EPC stands for Engineering, Procurement and Construction.
An EPC firm takes a contact from an Industry to design the installation, procure the materials needed and construct it (either by own labor (or) third-parties). The contractor carries the project risk of schedule & budget, in return for a fixed price signed in the contact agreement, called Lumpsum or LSTK.
In an EPC contract, EPC contractor (EPCC) agrees to deliver the keys of the commissioned plant to the owner for the agreed amount signed in the contract. This is similar to a house builder, handing over the keys to the house owner after completion.
An owner decides for an EPC contract for several vital reasons. Some are:
- The owner puts in minimum efforts for his project and, thus, has less stress.
- EPC gives the owner one point contact. It is easy to monitor and coordinate.
- It is easy for the owner to get post-commissioning services.
- EPC way ensures quality and reduces practical issues faced in other ways.
- Owner is not affected by the market rise.
- Investment figure is known at the start of the project.
Besides the plant siting, in an EPC contract the owner will define the following (Owner Terms & Requirements):
- Scope and the specifications of the plant.
- Quality.
- Project duration, and
- Cost.
An important factor that can affect the EPCC’s performance is Cost Variation. An EPC contract normally has no price escalation clause, so, any variation in prices from the contract stage is on the account of the contractor.
The cost variation to the EPC Contractor can occur on various accounts, main being:
- Foreign exchange rate fluctuations
- Variation in the prices of materials
- Variation in labour and services’ costs
These variations are inherent risks and the EPCC must be careful. The owner has committed a fixed price and is free from the variation of market prices. The EPCC, in turn, too, at the time of the commitment to the owner, must have a similar back to back agreement with various sub-contractors/ vendors in order to share the risk with other entities involved in the project.
EPCM stands for Engineering, Procurement & Construction Management
In an EPCM arrangement, the client in order to involve an experienced player in large projects, selects a EPCM contractor who primarily manages the whole project on behalf of the client. The EPCM contractor essentially ensures that the whole project is completed, as required and in time. Generally, an EPCM contractor executes duties of site survey, getting clearances from authorities, basic engineering and getting everything ready for the EPC contractors to start working. EPCM contractors keep in touch and update the clients regarding the progress of commissioning of the plant. An EPCM contract is a progression of an EPC contract. The EPCM job helps in tapping competencies and also gives an upper hand on the EPC project being executed. Due to the potential involved with EPCM contract, it is more in value than an EPC contract.
EPCI stands for Engineering, Procurement, Construction and Installation.
This terminology is used for Off-Shore setups/Constructions. In an EPCI contract, the contractor will design the structure/equipments, procure the required materials for its construction, will provide the necessary transportation of the structure and sets it up at an off-shore site. The points and terminologies are much similar to an EPC contract.
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