except in cases of established fraud or special equities.
- Foreign currency payments. Payments to foreign contractors must follow foreign exchange regulations and Bangladesh Bank rules, so the payment mechanism should be checked with the employer's bank before signing.
- Stamp duty. Contracts and guarantees may attract stamp duty under the Stamp Act 1899. Rates change through Finance Acts, so confirm the current schedule.
Tax and regulatory points for foreign EPC contractors
Foreign contractors often underestimate the tax side of an EPC contract in Bangladesh. Payments to contractors are generally subject to income tax withholding under the Income Tax Act 2023 and VAT deduction at source under the VAT and Supplementary Duty Act 2012. Rates vary by type of payment and change in each Finance Act, so take current advice from a tax adviser.
Splitting a contract into offshore supply and onshore services is common, but the split must reflect real commercial substance and be supported by proper documentation. A foreign contractor carrying on site work will usually need a local presence, such as a branch or project office permitted by BIDA, plus tax and VAT registration. Expatriate staff need work permits and visas.
For a broader view of the sector, see our infrastructure and energy practice.
Variations, claims and time extensions
Most EPC disputes start as claims for time or money. The 2017 FIDIC forms set strict notice periods and treat late notice as fatal to some claims unless excused. Bangladeshi courts and tribunals will generally give effect to clear time bars, so contractors must build a claims discipline from day one.
Good practice under an EPC contract in Bangladesh includes a contemporaneous records system, monthly progress reports that flag risk events, and a variation procedure requiring written instructions before work proceeds. Employers benefit from the same discipline, because a well-documented record is the best defence to an inflated claim.
Site teams often agree changes informally in meetings. Without a written instruction and agreed valuation, those changes become disputes at completion. Insist that minutes recording changes are followed by a formal variation order.
Force majeure, exceptional events and change in law
The 2017 FIDIC forms replaced force majeure with exceptional events, but the idea is the same: events beyond either party's control that prevent performance. For an EPC contract in Bangladesh, the list needs local thought. Severe floods and cyclones, nationwide shutdowns, political unrest, port congestion and sudden import restrictions have all disrupted projects in recent years.
Decide which events give time only and which give time and money. Contractors usually get extra time for exceptional events, but extra cost is often limited to events within the employer's sphere, such as acts of government. A long-stop period after which either party may terminate, with a clear payment formula, avoids deadlock if an event drags on.
Change in law
Bangladesh has seen frequent changes in tax, customs and regulatory law, including many ordinances since 2024. A change-in-law clause in an EPC contract in Bangladesh should define what counts as law, fix a base date, and say how cost increases and savings are shared. Under the Public Procurement Rules 2025, tax-change adjustments are designed to keep the contractor's net receipts unchanged on public contracts, which private employers may choose to mirror.
Completion, taking over and defects liability
Completion is where money and risk change hands. The employer takes over the facility, delay damages stop running, retention may be partly released and insurance responsibility often passes. Getting the completion definition right in an EPC contract in Bangladesh prevents expensive arguments at the end of the project.
- Tests on completion. Define the tests, who witnesses them, how failures are retested and when the employer may take over despite minor defects.
- Punch lists. Allow taking over with a punch list of minor items that do not affect safe operation, with a deadline for completing them.
- Defects notification period. Set the period, commonly one or two years for plant, with extensions for repaired parts.
- Documentation. Require as-built drawings, operating manuals, spare parts and training before final payment.
Where the plant will be run by the contractor or an affiliate under an operation and maintenance agreement, align the EPC defects regime with the O&M contract so that responsibility for failures does not fall between the two documents.
Interface risk in split contracts
Some sponsors split the work into an offshore supply contract and an onshore construction contract for tax or financing reasons. That split creates interface risk. A wrap-around guarantee or coordination agreement, under which one party remains responsible for the whole result, preserves the single-point responsibility that makes turnkey contracting attractive.
Dispute resolution for an EPC contract in Bangladesh
A standing DAAB helps resolve issues during the project. If a dispute goes further, the choice of arbitration clause becomes critical. An EPC contract in Bangladesh can provide for arbitration seated in Bangladesh, often under institutional rules, or seated abroad, for example in Singapore or London, where the parties and the procurement rules permit.
Bangladesh is a party to the New York Convention, and foreign arbitral awards can be enforced through the courts under the Arbitration Act 2001. Domestic awards can be challenged on limited grounds. Our guide to the arbitration process in Bangladesh explains how proceedings run, and our construction disputes practice handles claims and arbitrations.
Public employers
Government employers often require Bangladeshi law, a domestic seat and the dispute steps set out in their standard documents. Development partner funding may permit international arbitration. Check the financing agreement and procurement documents before negotiating the clause.
Frequently asked questions about an EPC contract in Bangladesh
Is FIDIC mandatory for an EPC contract in Bangladesh?
No. FIDIC is common but not mandatory. Government employers use standard documents issued under the procurement rules, and private parties may use any form, including bespoke contracts.
Can the parties choose foreign law?
Private parties generally can, subject to mandatory Bangladeshi rules on tax, permits, labour and land. Public employers usually require Bangladeshi law.
Are liquidated damages enforceable?
Yes, as reasonable compensation up to the stated amount under the Contract Act 1872. Document how the rate was calculated so it can be defended.
Which procurement rules apply to government EPC projects?
The Public Procurement Act 2006 as amended and the Public Procurement Rules 2025, which replaced the 2008 Rules in September 2025. Donor-funded projects may follow the funder's guidelines.
Can a foreign award against a Bangladeshi employer be enforced?
Generally yes. Bangladesh is a New York Convention state, and foreign awards are enforced through the courts under the Arbitration Act 2001, subject to limited defences.
How we can help
We draft, negotiate and review EPC, design-build and O&M contracts for employers, contractors and lenders, adapting FIDIC and bespoke forms to Bangladeshi law, procurement rules and financing requirements. We also advise on claims and disputes as projects progress. Learn more about our EPC and O&M contracts practice.
Negotiating an EPC contract?
We review risk allocation, FIDIC particular conditions, damages and dispute clauses against Bangladeshi law and your lenders' requirements.
Book a consultationEPC and O&M practicePrimary sources: the Contract Act 1872, Arbitration Act 2001 and Public Procurement Act 2006 on the Laws of Bangladesh portal; the e-GP system at eprocure.gov.bd; contract forms from FIDIC.
This article is general information about Bangladeshi law as of 2026 and is not legal advice. Procurement rules, tax rates and procedures change; confirm current requirements with a qualified lawyer before acting.
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