EPC EPCM

!
!" #$%& ' () * +,-./
0 %&%12* 0345 678%&39
:;<=>0?
@A#BC EPCDEFGHI6EPCMD
EF78G -JK '.LM%N BCOP EPCCD
E6GBCQ
DEFG+DEF78G!62
EPCDEFGRSTU*VWE6FX
#$*L/Y0'78Z[%&6*\.]^
EPC_EF`/Y0 /Y0ab#$
EPCMDEF78GRSTU*VWE6F7
8XTU *ab VWFX EPCMcAd*
N78#$e*Lf*78' Z[%&6
ge 22hi$j e-k lmnmop
*Lk Jqr #$st 8uCJKgvwx j
6' 'y
z+ EPC EF EPCM EF7
8
W#$ EPC/Y0 W0s6
#$
*_EPCM/Y0VW{
6|}` W0s
#$
F#$ EPC/Y0 W0s6
#$
*_EPCM/Y0VW{
6|}` /Y0s
#$
W0 EPC~*!W0\.
*
*EPCM/Y06
!W0
W EPC#$
?'#$
+W
f EPC/Y0
*lN /Y0 +
W0;2>
*Kg \y
'*EPCM
/Y0}evw
'j W0
s
W W06EPC/Y0s
abEPC/Y0
vwEPCM/Y0
* W0 s
W06/Y0ab*

/Y06* s a
b*
F *6EPC/Y0 s
EPC/Y0ab*
_cAgC`
W0+/Y0 * D
EPCM/Y0eG
s ab*
_cAgC
F
_z
F
6Q`
#$EPC/Y06
nY0oF
#$EPCM/Y
0F
*6nY0
z
K_
Q`
KfEPC/Y0h
*vw!
K
EPCM/Y0*VW
Lab
K
' EPC/Y0L/ '%
&z-6W
Jf EPC/Y0~
/ ; >
i1!*l

*/ '%&z-
6Jf*/
_W#$!
`P@+
%&9Q
' EPC/Y0L/ '%
&z-6W
J EPC/Y0
i1!
*\
*/ '%&z-
6J*
P+X4
Q
'A EPC/Y0~8'W
A
*/ 'A
EPCM/Y0786Z
_9!
*l`cA
* !A

' *cAnEPC/Y
0_n`glK
CL
*'
g
'Kgn
*nW0+/Y0
lK
x uC#$s
EPCM/Y0d*
s*'
.nNKv
w#$.
%& *
ZEPC/Y01EPC
/Y0 iW0 +/Y
0E_cA2
EPCM`
*%&9*
EPCM/Y0}eab
W0 +/Y0s
*
W0+/Y0E
_cA2EPC
`
78 EPC#$e*78%&4
. _787
8Q`78+'
;*>_l `
* K '
%)
EPCM#$e*78%
&9.L([
g#EPCM/Y078+
'*
F;*>'o%
'F
F
EPC6EPCMJA/Y#$BC*vwKb
'[~ Q @BC EPCBCe
*%&9EPC/Y0/ h(n' cAEPC BCL2
EPCM BC9EPCMBC'n
*6/Y0+W0
?/Y EPCMBCMEPCBC BC
J
EPCM
4p %&
F;*>
Z[
W
_ g(`
*
EPCMBCn
EPCBCj eL2N BCx
EPC Advantages
C
*
@4.
@
EPC/YBC@' !j e_@ `
P#BC'+* .TUh
EPC + EPCM_E+F78` % TU
EF78 TUKg KgENK
g +F78Q
t TUvw!'x j 6~@
BC
EPC / EPCM Definition & Comparison:
Many different terms are tossed around the construction industry loosely describing the different
methodology used to design and construct new facilities and turnarounds. Unfortunately, there are no tried
and true definitions for the different methods and numerous variations of each of the most popular methods.
Determining the correct form of construction contract to pursue can have a great effect on the cost and risk
associated with the construction project. The cost of construction varies inversely with the amount of
business risk the owner financers! are willing to accept. The less business risk the owner wishes to
assume, the higher the cost of construction and management. This follows the risk"reward! motto for
business.
The two most common types of construction contacts are #$% turn"key! and #$%M. #ach of these
methods have variations that can be adapted to each project as needed& e'ample (#$%% #ngineering,
$rocurement, %onstruction, and %ommissioning), etc.
Services


