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EPC v EPCM Contracting- A Comparison
- 1. EPC -v- EPCM Contract & Procurement Optimisation 501 Group Assessment Tamahra Moore and Helen Sarcich
- 2. What is an EPC Contract? EPC: Engineering, Procurement, Construction “Turnkey” contracts: delivery of a completed project from design; Contractor is responsible for Design, Procurement, Construction and Commissioning of a project; Typically associated with developing an operating facility (ie: power station) Contract contains performance standards the completed facility is required to achieve. (Loots 2007:3-5 and Cullen and Higgins 2011:2-5)
- 3. Services Performed Under EPC Engineering Detailed engineering and design; Programming and scheduling works; Cost estimating for all areas of the project. Procurement Tenders / quoting for all sub-packages of works involved; Purchasing, receipting and invoicing of goods; Potential coordination of any sub-contracts involved for services. Construction Adherence to construction schedule; Performance (directly or through sub-contractors) of all construction activities; Commissioning and finalisation of project; Closure of project. (Loots and Henchie 2007:8-11 and Godwin 2012:1-2)
- 4. What is an EPCM Contract? EPCM: Engineering, Procurement, Construction, Management “Professional Services Contract”; Contractor is responsible for Engineering, Procurement and Management of the construction phase of the project, on behalf of the owner; Management of construction only as the owner’s representative; No responsibility for the construction or quality of the project; Popular in major works sectors (ie: mining, petrochemicals, power plants etc) (Loots and Henchie 2007:8-11 and Godwin 2012:1-2 and Cullen and Higgins 2011:2-5)
- 5. Services Performed Under EPCM Engineering / Design: EPCM Contractor performs the ‘basic’ Front End Engineering and Design (FEED) works; Specialist design is performed by a specialist supplier via an agreement directly between the specialist supplier and the Owner; Risk and responsibility for the specialist design sits with the specialist supplier; not the EPCM contractor Procurement: EPCM Contractor advises the Owner of the optimum procurement strategy EPCM Contractor assists Owner / acts as Owner’s Agent in implementing the procurement strategy Construction Management: The EPCM Contractor performs the coordination, supervision and management of the construction activities being performed by the various construction contractors (Loots and Henchie 2007:12-13)
- 6. EPC EPCM Accountability Contractor fully accountable Owner has multiple points of accountability Risk Contractor holds risk Owner holds risk Time Fixed date for completion No fixed completion schedule Price Fixed price contract Schedule of Rates / Cost Plus Procurement Contractor responsible for procurement Procurement as agent for the owner only Quality/Performance Guarantee Contractor guarantees performance of completed facility Contractor does not provide performance guarantees Owner’s Involvement Contractor in control Owner in control Defective works/services Contractor to rectify any defects Assists owner to manage rectification of defects A Comparison of EPC and EPCM
- 7. Santee Cooper – A Successful EPCM Case Study Santee Cooper contracted EPCM services from WorleyParsons; Construction of two additional 600mw coal fired power generation units; 7 year project; Number of unforeseen changes experienced during the 7 years; Staff from both companies worked together as a project team. (Hickson et al 2009:1)
