Mega-industrial projects often travel way south of their deadlines and budgets. Studies show that nine out of ten projects go over budget by an average of 28%. But, in many cases, it's avoidable.
We have learned that all these projects require a clear direction from the beginning. But how is this possible, given the number of variables inherent in such large projects?
The best way to establish direction is by forming a contract between the contractor and project owner, a contract outlining responsibilities from start to finish. Engineering Procurement Construction (EPC) contracts do just this, shifting risk from the project manager to the contractor. If done right, the result on the other side is a turnkey project for the developer and less stress for the contractor.
Below we have answered what goes into an EPC contract and how it can be tailored to avoid delays, issues, and poor financial decisions.
Many industries rely on engineering procurement construction contracts to complete massive projects and stick to schedule and costs. These industries include:
Oil & gas
Renewable energy
Food processing
Design-build
Infrastructure and manufacturing
Engineering procurement construction contracts are more than legal agreements; they're models for breaking down massive projects to ensure timely deliverables. At the heart of it, an EPC contract is a way to provide contractors with an outline of all responsibilities, personal, material, and budget requirements at each stage: design/engineering, procurement, and construction.
Each section of an EPC contract breaks out into more responsibilities, helping contractors understand their duties clearly and promoting austerity. Below I'll briefly break down each phase of the project.
Engineering
Engineering focuses on the project's design. For example, say you’re building a food processing facility. The engineering portion of the EPC contract would include planning, research, cost estimation, and a thorough site engineering evaluation.
Procurement
Procurement is where contractors obtain all the materials and equipment and hire any sub-contractors, independent contractors, or engineering consultants necessary to carry out the design. Procurement planning is critical to curtail overspending.
Construction
Here, the contractor builds the facility according to the initially agreed-upon terms and conditions, communicating with the developer and managing any hired personnel throughout. Finally, the contractor conducts the handoff of the fully completed, turnkey project to the owner.
How Do Developers and Contractors Benefit from Engineering Procurement Construction Contracts?
Engineering procurement construction contracts are popular because they allow experienced contractors to streamline the process while providing them leeway to improve the project as they see fit without severely disrupting deadlines. It also benefits contractors by allowing them to specialize in EPC projects related to their industries.
However, sometimes, there are downsides to EPC contracts. For example, working within an EPC contract sometimes limits developers' ability to involve themselves in the design process. But with proper communication channels, this issue can be avoided.
Engineering procurement construction is an incredible way to minimize risk and hold contractors responsible for their initial promises. It's also excellent for communication, as the contractor handles all communication between subcontractors and third parties, limiting confusion. Overall, it takes massive amounts of pressure off developers and allows contractors to do what they do best.
We offer engineering procurement construction project development and management services. Contact Us today to learn about how we can help with your engineering projects.
The PEPM Group is committed to developing innovative engineering solutions that help our clients achieve their goals. Our team is composed of licensed professionals (PE) with years of industry experience and committed to providing the best service to our clients.