In an article published by Energy & Mining International on December 6, Laura Fraher discusses strategies for allocation of risk among project participants for success in power and energy construction projects.
EPC contracts establish a one-stop shop for the design and construction of a construction project – designating the EPC contractor responsible for the engineering (design of entire power plant), procurement (purchase, installation
and performance of all equipment) and construction (construction of the plant). Selecting the appropriate contract model and pricing structure to include in the EPC contract to meet the unique needs of your project is critical to its success.
When considering the contract model, keep in mind that there are advantages and disadvantages to each. In a “full wrap” or “turnkey” model, the EPC contractor is responsible from start to finish – providing all the detailed engineering design of the project, procuring all the equipment and materials necessary for the project and constructing and delivering a functioning facility to the owner. Although the contractor assumes all responsibility and risks, this comes at a cost. In a “partial wrap” model the EPC contractor is relieved of the obligation to procure the equipment and obtain the relevant warranties, often providing more favorable pricing for the owner.
“There are many pricing models that can be selected for your EPC contract. At opposite ends of the spectrum are the fixed-price model and the target-price model, with a variety of other options available,” Fraher shared. “It is also quite common for EPC contracts to utilize different pricing models for different phases of the project.”
Before project commencement, owners should carefully analyze budgets and risks to ensure they have selected the contract and pricing that is most optimal. Establishing the parties’ agreements and expectations regarding allocation of liability is key to a project’s success.
Read the full article here.