Many different terms are tossed around the construction industry loosely describing the different methodology used to design and construct new facilities and turnarounds. Unfortunately, there are no tried and true definitions for the different methods and numerous variations of each of the most popular methods.
Determining the correct form ofconstruction 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 twomost common types of construction contacts are EPC “turn-key” and EPCM. Each of these methods have variations that can be adapted to each project as needed; example (EPCC Engineering, Procurement, Construction, and Commissioning), etc.
EPC / EPCM Definition & Comparison
EPC (Engineering, Procurement and Construction): means the company is contracted to provide engineering, procurement andconstruction services by the owner. Think Design & Construct style contracts, where 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.
EPCM (Engineering, Procurement and Construction Management): means the company is contracted to provideengineering, 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. Think Professional Services contracts, where the project is largely Owner managed and the cost risk and control is weighted towards the Owner.
Included is a simplified Chartshowing the differences in the type of contracts and how each would differ under the same situations: The list below is not a complete list of differences between EPC and EPCM contracts but it does address many of the major contractual differences. The way each of these issues is handled can be modified during contract negotiations to suit the situation and overall goals of the project.
Task /Issue | EPC (Engineering, Procurement and Construction) | EPCM (Engineering, Procurement and Construction Management) |
Equipment Supply Contracts | Negotiated & Signed solely between EPC contractor & Supplier | Negotiated & signed between Owner and Supplier /with EPCM contractor’s advise and assistance |
On-Site Construction Contracts | Negotiated & Signed solely between EPC contractor &Supplier | Negotiated & signed between Owner and Contractor /with EPCM contractor’s advise and assistance |
Supplier Selection | Suppliers chosen solely by EPC contractor with no input from Owner | Suppliers chosen 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 tospecifications / 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 withsuppliers / vendors at any time due to the fact that project is under multiple (independent) contracts and not one (1) all encompassing contract |
Equipment Supply 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...