Page 67 - Industrial plants

style contracts, where the project is largely Contractor
EPC / EPCM Definition managed and the cost risk and control are weighted
& Comparison towards the Contractor and away from the Owner.
The EPC contractor has direct contracts with the
The EPC (Engineering, Procurement and construction contractors.
Construction): means the company is contracted to The EPCM (Engineering, Procurement and
provide engineering, procurement and construction Construction Management): means the company is
services by the owner. Think Design & Construct contracted to provide engineering, procurement and

EPC (Engineering, EPCM (Engineering, Procurement
Task / Issue Procurement and Construction) and Construction Management)
Equipment Supply Contracts Negotiated & Signed solely between EPC contractor & Negotiated & signed between Owner and Supplier /with EPCM
Supplier contractor’s advice and assistance
Negotiated & Signed solely between EPC contractor & Negotiated & signed between Owner and Contractor /with EPCM
On-Site Construction Contracts
Supplier contractor’s advice and assistance
Supplier Selection Suppliers chosen solely by EPC Suppliers chosen by mutual agreement
Scope of Supply
Warranties negotiated by Suppliers & EPC contractor and Warranties negotiated individually with each supplier by Owner with
issued to EPC Contractor directly. EPCM contractor’s advice. Issued directly to Owner from the suppliers
Equipment Supply Warranties Warranty to Owner from EPC contractor is negotiated and contractors
separately between Owner and EPC Contractor and issued
to Owner by EPC Contractor
Warranties negotiated by Suppliers & EPC contractor and Warranties negotiated individually with each supplier by Owner with
issued to EPC Contractor directly. EPCM contractor’s advice. Issued directly to Owner from the suppliers
Warranty to Owner from EPC contractor is negotiated and contractors (Usually in the form of a Performance Bond)
Process Warranties
separately between Owner and EPC Contractor and issued
to Owner by EPC Contractor (Usually in the form of a
performance Bond)
Construction Site Safety Site Safety solely the responsibility of the EPC contractor Site safety is monitored by EPCM contractor but site safety is the
(General Liability Insurance, and sub- contractors; in accordance with Contractual legal responsibility of Owner and Sub Contractors; in accordance with
Workman’s Compensation, Agreements Contractual Agreements
Accident, etc.)
Permitting is the responsibility of the EPC contractor with Permits are issued to the Owner directly with EPCM contractor
Permitting (Environmental,
Construction, etc.) the exception of permits that are required by law to be assisting in filing the necessary paperwork
issued in the name of the Owner of the project
The cost risks for a project are borne by the EPC contractor. The cost risks for a project are borne by the Owner. Any cost overruns,
Any cost overruns, for equipment and/or services within for equipment and/or services are for the Owner account (with the
Project Budget Cost Overruns the EPC contractor’s scope of supply, are for their own exception of fixed price supply contracts) i.e. Final equipment pricing
account and cannot be passed onto Owner unless “change bids / on site cost higher than originally budgeted.
conditions” occur or contractual agreements to the contrary
The cost risks for a project are borne by the EPC contractor. The cost risks for a project are borne by the Owner. Any cost savings,
Any cost savings, for equipment and/or services within for equipment and/or services are for the Owner account i.e.
Project Budget Cost Savings the EPC contractor’s scope of supply, are for their own Equipment/Services bids are returned lower than budgeted.
account and are not passed onto Owner unless contractual
agreements to the contrary
The day-to-day expenses for the project, within the The day-to-day expenses for the project are borne by the Owner but
EPC contractor’s scope of supply are borne by the EPC are managed and administered by the EPCM contractor (up to pre-
Project Day-to-Day Expenses
contractor determined quantities, without Owner’s need for intervention). Usually
a small fund is established by Owner for day-to-day expenses
Project Financing is usually accomplished by substantial Project Financing can be any combination of down payments, open
down payment by Owner to EPC contractor and the accounts, and Irrevocable Letters of Credit from Owner to suppliers
remainder of the fees issued with Irrevocable Letter of / contractors; whatever method is negotiated during contract
Project Financing Credit (with partial payments) from Owner to EPC Contractor. negotiations. EPCM contractor will assist in all negotiations on
This requires Owner to have all financing in place at the Owner’s behalf. This allows Owner to have partial financing in place
onset of the Project so as to secure letter of credit (LC). at the onset of the Project with the remainder available as needed,
dependant on contractual requirements
Legal Costs are low for Owner. Owner negotiates only one Legal Costs are higher for Owner. Owner negotiates multiple supply
detailed supply contract with EPC contractor. EPC contractor contracts directly with suppliers / contractor; with the assistance of
must negotiate individual contracts with suppliers / vendors. EPCM contractor.
EPC contractor’s legal costs are high due to multiple In the event of legal action is taken, Owner must bring legal action
Legal Cost contracts. against individual suppliers / contractors. (Usually a shorter process
In the event of legal action is taken, Owner must sue EPC than EPC legal actions)
contractor, who in turn must bring legal action against
appropriate suppliers / contractors. (Usually a longer
process than EPCM legal actions)
Owner’s administration costs are low with EPC contract. Owner’s administration costs are higher with EPCM contracts.
Only minimal staff (management, QC, legal, etc.) needed Substantial staffing levels needed to assist/compliment EPCM
Administration to administer/monitor project. May have negative effect contractor in administering/monitoring project.
on project “ownership” feeling within Owner’s organization Promotes “ownership” feeling within Owner’s organization. Project staff
(Hands off). often transferred to operational staff after project completion.

IndustrIal Plants - May 2023
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