- 8. Roles of Each Party Santee Cooper Issued all purchase orders in it’s name; Accepted all risks; Managed 80% completion and erection contract bid request. WorleyParsons Acted as the procurement, construction and start up manager; Provided overall schedule; Dictated and integrated the schedules for all fixed-price lump sum supply and erection contracts; Developed all contract packages, bids, evaluated and recommends contract awards to the owner. (Hickson et al 2009:1)
- 9. Success Factors Project team consisted of staff from both Santee Cooper and WorleyParsons; WorleyParsons provided access to Santee Coopers business systems; Use of technology to access specialists located off site; Increased response time to changes in the project; Ability to respond to major changes in the project effectively; Tight management of the budget. (Hickson et al 2009:1)
- 10. Debswana Diamond Company– A Successful EPC Case Study Debswana Diamond Company contracted EPC services from Fluor Corporation; Construction of mine surface infrastructure for the Cut 8 expansion project at the Jwaneng open pit diamond mine; 3 year project; Staff from both companies worked together as a project team on some aspects of the project. (Fluor Corporation 2014:1)
- 11. Roles of Each Party Debswana Diamond Company Worked with Fluor to manage the project, as it occurred within in operating mine site; Worked directly with Fluor in the delivery of safety initiatives. Fluor Corporation Conducted a feasibility study; Relocated and rebuilt portions of mine infrastructure; Undertook earthworks, civil construction, pilings, structural steel erection and electrical installation; Provided employment for 2000 people during the project, 85% of whom were local employees. (Fluor Corporation 2014:1)
- 12. Success Factors Management of the activities by Fluor within an operating mine site; Skills and technical expertise of Fluor staff; Utilisation of staff who had worked on site for many years; Joint safety projects between Debswana Diamond Company and Fluor. (Fluor Corporation 2014:1)
- 14. References Cullen, David., and Andrew Higgins. 2011. ‘The ABC of EPC and EPCM’. Construction Alert. Blake Dawson, 2-5. http://www.mycorporateresource.com/index.php?option=com_content&view=article&id=93871 :blake-dawson-the-abc-of-epc-and-epcmcontracting&catid=2757:Propertyconstructiondevelopment- &Itemid=209952. Flour Corporation.2014. Debswana Jwaneng Cut 8 Diamond Mine Expansion. http://www.fluor.com/projects/pages/ProjectInfoPage.aspx?PrjID=233 Godwin, Peter. 2012. ‘EPCM contracts: a more sophisticated procurement methodology’. Construction Dispute Avoidance Newsletter. Herbert Smith Freehills. 40. 1-2. http://www.herbertsmithfreehills.com/-/media/HS/T- 290612-6.pdf Hickson, J., Steve Neher and Norm Koontz. 2009. ‘Santee Cooper Cross Units 3&4:an EPCM success’. Power Engineering. 5 January 2009. http://www.power-eng.com/articles/print/volume-113/issue-5/features/santee- cooper-cross-units-3-amp-4-an-epcm-success.html. Loots, Phil., and Nick Henchie. 2007. ‘Worlds Apart: EPC and EPCM contracts: risk issues and allocation’. Mayer Brown International LLP. http://m.mayerbrown.com/files/Publication/fe15bba4-fbe2-4eb0-804e- 17911edb0b15/Presentation/PublicationAttachment/ecb7569b-e0ef-4aee-9ff9- a7c4e853aac6/ART_EPC_EPCM_5DEC07.PDF
Notas del editor
- There are many project delivery options that companies can choose to use for infrastructure, construction and mining projects. Engineering Procurement Construction or EPC and Engineering Procurement Construction Management or EPCM are two commonly used project methods in the construction, mining and power generating industries.
