Introduction to EPCM

Diagram showing a typical EPCM structure

 

Contracts under an EPCM Structure              

Under an EPCM procurement structure, the Client directly procures the supply of materials and physical works under a series of works contracts.

Separately, an EPCM contractor is appointed by the Client to undertake a number of key services in connection with the Project.

The role of the EPCM contractor

The role of the EPCM contractor is very specific under an EPCM structure: they act as the Client’s designer and procurement advisor and they act as the Client’s representative under the works contract but they usually do not do any construction work.

The EPCM contractor is typically responsible for:

• design
• procurement:  establishing contractual arrangements on behalf of the Client with  suppliers, contractors and vendors, through the works contract tendering processes
• construction management:
  • preparation of the budget cost estimate and estimated duration of the work and managing the project against those
  • overall supervision, management, and coordination of the execution phase of the project
  •  administering the various works contracts on behalf of the Client

Generally, the EPCM contractor is not responsible for the performance of the works contracts but there are usually exceptions to this where the EPCM contractor has not complied with its contractual duties or used reasonable skill and care when undertaking its services.

The EPCM contract should ideally contain appropriate incentives on the EPCM contractor to undertake its services in a way that seeks to bring the project to commercial operation within the specified time and budget but there is no indemnity to the Client if it fails to do so.

Using the EPCM structure

EPCM contracting involves multiple contracts to deliver a project. This multi-contracting aspect brings a huge amount of flexibility and can be an effective procurement method. It also carries a number of additional risks, as there are many aspects that are fundamentally different to traditional procurement methods and so early consideration should be given to the advantages and disadvantages of using an EPCM structure and whether it is right for your project. 

We explore this more in our next article, Comparison between EPCM and EPC.