Types of epc contracts

What are the four types of contracts? What is the difference between EPC and turnkey contract? Types of Contracts in Construction Project Management. Time and Materials Contracts. EPC Contracts are project finance documents that establish a contractual framework between owner and contractor that transfers all design and construction risk to the contractor.

Their efficacy in managing owners risk makes EPC Contracts the construction contract of choice for project financings. An EPC Contract is a risk mitigation and management tool in the form of a project document. In fact, EPC Contracts were specifically conceived to transfer risk to the contractor. They make the contractor responsible for all project activities from the design phase all the way through the construction phase. Specifically, they make the contractor responsible for all design, engineering, procurement, construction, commissioning and handover activities of the project, leaving the owner with no responsibilities save for turning the key at project delivery.

EPC Contracts have emerged as the construction contract of choice for major international development projects and project financings. Primary among them is the transfer of all risk from the owner to the contractor, as well as the resulting establishment of a single point of contract for the project owner. EPC Contracts were created specifically to transfer that risk and to provide the project owner with a contractual framework, from which to mitigate and manage all deal risk.

In addition to project risk management, there are numerous provisions of EPC Contracts that distinguish them from the corresponding provisions of more traditional construction contracts. Listed are some of the more distinguishing provisions. The structure of EPC Contracts allows the project owner to manage risk more effectively and allows the contractors to allocate and specialize in the work they undertake. Under common EPC Contracts, the contractor has full control of the design, procurement, and construction of the project from inception to completion. See full list on globaltradefunding.

Engineering, Procurement, and Construction Contracts or EPC Contracts are construction contracts that enjoy almost universal inclusion in project finance documents, They have emerged as the construction contract of choice in project financings that involve major international development projects. The increasing popularity of EPC Contracts is not due to the turnkey delivery metho which is the reason most often cite although turnkey delivery is an appealing feature in EPC Contracts. While much of the discussion focuses on the turnkey delivery of completed construction projects, attributing their unparalleled acceptance to turnkey delivery is a simplistic view of EPC Contracts an more broadly, project finance documentation. Another reason for the widespread use and acceptance of EPC Contracts is that they are strongly preferred by project finance lenders.

Project lenders are much more comfortable providing project financing when construction contracts have fixed prices and required dates for completion. Less risk to the lender means the likelihood of your project finance loan being approved increases substantially. Project sponsors oversee the project and evaluate progress and performance as the contractor carries out the project. As a practical matter, the contractor cannot then seek to deflect blame to a third party. If the contractor consists of more than one entity (which is frequently the case in large-scale projects), it is important that each entity is jointly and severally liable to the owner.

EPC Contracts require a fixed price which means that cost overruns or savings are the sole responsibility of the contractor. Further, the contract price should only be subject to increase in the event of specific and narrowly defined circumstances. However, contractors will remain entitled to additional recovery, including additional time and money, for certain events which include owners default, change orders requested by the owner or the occurrence of force majeure events. While principals can benefit from the single point of responsibility for the delivery of the project, they do lose involvement with the design process, adding potential risk if the projects design is crucial. Principals should ensure they carefully mark out the projects milestones to avoid lifecycle costs and scope changes being easily overlooked.

Also, as the contractor performs the design and construction, the usual checks and balances present during such projects do not exist for the owner. Allow yourself to daydream for a minute and picture yourself at the Urban Land Institute annual gala accepting the award for the best project financing deal of the year. They compare your deal to the most successful project financings ever. None of those successful deals began with construction cost overruns, a blown construction schedule or construction defects. The importance of EPC Contracts to successful project financings becomes clear in that simple vision.

In Project Finance Documents we provided a great deal of information about project documentation along with an outline summarizing how EPC Contracts and other project documents serve specific standalone roles. But they are also integrated into the complex package that comprises the project documentation. As the preferred construction contract, EPC Contracts are critical to the success of countless large-scale international construction projects. They are also a very important part of integrated project documentation.

Because the primary reason for using EPC Contracts is to affect the transfer of as much risk as is practicable from the owner to the contractor, they severely limit the scope and circumstances under which contractors can make claims for additional time and money. EPC Contracts Engineering , procurement and construction (EPC ) contracts are the contracts used primarily in complex industrial and infrastructure projects like power plants, bridges, dams etc. Sometimes, these two contract types are used interchangeably, though have little difference. It sets forth the duties, obligations, and responsibilities of the parties, defines the scope of work, allocates risk among the parties, and sets forth the financial obligations and entitlements of the parties.

At the early stages of any construction project, the owner with his engineer or consultant prepares necessary documents for the tender process, which will be included in the contract. These documents are called contract documents. The different types of documents in a construction contract are as follows- 1. Special conditions 3. Drawings and specifications 4. Q (bill of quantity) 5. Letter of acceptance 6. EPC contract and Turnkey contract are very much similar in nature. The conditions of contract are terms that rule the relationships between the owner and the contractor, define each party’s rights and obligations, specify the method of payment and determine actions required when existing any disputes between the owner and the contractor. One of the characteristics of construction projects is uniqueness.

General conditions of contract 2. Every project has its particular circumstances, so it’s crucial to select the contract type which suits the project. The owner develops the process of selecting the type of contract. Each type has its advantages and disadvantages concerning the owner and the contractor. There are many types of contracts used in construction.

They are categorized into two major groups as per the method of payment to the contractor. The following are the types of construction contracts generally used in construction projects: 1. Unit price contract 3. Cost-plus contract 4. In this type, the contractor bids a single fixed price for overall activities in the project scope. All risks are assigned to the contractor, and there isn’t any risk carried by the owner.

The total price of the project in the unit price contract is based on the price of each item’s unit. The risk is shared with the contractor and the owner. This contract is ideal when the. The construction of the project can be started before finishing the designs, so the total cost of the project will be uncertain at the early stages of the project.

Target cost contract has common features of the lump sum and cost-plus contracts. There is a risk carried by the contractor in case of an increase in the cost of construction projects. EPC stands for ‘Engineering, Procurement and Construction’. If there is any failure in doing so, the owner is entitled to claim the damages from the contractor due to the delay. The contractor is also rewarded a percentage of any savings between target and actual cost.

There will usually be an agreed cap on this amount. In some cases the contractor might be. When deciding which one is right for you, there are several factors to take into account.

A contract with guaranteed maximum price (“GMP”) is where the contractor performs all the work and provides all the materials for a lump sum price. Although the engineering, procurement and construction ( EPC ) contract and the engineering, procurement and construction management (EPCM) contract have been present in the construction sector for many years, there remains confusion as to the fundamental differences between these contracts , the role each party is required to play, and when to use one contract over the other. Other types of contracts do exist, and it will benefit you to become familiar with your particular organization’s contracting procedures and options available to you.

Older models such as packaged based contract, design-bid-build etc.