What Are Engineering, Procurement & Construction Contracts Used For?
A multitude of companies within the renewable energy industry and power sector frequently use Engineering, Procurement and Construction Contracts (EPC) for difficult projects. The contract outlines the relationship between the owner and contractor for the provision of professional or technical services.
An EPC contract sets out the owner to enter into a contract with the EPC contractor. The EPC contractor will go into several subcontracts with subcontractors for the performance of specified portions of work. They are responsible for the engineering services and procurement of equipment, design and construction. EPC contracts allow project owners to effectively manage risk. It also allowed contractors to coordinate and specialise in the word undertaken. This type is used when the owner’s concept design requires a solution to produce ultimate functionality. Contractors have total control of the design and construction of the project under common EPC agreements.
EPC contracts are commonly referred to as turnkey construction contracts as it replicates the owner turning a key when the project is complete. Contractors must finalise pricing and a date before delivering a complete facility. Of note, any additional costs are incurred by the contractor. Contractors may incur financial liability if the project is not complete. EPC contracts and EPCM contracts are different in a number of ways. EPCM or Engineering, Procurement and Construction Management is where the contractor takes on an administrative and management role in the design and construction of the project.
What Are The Advantages And Disadvantages Of EPC Contracts?
EPC contracts allow the owner to engage with an individual contractor who then manages relationships with subcontractors. The owner has a significant benefit in overseeing the project by assessing the contractors methods and strategies carried out in the project. Contractors are also benefited as they have control over the selection of subcontractors. Although contractors are liable for a lot of the risk, they can lower construction costs through their own efficient methods.
Although owners do oversee the project, they are less involved in the process which poses a risk if the project’s design is strictly structured and important. Owners must keep a strict deadline and checklist to ensure everything is following timelines and that nothing is being overlooked.
EPC contracts pose a huge advantage to the construction industry. The contract outlines the relationship between the owner and contractor for the provision of professional or technical services. Typically most EPC contracts are at a fixed contract price, a specific date of completion and one point of responsibility.