EPC & EPCM contracting

Engineering, Procurement and Construction(turnkey) contracting

Under an EPC contract, the EPC contractor develops the project from its inception to final completion. The principal provides the EPC contractor with technical and functional specifications for the project, and the EPC contractor subsequently designs, builds and delivers the project in an operational state so that it can be operated at the 'turn of a key.' This is why EPC contracts are often referred to as 'turnkey' contracts.

Engineering, Procurement and Construction(turnkey) contracting cont’d

EPC contracts are almost always 'lump sum', where the EPC contractor is limited to receiving a fixed price irrespective of the actual cost of performing the work. The EPC contractor generally bears the risk of any cost overruns and also benefits from any savings that can be made. Additionally, the EPC contractor usually provides a performance guarantee (subject to agreed liability caps).

Engineering, Procurement and Construction Management contracting

By contrast, an EPCM contract is a sophisticated project management or agency arrangement where the EPCM contractor: • Is responsible for the detailed engineering and design for the project • Manages the project as the principal's agent or representative, including

providing programming and strategic management services, and • Is typically responsible for breaking down the procurement and

construction work into packages, managing their tender, overseeing the principal's entry into the trade/supply contracts and managing those trade/supply contracts for the principal to ensure completion of the project.

Engineering, Procurement and Construction Management contracting cont’d

Unlike EPC contracts, EPCM contracts are almost always 'cost plus' (or 'cost-reimbursable'). The principal pays the subcontractors directly for materials, equipment and on-site works, and only pays the EPCM contractor its actual direct costs (mostly labour) for performing engineering and supervisory services, plus an agreed margin. The margin charged by EPCM contractors varies depending on the risk assumed (which is usually low), the size of the project (small projects usually have higher margins) and supply/demand position in the economy.

Synthos Kralupy, Czech RepublicPolybutadien Production Facility

EPCM

EPCM is a common form of contracting arrangement for very large projects within the infrastructure, mining, resources and energy industries.

In an EPCM arrangement, the client selects a head contractor who manages the whole project on behalf of the client.

The EPCM contractor coordinates all design, procurement and construction work and ensures that the whole project is completed as required and in time.

The EPCM contractor may or may not undertake actual site work.

EPCM

An EPCM contract is a natural progression for an EPC contractor as, if one is able to do an EPC of a project, then getting a bigger EPCM job is advantageous.

It helps to tap the already present competencies while ensuring better control over the project.

Also, the value of the project managed through an EPCM contract is far greater than the individual EPC contracts.

EPCM

Normally, an EPCM contractor completes the basic work such as site surveys, getting clearances from authorities, doing the basic engineering and preparing the site for the subcontractors.

Subcontractors are chosen by the EPCM company, but they have an agreement directly with the final customer.

So what's in an 'M'?

…so what is the fundamental difference between EPC and EPCM? The 'Construction Management' component of the project delivery method means that the EPCM contractor does not perform construction work and does not usually take full responsibility for delivering the completed project, he is mainly responsible for administering the construction contracts.As with any project delivery method, deciding whether an EPCM contract is appropriate for your project can be a complex process, and requires a rigorous analysis of project objectives, constraints and key risks to address suitability on a transaction-specific basis.

EPC vs EPCM

RECAP

APPENDIX: EPC vs EPCM: Comparison of individual tasks / issues