What exactly is the full version of EPC?
The full form of EPC refers to Engineering, Procurement and Construction. In the construction industry, EPC contracts are rather common. Usually referred to as “contractor-client”. It addresses every aspect of the building project, including project planning and the labour, equipment, and material procurement needed for a job well done. Additionally covered are the construction timelines and the contractor’s payment due.
What is an EPC Contract?
In the construction industry, an EPC (engineering, procurement as well as construction) contract is an agreement between a contractor and a project owner. The structure of an EPC contract enables the owner to transfer to the contractors all of the risk associated with design and procurement as well as building. The contractor is the only one responsible for finishing the project and turning it on a turnkey situation. For this reason, turnkey construction contracts or turnkey contracts are other names for EPC contracts.
EPC contract meaning The basics are best covered before delving into the complexities of EPC contracts. As an abbreviation, Engineering, Procurement, and Construction is what EPC stands for. The whole construction project duration is covered by the term EPC. From design to procurement and finally throughout the constructing phase, the contractor bears full responsibility for project management.
One approach to control risks without becoming involved in project management is to use an EPC contract. EPC contracts are made especially to shift construction risk to the contractor. They assign to the contractor complete project management responsibilities starting with the first design phase and continuing through the construction phase.
Within an EPC contract, the EPC contractor or EPC firm will assume three essential project components:
- Engineering & Design: the entire facility’s engineering design is under its purview.
- Procurement: The procedure by which the EPC company acquires all necessary materials and equipment for the project is called procurement
- Build: when the contractor constructs the facility and then delivers the building in a state that is ready for commissioning to the project’s owner or the sponsors.
The execution phase of the project is how most people refer to the EPC portion. An investigation of viability and the Front End Engineering Design (FEED) study phase come next. The basic engineering design study that encompasses the several phases and components of a project is covered by the FEED study. When the project owner seeks for bids for EPC contractors, a FEED Study report may be required to be sent in during the bidding and tendering process.
2. What is the reason the EPC contract is so popular?
The document of the project is an EPC Contract, a risk reduction and management tool. Actually, the reason for the creation of EPC Contracts was to shift risk onto contractors. From the design to the constructing stages, they hold the contractor responsible for all project activities.
They particularly hold the contractor responsible for all engineering, design, procurement, construction handover, and commissioning of the project; the owner is only responsible for turning the key after the project is finished.
Lenders of project finance are another factor that has contributed to the broad acceptance and usage of EPC Contracts. If construction contracts have established costs and deadlines for completion, the project lenders are more at ease lending money for the project. Lower risk for the lender suggests a much higher chance of your project financing loan being accepted.
3. What level of control can an owner exercise in the course of an EPC project?
The owner of the project or project sponsor typically has little or have any influence on the EPC contractor after the contract has been signed. Nevertheless, the owner may participate in the project by choosing the PMT (Project Management Team) or PMC (Project Management Consultant). Both a construction manager and a distinct endeavor manager may be a part of the PMT to guarantee that the contract is followed and that the project advances as needed. The PMT is the company that handles FEED studies and feasibility studies in addition to creating the owner’s drawings and designs.
4. Design or engineering part of an EPC contract
The Design obligations that are required of EPC Contractors are:
- Basic Engineering
- Detailed Engineering
- Detailed Design
- Planning
- Construction Engineering
- Civil Engineering
5. Procurement component in an EPC contract
The main responsibilities of Procurement include:
- Logistics
- Transportation
- Purchasing
- Invoicing
- Receiving the materials
6. Part of the construction process of an EPC Contract
The functions that are involved when constructing the project are as follows:
- A EPC Contractor handles the design and construction management
- Electrical Installation
- Water Supply
- Sanitation and Drainage Work
- Carving cabinets and displays
7. Benefits of having an EPC contract
When choosing an EPC contractor The Project owner enjoys these advantages:
- 1. A Single Point of Responsibility
- 2. Fixed Contract Price
- 3. Fixed Completion Date
- 4. Can Set a Performance Specification
- 5. Performance Guarantee
- 6. Security
- 7. Caps on Liability
- 8. Has Rights to Suspend the Project
- 9. Flexibility in Ordering Variations
- 10. Force Majeure
1. A Single Point of Responsibility
Everything about the building process is under the responsibility of the EPC contractors. From planning, acquiring, and constructing to finishing and project handover. Should something go wrong when the project is being built. Payment of the duties is in this instance the responsibility of the EPC contractors. One can come across construction laws that support the risk reduction approach. Additionally easing concerns around project funding is the legislation of building.
2. Fixing the Contract Price
The prices of the services must be established by the EPC contractors. The contractor reports any savings and any expenses over the budget in their bank account.
3. Fixing the Completion Date
EPC contracts have to be fulfilled in the time limit that the guarantee specifies. Delay Liquidated Damages (DLD) may be due from contractors if they fail to finish the project by the deadline. Contractors have a right to an extension if the project owner impedes or meddles in the building process.
4. The Performance Specifications
The contractor can receive particular specifications from the project owner. The specifications include every need that the contractor must be able to fulfill. Still, the building company gets to choose how the specifications are met.
5. Performance Guarantee
EPC contracts will have specific performance criteria that contractors must meet. Should the project fail, they have responsibility for Performance Liquidated Damages (PLD).
6. Security
Performance security is a typical feature of construction contracts. The project owners are so shielded from any potential financial damages. It can be guaranteed by the bank guarantee, advance payments, and assurance from that parent company.
7. Limitations of Liability
Most EPC contractors would only sign contracts that would restrict their liabilities. A 100 percent of the contract price liability limit is generally accepted.
8. Suspendability of the agreement
Generally speaking, the building business is free to end or revoke the construction contract.
9. Ordering Variations Flexibility
Generally speaking, the project owner is free to ask for changes to the building contract.
10. Force Majeure
Events of Force Majeure, such earthquakes, storms, and epidemics, can cause serious delays in EPC contracts. Both sides might in certain cases refuse to carry out their responsibilities.
Disadvantage of an EPC contract
Though less so than with other contracts, the EPC Contract still have certain restrictions. One drawback of using a turnkey contractor is that:
- EPC Project Costs a Lot
- Less control will be held by owners over the building project.
8.1. EPC projects can get pricey
Projects in construction covered by an EPC contract could be costly. This is a result of the risk the contractor presents. The contractor can absorb the risk because to the high cost. Essentially, risk-sharing takes the shape of increased contract payments. Thus, before choosing to call for bids, the sponsor or lender of the project needs to carefully weigh the risks.
8.2. Less power is held by the owners over their projects.
The owners of an EPC Project are basically giving contractors control and authority. Expensive delays can arise from any contractor involvement. Involvement of the Owners might also support contract claims against delays and damages.
EPC in Different Sectors
Not just the building sector is covered by an EPC contract. Among the many industries it finds extensive usage are power generation, energy, oil and gas, renewable energy, petrochemicals, and much more. All the same, the EPC contract acts as the cornerstone for project management, guaranteeing the seamless completion of intricate projects.
List of Famous EPC company in india
Here is a list of some of the most renowned EPC (Engineering, Procurement, and Construction) companies in India:
- Larsen & Toubro Limited
- Gammon India
- Patel Engineering Ltd.
- Era Infra Engineering
- Nagarjuna Construction Company Ltd
- IVRCL
- Sadbhav Engineering Limited
- Hindustan Construction Co. Ltd.
