In an article published on July 8 in Energy & Mining International, Dan Kapner discusses tips for engineering, procurement and construction (EPC) contracts in power and energy projects. “Power and energy projects involve significant, unavoidable risks that must be allocated between project participants, including complex systems and equipment, high costs, substantial time and technology,” he explains. “To increase the likelihood of a project’s success, it is critical that each owner and engineering, procurement and construction (EPC) contractor understand these risks and weigh the likelihood of both positive and negative outcomes.”
Determining the optimal contracting model is one of the tips he shares. “A critical initial decision for an owner is whether it wishes to – and is financially and practically able to – allocate all risks for major equipment such as turbines and generators, and related technology onto the EPC contractor.” He also provides guidance on determining the optimal pricing model. This can include a “fixed price” for the entire EPC scope, a “firm price” – i.e., a fixed price that is subject to escalation for certain price increases, such as an increase in the cost of steel – or a “target price,” which is a cost-reimbursement model established through an open book estimate process. He states, “Each of these pricing models carries significant risk implications, so it is critical that the project participants understand and evaluate which model is most appropriate for the project.”
For the full article, click here.