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   Home > Engineering, Procurement and Construction (EPC)

Engineering, Procurement and Construction (EPC)     Print

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, away from the Owner. The EPC contractor has direct contracts with the construction contractors.
 
Dependent on the level of risk the Owner of a project is willing to accept, budget constraints, and the Owner’s organisation core competencies, will determine which method between EPC and EPCM is best for their project.
 
On average, a project’s cost 10% - 20% more using EPC style of contracting than a project using the EPCM style of contracting.  This is due in large part to the project’s risk being more evenly distributed between the Owner and contracts / suppliers.
 
The EPC advantages are :
  • One Stop Shopping “One point of Contact”
  • “Hands off” approach to project
  • Minimal Staffing Requirements
  • Minimal Legal Risk
  • Best for Well defined projects with Detailed Engineering Complete before EPC Contractor selected (Minimal Unknowns).

Task EPC (Engineering, Procurement and Construction)
EPCM (Engineering, Procurement and Construction Management)
Equipment supply contracts Negotiated and signed solely between EPC contractor and supplier Negotiated and signed between Owner and Supplier with EPCM contractor's advise and assistance
On-Site construction contracts
Negotiated and signed solely between EPC contractor and supplier Negotiated and signed between Owner and Supplier with EPCM contractor's advise and assistance
Supplier selection
Suppliers chosen solely by EPC contractor with no input from owner
Suppliers choosen by mutual agreement of Owner and EPCM Contractor
Scope of supply
EPC Contract only as good as the original project specifications presented during bidding process. Changes to specifications or scope of supply after awarding of contract can be expensive, due to EPC contractor’s sole contract with Owner and Owner’s inability to “Shop Around” for multiple quotations from independent contractors / suppliers Owners can modify project specifications with little or no trouble. Owner, with the assistance of the EPCM contractor can negotiate independent contracts with suppliers or vendors at any time due to the fact that project is under multiple (independent) contracts and not one all encompassing contract.
Equipment supply warranties Warranties negotiated by Suppliers and EPC contractor and issued to EPC Contractor directly. Warranty to Owner from EPC contractor is negotiated separately between Owner and EPC Contractor and issued to Owner by EPC Contractor Warranties negotiated individually with each supplier by Owner with EPCM contractor’s advice. Warranties are issued directly to Owner from the suppliers and contractors.
Process warranties
Warranties negotiated by Suppliers & EPC contractor and issued to EPC Contractor directly.
Warranty to Owner from EPC contractor is negotiated separately between Owner and EPC Contractor and issued to Owner by EPC Contractor (usually in the form of a performance Bond)
Warranties negotiated individually with each supplier by Owner with EPCM contractor’s advice.  Issued directly to Owner from the suppliers and contractors (usually in the form of a Performance Bond)
Construction site safety 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
 Permtting
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 (with the exception of fixed price supply contracts) i.e. Final equipment pricing bids / on site cost higher than originally budgeted.
Project Budget Cost Savings The cost risks for a project are borne by the EPC contractor. Any cost savings, for equipment and/or services within the EPC contractor’s scope of supply, are for their own account and are not passed onto Owner unless contractual agreements to the contrary. The cost risks for a project are borne by the Owner. Any cost savings, for equipment and/or services are for the Owner account ie. Equipment/Services bids are returned lower than budgeted.
Project Day-to-Day Expenses
The day-to-day expenses for the project, within the EPC contractor’s scope of supply are borne by the EPC contractor.
The day-to-day expenses for the project are borne by the Owner but are managed and administered by the EPCM contractor (up to pre-determined quantities, without Owner’s need for intervention).  Usually a small fund is established by Owner for day-to-day expenses.
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.  This requires Owner to have all financing in place at the onset of the Project so as to secure letter of credit (LC)
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. (Usually a longer process than EPCM legal actions)
 
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. (Usually a shorter process than EPC legal actions)
Administration
Owner’s administration costs are low with EPC contract.  Only minimal staff (management, QC, legal, etc.) needed to administer/monitor project.  May have negative effect on project “ownership” feeling within Owner’s organization (Hands off).
Owner’s administration costs are higher with EPCM contracts. Substantial staffing levels needed to assist/compliment EPCM contractor in administering/monitoring project.  Promotes “ownership” feeling within Owner’s organization.


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