The acronym EPC comes from the Anglo-Saxon term Engineering, Procurement, and Construction and is used in large-scale projects mainly linked to the energy sector.
Precisely because of the rise of the EPC contract in the daily life of the energy sector, people responsible for these projects need to have a clear understanding of:
- What it consists of
- What are the legal implications of using it for the contracting parties
- What is the difference with EPCM contracts
EPC contracts
The EPC contract is a construction contract that covers everything related to, among other things, design, necessary supplies, construction, and additional services. All these concepts are, by definition, included in this contractual modality.
This type of contract is also known as a turnkey contract, mainly because the contractor undertakes to design, build, and implement a specific installation that he has previously planned. In other words, in this type of contract, the contractor is responsible for every one of the activities carried out in the project, from the initial design to the final delivery.
The contractual relationship between the parties in EPC contracts
For some time now, EPC contracts have had a higher impact because of their operational simplicity. The acceptance of new tasks by the contractor eliminates the triple “customer-engineer-contractor” contractual relationship and reduces it to a bilateral “customer-contractor” relationship.
In fact, in EPC projects, the contractor assumes full responsibility towards the client, committing to delivering a project ready to run/operate. For the client, the main advantages of choosing the EPC contract are:
- Less coordination effort as there is one contractor who takes on all the tasks
- The EPC technical team guarantees the quality of the work and reduces problems during and after the work
- Higher safety standards
- Reduction of financial risk: a fixed amount of investment is agreed upon before the start of the project and usually remains the same
- The execution period is established from the beginning, avoiding, a priori, deviations in the implementation of the project.
The EPC contract versus the EPCM contract
Complementary to the EPC contract, there is currently another concept closely linked to this sector called the EPCM contract. However, the EPCM contract is a professional services contract and not a construction contract.
The figure of the EPCM contract is different from that of the EPCM contract, mainly because the contractor does not assume the obligation to build the project, nor to carry out the supplies. He only accepts the responsibility of designing the engineering of the project.
Engineering, Procurement, and Construction project managers should be aware of other crucial differences between EPC and EPCM contracts.
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