Contractual models for project implementation

The choice of project implementation model can have a significant impact on the level of costs and risks associated with the construction of large facilities. Construction costs vary in proportion to the risk that the customer is willing to take on. The lower the level of commercial risk that the owner is willing to face, the higher the cost of construction and project management.

To date, there are three main approaches that are used in the design and construction of new facilities:

  1. entering into contracts with a variety of individual contractors and managing them with their own internal division — what is often called "multilot";
  2. construction of the facility based on the EPC agreement;
  3. construction of the facility based on the EPC(M) agreement and direct contracts with individual contractors.

In the "multilot" scheme, the customer directly builds relationships with each contractor (design, construction and installation works, deliveries, commissioning), enters into a contract with each individual, controls execution, and bears all risks. Each contractor is responsible only for its part of the work, there is no single person who would be responsible for the production indicators and deadlines for commissioning the entire object. It is important to understand that violation of the terms one of the contractors, (for example, a designer produces untimely documentation) gives the right rest the affected contractors to claim extensions of time to fulfil their part of works and reimbursement associated with such renewal costs.

EPC is engineering, procurement, construction and is a so — called "full cycle" contract - the contractor is responsible for the design, procurement, construction, commissioning and start-up of the facility. An EPC contract is often used in cases where the customer does not have its own service capable of managing the construction project, does not want to interfere in such management and assumes the corresponding risks.

EPC (M) is Engineering Procurement Construction Management.

EPC (M) is a contractual solution that, from the point of view of risk distribution, lies in the middle between the multilot and EPC contract models.

An EPCM contract is defined as a structure where the EPC (M) contractor, on its own or through a subsidiary, performs design, independently contracts equipment and materials, and manages construction and installation work, i.e. it does not hire construction and installation contractors on its own behalf, but manages the contractors hired by the customer on behalf of the customer.

In the EPC and EPC(M) models, it is often possible to reduce the construction time due to the fact that the contractor can develop and issue project and work documentation in parallel with the procurement of materials and equipment. For example, EPC, EPC(M) contractors may not have to wait for the development and approval of all project documentation in order to start сontracting long-cycle equipment.

One of the advantages of an EPCM contract compared to the EPC model is that a tender for selecting an EPCM contractor can be prepared and conducted significantly faster than a tender for awarding an EPC contract. The fact is that in the first case, the customer needs less certainty about the scope of work, delivery boundaries, and risks; and the contractor only needs to prepare a price quotation for time rates, overhead costs, and its own profit.

ZAVKOM-ENGINEERING offers project implementation services as an EPC (M) contractor, and is responsible for the timing, quality, and process performance of the facility.

ZAVKOM-ENGINEERING relies on many years of experience in the design, delivery, installation and commissioning of various process equipment and guarantees its customers professional management at all stages of project implementation.