- EPC contracts are commonly called “Turn Key Contracts” (Loots et al, 2007) as they involve the EPC Contractor taking full responsibility for the project from the engineering phase right through to the end of construction, and then handing back the completed project to the Owner as one finalised package. The Owner has very minimal input into the detailed design and engineering of an EPC Project, as all of these works are performed by the EPC Contractor, so it is important that stringent performance standards and functionality requirements are included in the EPC Contract to ensure that the Owner receives a final product that meets their requirements. EPC contracts are often associated with large scale projects such as mines, power stations and desalination plants. References: Loots, P. Henchie, N. (2007) ‘Worlds Apart: EPC and EPCM Contract’. Mayer Brown International LLP. Page 3 - 5 Cullen, D. Higgins, A. (2011) ‘The ABC of EPC and EPCM’. Construction Alert. Blake Dawson. 2-5
- So what exactly does an EPC contract include? It includes almost everything, except the required deliverables for the project. For EPC contracts, typically the Owner will define the site, cost and specifications of the plant along with the scope, performance requirements and time frames for the project. The EPC Contractor will then perform the Engineering, Procurement and Construction of the project to meet these requirements, and then hand the completed project back to the Owner. Broken down, the Engineering, Procurement and Construction functions typically require the EPC Contractor to perform the following: Engineering Services include Detailed engineering and design; Programming and scheduling works; Cost estimating for all areas of the project. Procurement services include Tenders and quoting for all sub-packages of works involved; Purchasing, receipting and invoicing of goods related to the project; Potential coordination of any services sub-contracts involved. and Construction services include Adherence to construction schedule; Performance (directly or through sub-contractors) of all construction activities; Commissioning and finalisation of project; Closure of project. References: Loots, P. Henchie, N. (2007) ‘Worlds Apart: EPC and EPCM Contract’. Mayer Brown International LLP. Page 8-11 Godwin, P. (2012) Construction Dispute Avoidance Newsletter. Herbert Smith Freehills. 40. 1-2
- So What is an EPCM contract, and how is it different? An EPCM contract is a professional services contract which has radically different risk allocation and legal consequences to an EPC contract. Under an EPCM contract, other parties construct the project; the EPCM contractor is not the builder/constructor Typically the EPCM contractor is responsible for: Design (including engineering); Procurement of necessary materials and equipment; Management and administration of the construction contracts. Under the EPCM model the contractor does no building or construction; rather they develop the design and manage the construction process on the owner’s behalf. The EPCM contractor is not a party to the contract in respect of the construction of the project; the EPCM contractor acts as the Owner’s Agent and creates (on behalf of the Owner) direct contractual relationships between the Owner and supplier/trade contractors. There is no ‘standard’ contract for this type of procurement, instead they reflect the needs of the project. EPCM is popular in major capital works sectors such as mining, petrochemicals and power stations. References: Loots, P. Henchie, N. (2007) ‘Worlds Apart: EPC and EPCM Contract’. Mayer Brown International LLP. Page 8-11 Godwin, P. (2012) Construction Dispute Avoidance Newsletter. Herbert Smith Freehills. 40. 1-2 Cullen, D. Higgins, A. (2011) ‘The ABC of EPC and EPCM’. Construction Alert. Blake Dawson. 2-5
- Let’s explain in more detail the three different areas of the project which an EPCM Contractor would be responsible for: (1) Engineering / Design phase The engineering and design works are usually split into two phases; the Front-End Engineering and Design (FEED) and the detailed design. Under an EPCM Contract, the EPCM Contractor performs the basic, conceptual drawings (know as the Front-End Engineering and Design or “FEED”) to get the project started and allow for estimates to be performed. Once the project is ready for more detailed design works to be performed a specialist supplier will be brought in for these more detailed works. The specialist supplier will have an agreement directly with the Owner and will hold the risk and responsibility for the design. The EPCM contractor have overall responsibility for establishing and maintaining both the design and construction interfaces with vendors and construction contractors, and will remain responsible for overall coordination of the design and construction process throughout the life of the project. (2) Procurement services The Owner will often have an idea about it’s anticipated procurement strategy before the EPCM Contractor is engaged, however it is the EPCM Contractor’s role to assist the Owner in procuring the major works packages and in a way that will meet the required schedule of the project. If competitive tender is preferred by the Owner, the EPCM Contractor will be tasked with preparing the tenders, presenting the results to the Owner and then awarding the contracts to third parties for the works. It is typical for a series of lump sum contracts with third parties to be put into place between the Owner and the third party, and for the EPCM Contractor to then manage and coordinate these contracts. and (3) Construction Management services This is the phase where the EPCM Contractor performs the bulk of their tasks; in the management and supervision of the construction activities. It is the EPCM Contractor’s task to ensure that safety management and Quality Assurance systems are maintained by all contractors on site, as well as compliance with the project schedule and performance to the expected standard. References: Loots, P. Henchie, N. (2007) ‘Worlds Apart: EPC and EPCM Contract’. Mayer Brown International LLP. Page 12-13
