EPC stands for Engineering, Procurement, and Construction. Contractors assigned to execute a given work using the EPC approach will perform detailed engineering for the required facilities to be built, procure all the needed equipment, and do the facilities' construction.

Usually, an independent engineering company prepares a basic engineering package or FEED (Front End Engineering Design) for the required facilities as defined by the Owner. The FEED defines the OWNER's high-level requirements and assists the Owner in tendering the works on the shortlisted EPC Tenderers pre-qualified and found eligible to perform the work.

 

Note: the FEED works contractor should not participate in the EPC as a tenderer because, in such a sense, the FEED contractor will have an unfair advantage over the other tenderers.

 

Usually, Lumpsum Turnkey LSTK Contract (sometimes referred to as Fixed Firm Price "FFP" Contract) is chosen for the execution of an EPC contract. This means that EPC tenderers propose technical & commercial (sometimes plus finance) proposals to execute the works in a well-defined time frame (execution schedule). EPC contractor bears the full responsibility for the execution until the facilities' handover to the Owner for final acceptance. In such a manner, the Owner reduces the risk of any cost or schedule overruns related to the project's execution. A well-defined scope and a well prepared tender documents in this regard have to be carefully crafted to minimize the need for change orders during the execution phase.

 

If the scope is not well defined, the Owner can resort to Open Book Estimate "OBE."

 

In such type of contracts, Contractor works openly with Owner exposing all costs related to the execution of the project activities, procurement of equipment, subcontracting and agree with the Owner on a markup fee that Contractor will receive as compensation of the provided services. In such a sense, risk has been imposed on the Owner. Accordingly, the Owner has to have a very professional and experienced Project Management Team (PMT). They are capable of managing the Contractor and justify cost and schedule to execute the project successfully without any cost or schedule overruns. Additionally, the Open Book Estimate could be converted to a Lumpsum Turnkey contract (Open Book Convertible); such types of arrangements have the advantage of minimizing the schedule of execution and the cost of the front end works (if the PMT are managing the Contractor efficiently). Still, many owners (sometimes countries) prefer the LSTK approach as OBE contractors will try to maximize the contract price to increase the markup fees.

 

The Owner can also assign a Project Management and Consultancy (PMC) company to assist the Owner with the activities mentioned above and fill any gap in the Owner's knowledge of project management.

 

 

 

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