Posted on: February 5, 2021 Posted by: zerofloat Comments: 0

The following is a simplified comparison of key (major) differences between EPC (Engineering, Procurement and Construction) and EPCM (Engineering, Procurement and Construction Management) contracts. The contractual type issues can be modified during contract negotiations to suit the situation and overall goals of the project.

Let’s check some contractual aspects of EPC vs. EPCM this time.

TypeEPCEPCM
Equipment Supply ContractsNegotiated & Signed solely between EPC contractor & SupplierNegotiated & signed between Owner and Supplier /with EPCM contractor’s advise and assistance
On-Site Construction ContractsNegotiated & Signed solely between EPC contractor & SupplierNegotiated & signed between Owner and Contractor /with EPCM contractor’s advise and assistance
Supplier SelectionSuppliers are chosen solely by EPC contractors with no input from the OwnerNegotiated & signed between Owner and Contractor /with EPCM contractor’s advise and assistance
Scope of SupplyEPC Contract is only as good as the original project specifications presented during the bidding process. Changes to specifications/scope of supply after awarding of contract can be expensive, due to EPC contractor’s sole contract with Owner and Owner’s inability to “Shop Around” for multiple quotations from independent contractors/suppliersOwners can modify project specifications with little or no trouble. The owner, with the assistance of the EPCM contractor, can negotiate independent contracts with suppliers/vendors at any time due to the fact that the project is under multiple (independent) contracts and not one (1) all-encompassing contract
Equipment Supply WarrantiesWarranties negotiated by Suppliers & EPC contractor and issued to EPC Contractor directly. Warranty to Owner from EPC contractor is negotiated separately between Owner and EPC Contractor and issued to Owner by EPC ContractorWarranties are negotiated individually with each supplier by the Owner with the EPCM contractor’s advice. Issued directly to Owner from the suppliers and contractors
Process WarrantiesWarranties negotiated by Suppliers & EPC contractor and issued to EPC Contractor directly. Warranty to Owner from EPC contractor is negotiated separately between Owner and EPC Contractor and issued to Owner by EPC Contractor (Usually in the form of a performance Bond)Warranties are negotiated individually with each supplier by the Owner with the EPCM contractor’s advice. Issued directly to Owner from the suppliers and contractors (Usually in the form of a Performance Bond)
Construction Site Safety (General Liability Insurance, Workman’s Compensation, Accident, etc.)Site Safety is solely the responsibility of the EPC contractor and subcontractors; in accordance with Contractual AgreementsSite safety is monitored by EPCM contractors but site safety is the legal responsibility of Owner and Sub Contractors; in accordance with Contractual Agreements
TypeEPCEPCM
Permitting (Environmental, Construction, etc.)Permitting is the responsibility of the EPC contractor with the exception of permits that are required by law to be issued in the name of the Owner of the projectPermits are issued to the Owner directly with the EPCM contractor assisting in filing the necessary paperwork
Project Budget Cost OverrunsThe cost risks for a project are borne by the EPC contractor. Any cost overruns, for equipment and/or services within the EPC contractor’s scope of supply, are for their own account and can not be passed onto the Owner unless “change conditions” occur or contractual agreements to the contraryThe cost risks for a project are borne by the Owner. Any cost overruns, for equipment and/or services, are for the Owner account (with the exception of fixed-price supply contracts) i.e. Final equipment pricing bids / on-site cost higher than originally budgeted.
Project Budget Cost SavingsThe cost risks for a project are borne by the EPC contractor. Any cost savings, for equipment and/or services within the EPC contractor’s scope of supply, are for their own account and are not passed onto the Owner unless contractual agreements to the contraryThe cost risks for a project are borne by the Owner. Any cost savings, for equipment and/or services, are for the Owner account ie. Equipment/Services bids are returned lower than budgeted
Project Day-to-Day ExpensesThe day-to-day expenses for the project, within the EPC contractor’s scope of supply, are borne by the EPC contractorThe day-to-day expenses for the project are borne by the Owner but are managed and administered by the EPCM contractor (up to pre-determined quantities, without the Owner’s need for intervention). Usually, a small fund is established by the Owner for day-to-day expenses
Project FinancingProject Financing is usually accomplished by substantial down payment by Owner to EPC contractor and the remainder of the fees issued with Irrevocable Letter of Credit (with partial payments) from Owner to EPC Contractor. This requires the Owner to have all financing in place at the onset of the Project so as to secure a letter of credit (LC)Project Financing can be any combination of down payments, open accounts, and Irrevocable Letters of Credit from Owner to suppliers/contractors; whatever method is negotiated during contract negotiations. EPCM contractor will assist in all negotiations on the Owner’s behalf. This allows the Owner to have partial financing in place at the onset of the Project with the remainder available as needed, depending on contractual requirements
Legal CostLegal Costs are low for the Owner. The owner negotiates only one detailed supply contract with the EPC contractor. EPC contractors must negotiate individual contracts with suppliers/vendors. EPC contractor’s legal costs are high due to multiple contracts. In the event of legal action is taken, the Owner must sue the EPC contractor, who in turn must bring legal action against appropriate suppliers/contractors. (Usually a longer process than EPCM legal actions)Legal Costs are higher for the Owner. Owner negotiates multiple supply contracts directly with suppliers/contractors; with the assistance of EPCM contractor. In the event of legal action is taken, the Owner must bring legal action against individual suppliers/contractors. (Usually a shorter process than EPC legal actions)
AdministrationThe owner’s administration costs are low with the EPC contract. Only minimal staff (management, QC, legal, etc.) is needed to administer/monitor the project. May have a negative effect on project “ownership” feeling within the Owner’s organisation (Hands off).The owner’s administration costs are higher with EPCM contracts. Substantial staffing levels are needed to assist/compliment EPCM contractors in administering/monitoring projects. Promotes “ownership” feeling within the Owner’s organisation. Project staff often transferred to operational staff after project completion.



EPC and EPCM contracting are both very prevalent types of contracts within the construction industry. Dependent on the level of risk the Owner of a project is willing to accept, budget constraints, and the Owner’s organisation core competencies, will determine which method is best for their project.

As stated before, these contract methods can be tailored to the individual projects/owner’s needs. Some can go as far as breaking up each portion of the EPC / EPCM (Engineering, Procurement, Construction / Construction Management) to separate companies. One company can do the engineering; another can do the procurement, while still another can do the construction/project management).

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