EPC / EPCM standards

PROJECT TYPES
EPC Engineering, Procurement and Construction
EPCM Engineering, Procurement and Construction Management

Determining the correct form of construction contract to pursue can have a great effect on the cost and risk associated with the construction project. The cost of construction varies inversely with the amount of business risk the “owner / financers” are willing to accept. The less business risk the owner wishes to assume, the higher the cost of construction and management. This follows the “risk-reward” motto for business.

The two most common types of construction contracts are EPC “turn-key” and EPCM. Each of these methods have variations that can be adapted to each project as needed, for example EPCC Engineering, Procurement, Construction, and Commissioning, etc.

EPC (Engineering, Procurement and Construction): means the company is contracted to provide engineering, procurement and construction services by the owner. The project is largely Contractor managed and the cost risk and control are weighted towards the Contractor and away from the Owner. The EPC contractor has direct contracts with the construction contractors.

If EPC contractor has the necessary experience, personnel, engineering expertise and construction equipment, it can implement project without involving contractors. These companies are called full service EPC contractors. ZAVKOM is full service EPC contractor.

EPCF (Engineering, Procurement, Construction and Financing): means the company is contracted to provide engineering, procurement and construction services by the owner and will finance the project from own sources.

EPCM (Engineering, Procurement and Construction Management): means the company is contracted to provide engineering, procurement and construction management services. Other companies are contracted by the Owner directly to provide construction services and they are usually managed by the EPCM contractor on the Owner’s behalf. The project is largely Owner managed and the cost risk and control is weighted towards the Owner.

EPC and EPCM contracting are both very prevalent types of contracts within the construction industry. Dependent on the level of risk the Owner of a project is willing to accept, budget constraints, and the Owner’s organization core competencies, will determine which method is best for their project.

EPC Advantages:

  • Minimal Financial and Legal Risks
  • One Stop Shopping “One point of Contact”
  • “Hands off” approach to project
  • Minimal Staffing Requirements

EPCM Advantages:

  • 5-10 % Lower Overall Cost
  • Staff’s Sense of Ownership
  • More Control over Process
  • Owner’s Financing Flexibility

Each company must decide for themselves, with the advice of legal and financial counsels, as to which method of construction contracting is best for their particular project and situation. Included is a simplified chart showing the differences in the type of contracts and how each would differ under the same situations.

Task / Issue

EPC

EPCM

License/technology supply and basic engineering

Negotiated & Signed  between EPC contractor & Supplier

Negotiated & signed between Owner and Supplier / with EPCM contractor’s advise and assistance

Equipment Supply Contracts

Negotiated & Signed  between EPC contractor & Supplier

Negotiated & signed between Owner and Supplier / with EPCM contractor’s advise and assistance

On-Site Construction Contracts

Negotiated & Signed between EPC contractor & Supplier

Negotiated & signed between Owner and Contractor / with EPCM contractor’s advise and assistance

Supplier Selection

Suppliers chosen by EPC contractor

Suppliers chosen by mutual agreement of Owner and EPCM contractor

Scope of Supply

EPC Contract follow  the original project specifications presented during bidding process.

Owners can modify project specifications. Owner, with the assistance of the EPCM contractor can negotiate independent contracts with suppliers / vendors at any time due to the fact that project is under multiple (independent) contracts and not one all encompassing contract

Equipment Supply Warranties

Warranty to Owner from EPC contractor is negotiated separately between Owner and EPC Contractor and issued to Owner by EPC Contractor Warranties negotiated by Suppliers & EPC contractor and issued to EPC Contractor directly.

Warranties negotiated individually with each supplier by Owner with EPCM contractor’s advice. Warranties issued directly to Owner from the suppliers and contractors

Process Warranties

Warranty to Owner from EPC contractor is negotiated between Owner and EPC Contractor and issued to Owner by EPC Contractor. Warranties negotiated by Suppliers & EPC contractor and issued to EPC Contractor directly

Warranties negotiated individually with each supplier by Owner with EPCM contractor’s advice. Issued directly to Owner from the suppliers and contractors

Construction Site Safety
(General Liability Insurance, Workman’s Compensation, Accident, etc.)

Site Safety solely the responsibility of the EPC contractor and sub contractors; in accordance with Contractual Agreements

Site safety is monitored by EPCM contractor but site safety is the legal responsibility of Owner and Sub Contractors; in accordance with Contractual Agreements

Permitting (Environmental, Construction, etc.)

Permitting is the responsibility of the EPC contractor with the exception of permits that are required by law to be issued in the name of the Owner of the project.

Permits are issued to the Owner directly with EPCM contractor assisting in filing the necessary paperwork.

Project Budget Cost Overruns

The cost risks for a project are borne by the EPC contractor. Any cost overruns, for equipment and/or services within the EPC contractor’s scope of supply, are for their own account and can not be passed onto Owner unless “change conditions” occur or contractual agreements to the contrary.

The cost risks for a project are borne by the Owner. Any cost overruns, for equipment and/or services are for the Owner account.

Project Financing

Project Financing is usually accomplished by substantial down payment by Owner to EPC contractor and the remainder of the fees issued with Irrevocable Letter of Credit (with partial payments) from Owner to EPC Contractor.

Project Financing can be any combination of down payments, open accounts, and Irrevocable Letters of Credit from Owner to suppliers / contractors; whatever method is negotiated during contract negotiations. EPCM contractor will assist in all negotiations on Owner’s behalf. This allows Owner to have partial financing in place at the onset of the Project with the remainder available as needed, dependant on contractual requirements.

Legal Cost

Legal Costs are low for Owner. Owner negotiates only one detailed supply contract with EPC contractor.
EPC contractor must negotiate individual contracts with suppliers / vendors. EPC contractor’s legal costs are high due to multiple contracts.
In the event of legal action is taken, Owner must sue EPC contractor, who in turn must bring legal action against appropriate suppliers / contractors. 

Legal Costs are higher for Owner. Owner negotiates multiple supply contracts directly with suppliers / contractor; with the assistance of EPCM contractor.
In the event of legal action is taken, Owner must bring legal action against individual suppliers / contractors.

Administration

Owner’s administration costs are low with EPC contract. Only minimal staff (project manager, legal, etc.) needed to administer/monitor project.

Owner’s administration costs are higher with EPCM contracts. Substantial staffing levels needed to assist / compliment EPCM contractor in administering/monitoring project. 

ЗАДАТЬ ВОПРОС
×

ЗАДАТЬ ВОПРОС

СПАСИБО!

Мы свяжемся с Вами
в ближайшее время