Projects



EPC / EPCM Definition & Comparison
EPC (Engineering, Procurement and Construction)* means the company is contracted to provide engineering, procurement
and construction services by the owner. Think Design & Construct style contracts, where the project is largely %ontractor
managed and the cost risk and control are weighted towards the %ontractor and away from the +wner. The #$% contractor
has direct contracts with the construction contractors.
EPCM (Engineering, Procurement and Construction Management): means the company is contracted to provide
engineering, procurement and construction management services. +ther companies are contracted by the +wner directly to
provide construction services and they are usually managed by the #$%M contractor on the +wner,s
behalf. Think Professional Services contracts, where the project is largely +wner managed and the cost risk and control is
weighted towards the +wner.
-ncluded is a simplified %hart showing 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 #$% and #$%M 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.
Tas / !ssue
EPC (Engineering, Procurement and
Construction)
EPCM (Engineering, Procurement and
Construction Management)
#.uipment /upply
%ontracts
0egotiated 1 /igned solely
between #$% contractor 1 /upplier
0egotiated 1 signed between +wner and
/upplier with #$%M contractor2s advise and
assistance
+n"/ite %onstruction
%ontracts
0egotiated 1 /igned solely
between #$% contractor 1 /upplier
0egotiated 1 signed between +wner
and %ontractor with #$%M contractor2s
advise and assistance
/upplier /election
/uppliers chosen solely by #$%
contractor with no input from +wner
/uppliers chosen by mutual agreement of
+wner and #$%M contractor
/cope of /upply
#$% %ontract only as good as the
original project specifications presented
during bidding process. %hanges to
specifications scope of supply after
awarding of contract can be e'pensive,
due to #$% contractor2s sole contract
with +wner and +wner2s inability to
/hop 3round! for multiple .uotations
from independent contractors suppliers
+wners can modify project specifications
with little or no trouble. +wner, with the
assistance of the #$%M contractor can
negotiate independent contracts with
suppliers vendors at any time due to the
fact that project is under multiple
(independent) contracts and not one (4) all
encompassing contract
#.uipment /upply
5arranties
5arranties negotiated by /uppliers 1
#$% contractor and issued to #$%
%ontractor directly.
5arranty to +wner from #$% contractor
is negotiated separately between +wner
and #$% %ontractor and issued to
+wner by #$% %ontractor
5arranties negotiated individually with each
supplier by +wner with #$%M contractor2s
advice. -ssued directly to +wner from the
suppliers and contractors
$rocess 5arranties
5arranties negotiated by /uppliers 1
#$% contractor and issued to #$%
%ontractor directly.
5arranty to +wner from #$% contractor
is negotiated separately between +wner
and #$% %ontractor and issued to
+wner by #$% %ontractor (Usually in
the form of a performance 6ond)
5arranties negotiated individually with each
supplier by +wner with #$%M contractor2s
advice. -ssued directly to +wner from the
suppliers and contractors (Usually in the
form of a $erformance 6ond)
%onstruction /ite
/afety
(7eneral 8iability
-nsurance,
5orkman2s
%ompensation,
3ccident, etc.)
/ite /afety solely the responsibility of
the #$% contractor and sub contractors&
in accordance with %ontractual
3greements
/ite safety is monitored by #$%M contractor
but site safety is the legal responsibility of
+wner and /ub %ontractors& in accordance
with %ontractual 3greements
$ermitting
(#nvironmental,
%onstruction, etc.)
$ermitting is the responsibility of the
#$% contractor with the e'ception of
permits that are re.uired by law to be
issued in the name of the +wner of the
project
$ermits are issued to the +wner directly with
#$%M contractor assisting in filing the
necessary paperwork
$roject 6udget %ost
+verruns
The cost risks for a project are borne by
the #$% contractor. 3ny cost overruns,
for e.uipment andor services within the
#$% contractor2s scope of supply, are
for their own account and can not be
passed onto +wner unless change
conditions! occur or contractual
agreements to the contrary
The cost risks for a project are borne by the
+wner. 3ny cost overruns, for e.uipment
andor services are for the +wner account
(with the e'ception of fi'ed price supply
contracts) i.e. 9inal e.uipment pricing bids
on site cost higher than originally budgeted.
$roject 6udget %ost The cost risks for a project are borne by The cost risks for a project are borne by the
/avings
the #$% contractor. 3ny cost savings,
for e.uipment andor services within the
#$% contractor2s scope of supply, are
for their own account and are not
passed onto +wner unless contractual