- Despite their seemingly similar titles, EPC and EPCM contracts are wholly different contracts. The main advantages of an EPC contract is that the responsibility, accountability and risk sits solely with the Contractor, rather than with the Owner. This includes the Contractor having full accountability for the project running on time, within cost, and to the required quality standard. Although these attributes are certainly very attractive to any Owner from a risk perspective, the accompanying disadvantage is that the Owner relinquishes a great deal of control over the project by the Contractor being fully responsible for the detailed design of the Project. To mitigate this, the Owner must be pedantically particular about the deliverables and performance requirements of the project up front to ensure that the project which is delivered suits the Owner’s purpose. Given the depth and breadth of experience required to perform a full EPC contract, there are few major EPC contractors that have both sufficient experience and financial standing to take on major projects. Because of this, Owners have had to look to different options, such as EPCM contracts, to avoid rising lump sum EPC prices. In order to properly administer an EPCM contract, the Owner must ensure that they have sufficient in-house resources to track and monitor both the FEED and detailed design phases of the project, as the responsibility for the end product will rest with the Owner; not the EPCM Contractor. If the Owner does have sufficient in-house resourcing to manage the EPCM Contractor and the multiple points of accountability that come with that project structure however, an EPCM contract can be a viable option for Owners that wish to retain fuller control over their projects. References: Loots, P. Henchie, N. (2007) ‘Worlds Apart: EPC and EPCM Contract’. Mayer Brown International LLP. Page 15
- Santee Cooper is the largest producer of power in South Carolina, United States of America. In 2001 Santee Cooper set out to build two additional 600 mw coal fired power generation units at their generation station in Cross. The project had a 7 year life and involved the management of a number of unforeseen issues. Worley Parsons were contracted by Santee Cooper to provide EPCM services for the project..
- Each party had clearly defined and differing roles in the project. * read the information off the slide.
- Both parties were committed to the success of the project and committed resources and personnel to the project, in order to form one multidisciplinary team, this team was located on site and could call upon expertise from both companies as required. WorleyParsons were provided access to the documentation system of Santee Cooper for the life of the project which ensured effective document management was maintained. During the project there were issues that arose that had a significant impact on the project. One of these was changes to building codes which impacted on the design and construction of the power generation units. The two parties worked together to make the required changes to the design and subsequent process quickly and efficiently allowing the project to continue. Because these changes could be made quickly and efficiently the budget was able to be tightly managed.
- The Debswana Diamond Company undertook a major expansion project at the Jwaneng open pit diamond mine in Botswana. The Cut 8 expansion project has allowed for the extension of the mine life by another 7 years. Fluor Corporation was contracted to provide EPC services for a 3 year project for the construction of mine surface infrastructure to allow the removal of over burden.
- Each party had clearly defined and differing roles in the project.
- As the mine was still operating during the project there were significant challenges with accessing the site and ensuring that the mine could continue to run as normal. The works undertaken included three major shut downs that were managed successfully by Fluor. Where required Fluor provided technical expertise through it’s staff but it also utilised the skills and expertise of Debswana Diamond Company employees who had worked at the mine and had a good working knowledge of the systems and processes within the mine. The key priority for the Debswana Diamond Company in the EPC contract was the achievement of a ‘ world class safety performance’, the client and contractor worked together on safety initiatives that resulted in five million lost time injury free hours over the life of the project.
- Both EPC and EPCM offer a range of risks and benefits to the client. The determination of the type of contract to use should take into consideration amongst other things, the degree of risk aversion of the client, the level of skill and resources the client is able to commit to the project, the level of control the client wishes to have over the project and the nature and timeframe of the works.
- Helen check the referencing style.