Mechanical completion
The point in an EPC contract where the plant is built and checked cold, before commissioning. It triggers payments and the testing phase, and seldom the transfer of risk.
On an LNG terminal, a refinery or a combined cycle plant, mechanical completion is the day the contractor declares that everything is installed, connected and checked without process fluids: piping pressure tested, instrument loops checked, motors run uncoupled. A list of minor outstanding items comes with it, the punch list, to be cleared later. The EPC contract usually makes it a payment milestone and the start of commissioning, cold first, then hot once gas or steam enters the plant. The common mistake is to think risk changes hands on that date. Under most contracts, care of the works stays with the contractor until taking-over, after the performance tests. The owner may take responsibility for a system earlier when it already operates it, and the contract then has to say who answers for that system. On the insurance side, the milestone matters for the erection policy. Erection all risks covers the plant until taking-over or first commercial operation, but its testing period is capped, often in weeks of hot running, and written with a heavier deductible. A mechanical completion that slips by several months uses up the policy period; a startup that drags on uses up the testing period. Either way the insurer receives an extension request, which it prices on the real state of the site. Delay in start-up cover takes its scheduled start date from the project timetable, and mechanical completion is the first delay signal lenders see. The day risk really moves to the operational policy is taking-over.
Textbook case, in numbers. A unit is in hot testing after mechanical completion. The erection policy covers 30 days of hot testing, with a 1 million euro testing deductible. On day 20, a fire causes 9 million of damage: 9 - 1 = 8 million paid. The 120-day delay that follows, with a 45-day waiting period and 0.1 million of margin per day, gives (120 - 45) x 0.1 = 7.5 million under delay in start-up. The same fire on day 40, testing period expired with no extension and taking-over not yet issued, stays with the contractor, which still has care of the works.
MC, mechanical completion certificate, MC milestone, ready for commissioning
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