agreements to the contrary
+wner. 3ny cost savings, for e.uipment
andor services are for the +wner account ie.
#.uipment/ervices bids are returned lower
than budgeted.
$roject Day"to"Day
#'penses
The day"to"day e'penses for the project,
within the #$% contractor2s scope of
supply are borne by the #$% contractor.
The day"to"day e'penses for the project are
borne by the +wner but are managed and
administered by the #$%M contractor (up to
pre"determined .uantities, without +wner2s
need for intervention). Usually a small fund
is established by +wner for day"to"day
e'penses
$roject 9inancing
$roject 9inancing is usually
accomplished by substantial down
payment by +wner to #$% contractor
and the remainder of the fees issued
with -rrevocable 8etter of %redit (with
partial payments) from +wner to #$%
%ontractor. This requires Owner to
have all financing in place at the onset
of the Project so as to secure letter of
credit (LC)
$roject 9inancing can be any combination of
down payments, open accounts, and
-rrevocable 8etters of %redit from +wner to
suppliers contractors& whatever method is
negotiated during contract
negotiations. #$%M contractor will assist in
all negotiations on +wner2s behalf. This
allows Owner to have partial financing in
place at the onset of the Project with the
re!ainder availa"le as needed# dependant
on contractual require!ents
8egal %ost
8egal %osts are low for +wner. +wner
negotiates only one detailed supply
contract with #$% contractor.
#$% contractor must negotiate
individual contracts with suppliers
vendors. #$% contractor2s legal costs
are high due to multiple contracts.
-n the event of legal action is taken,
+wner must sue #$% contractor, who in
turn must bring legal action against
appropriate suppliers contractors.
($suall% a longer process than &PC'
legal actions)
8egal %osts are higher for +wner. +wner
negotiates multiple supply contracts directly
with suppliers contractor& with the
assistance of #$%M contractor.
-n the event of legal action is taken, +wner
must bring legal action against individual
suppliers contractors. ($suall% a shorter
process than &PC legal actions)
3dministration
+wner2s administration costs are low
with #$% contract. +nly minimal staff
(management, :%, legal, etc.) needed
to administermonitor project. 'a% have
negative effect on project (ownership)
feeling within Owner*s organi+ation
(,ands off)
+wner2s administration costs are higher with
#$%M contracts. /ubstantial staffing levels
needed to assistcompliment #$%M
contractor in administeringmonitoring
project. Pro!otes (ownership) feeling within
Owner*s organi+ation Project staff often
transferred to operational staff after project
co!pletion
#$% and #$%M contracting are both very prevalent types of contracts within the construction industry. Dependent on the level
of risk the +wner of a project is willing to accept, budget constraints, and the +wner2s organi;ation core competencies, will
determine which method is best for their project.
#$% contracting tends to be more e'pensive, to the +wner, due to the shift of project risk away from the +wner and to the #$%
%ontractor. "n average, a project#s cost $%& ' (%& more using EPC st)*e of contracting t+an a project using t+e EPCM
st)*e of contracting, This is due in large part to the project2s risk being more evenly distributed between the +wner and
contracts suppliers.
%onstruction contracting trends have been leaning towards the #$%M style of contracting and away from #$% contracting for
several reasons but both methods have their place in business today.
EPCM -dvantages:
8ower +verall %ost
/taff2s /ense of +wnership
More %ontrol over $rocess
6etter for less defined projects with anticipated changes to scope of supply
8ess 8egal 8itigation (-dentify issues early and remedy situation before larger problems arise)
+wner2s 9inancing 9le'ibility
These are just a few of the advantages of #$%M style of construction contracting.
#$% contracting has it place in the construction industry as well. Under certain situations, it makes better sense to use this type
of construction contracting than other methods.
EPC -dvantages:
+ne /top /hopping +ne point of %ontact!
<ands off! approach to project
Minimal /taffing =e.uirements
Minimal 8egal =isk
6est for 5ell defined projects with Detailed #ngineering %omplete before #$% %ontractor selected (Minimal Unknowns).
3s stated before, these construction contract methods can be tailored to the individual projects owner2s needs. /ome
companies can go as far as breaking up each portion of the #$% #$%M (#ngineering, $rocurement, %onstruction
%onstruction Management) to separate companies. +ne company can do the engineering& another can do the procurement,
while still another can do the construction project management).
#ach 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.