What is An Engineering Procurement And Construction Contract
In the following we will be discussing an important topic that is “What is an engineering procurement and construction contract?” and will discuss it thoroughly within the article. Many corporations/companies within the renewable energy industry, as well as the power sector, usually use Engineering procurement and Construction (EPC) contracts for complicated/complex infrastructure projects.
This form of contract sets out the connection between the owner and the contractor for the provision of skilled or technical services. Under an EPC contract, the principal or owner enters into a contract with the EPC contractor, who will, in turn, enter into numerous subcontracts with subcontractors for the performance of specified portions of work. They will be responsible for not solely the engineering aspects of the project, however also the procurement of equipment and design and construction of the facility, plant or project.
For owners of projects, EPC contracts permit them to manage risk more effectively and additionally allow contractors to assign and specialize in the work they undertake. This model is employed where the owner’s concept design is based more on functionality and they would like someone to engineer a solution to produce that functionality. Under common EPC agreements, contractors have full/complete control of the design, procurement as well as construction of the project from inception to completion.
Many folks refer to or call EPC contracts as turnkey construction contracts because it permits the owner to easily ‘turn the key’ when the project is complete for the system to be totally/completely operational. In addition to delivering an entire facility or plant, contractors must additionally deliver it for a guaranteed price and date. This guarantee implies that the contractor, and not the principal, will incur any additional costs. If the plant isn’t complete to the specified level upon completion, the contractor may also incur financial liability. For this construction company in Gurgaon are doing great work.
It is necessary to note that EPC contracts differ from EPCM contracts. EPCM stands for Engineering, Procurement and Construction Management. Here, an EPCM contractor takes an administrative as well as at the same time a management role in the engineering and also design aspect of the project. They manage the project as the owner’s agent and oversee the project.
Advantages And Disadvantages Of EPC Contracts
A significant advantage of EPC contracts is that it permits the owner to engage with only 1 contractor, who will, in turn, manage all the relationships with subcontractors. This work assignment will make it much easier for the owner/principal to oversee the project as well as evaluate progress based on performance because the contractor carries out the project.
This contract arrangement additionally benefits contractors who can have more control over the design and selection of subcontractors. While contractors accept additional risk with the coordination of the design, they’ll act more efficiently to lower construction costs.
While principals will benefit from the only point of responsibility for the delivery of the project, they do lose involvement with the design process, adding potential risk if the project’s design is crucial. Principals should ensure they carefully mark out the project’s milestones to avoid lifecycle costs and scope changes being easily overlooked. Also, because the contractor performs the design and construction, the standard checks and balances present during such projects don’t exist for the owner.