EPC & EPCM contracting

Engineering, Procurement and Construction

(turnkey) contracting

Under an EPC contract, the EPC contractor develops the project from
its inception to final completion. The principal provides the EPC
contractor with technical and functional specifications for the project,
and the EPC contractor subsequently designs, builds and delivers the
project in an operational state so that it can be operated at the 'turn of
a key.' This is why EPC contracts are often referred to as 'turnkey'
contracts.
Engineering, Procurement and Construction
(turnkey) contracting cont’d

EPC contracts are almost always 'lump sum', where the EPC contractor
is limited to receiving a fixed price irrespective of the actual cost of
performing the work.
The EPC contractor generally bears the risk of any cost overruns and
also benefits from any savings that can be made.
Additionally, the EPC contractor usually provides a performance
guarantee (subject to agreed liability caps).
Engineering, Procurement and Construction
Management contracting

By contrast, an EPCM contract is a sophisticated project management or

agency arrangement where the EPCM contractor:
• Is responsible for the detailed engineering and design for the project
• Manages the project as the principal's agent or representative, including
providing programming and strategic management services, and
• Is typically responsible for breaking down the procurement and
construction work into packages, managing their tender, overseeing the
principal's entry into the trade/supply contracts and managing those
trade/supply contracts for the principal to ensure completion of the
project.
Engineering, Procurement and Construction
Management contracting cont’d
Unlike EPC contracts, EPCM contracts are almost always 'cost plus' (or
'cost-reimbursable').
The principal pays the subcontractors directly for materials, equipment
and on-site works, and only pays the EPCM contractor its actual direct
costs (mostly labour) for performing engineering and supervisory
services, plus an agreed margin.
The margin charged by EPCM contractors varies depending on the risk
assumed (which is usually low), the size of the project (small projects
usually have higher margins) and supply/demand position in the
economy.
Synthos Kralupy, Czech Republic
Polybutadien Production Facility
EPCM

EPCM is a common form of contracting arrangement for very large

projects within the infrastructure, mining, resources and energy
industries.

In an EPCM arrangement, the client selects a head contractor who

manages the whole project on behalf of the client.

The EPCM contractor coordinates all design, procurement and

construction work and ensures that the whole project is completed as
required and in time.

The EPCM contractor may or may not undertake actual site work.
EPCM

An EPCM contract is a natural progression for an EPC contractor

as, if one is able to do an EPC of a project, then getting a bigger
EPCM job is advantageous.

It helps to tap the already present competencies while ensuring

better control over the project.

Also, the value of the project managed through an EPCM

contract is far greater than the individual EPC contracts.
EPCM

Normally, an EPCM contractor completes the basic work

such as site surveys, getting clearances from
authorities, doing the basic engineering and preparing
the site for the subcontractors.

Subcontractors are chosen by the EPCM company, but

they have an agreement directly with the final
customer.
So what's in an 'M'?
…so what is the fundamental difference between EPC and EPCM?
The 'Construction Management' component of the project delivery
method means that the EPCM contractor does not perform
construction work and does not usually take full responsibility for
delivering the completed project, he is mainly responsible for
administering the construction contracts.
As with any project delivery method, deciding whether an EPCM
contract is appropriate for your project can be a complex process, and
requires a rigorous analysis of project objectives, constraints and key
risks to address suitability on a transaction-specific basis.
EPC vs EPCM
RECAP
APPENDIX:
EPC vs EPCM: Comparison of individual tasks /
issues