Most engineering projects require different engineering companies, contractors and manufacturers to provide engineering services. Engineering projects usually fall into one of two categories being EPC contracts and EPCM contracts. The fundamental difference between these contracts can be understood by defining who carries the risks associated with the engineering project and who is responsible for the results of the project.
What Are EPC Contracts?
EPC contracts or Engineering, Procurement and Construction contracts refer to a complete engineering project. EPC contracts are sometimes called “turnkey” projects because the customer can expect to go to the site and turn on the plant with the “turn of a key”. In this situation the engineering company is responsible for the entire project with a predetermined remuneration structure. Any risks associated with the project are borne by the engineering company and the client can expect a finalised project at a fixed price.
You can think of this as purchasing a plant from an engineering company. The engineering company is completely responsible for designing and constructing this plant, and any contractors required in the process will deal with the engineering company. The client doesn’t communicate with any of the construction companies or manufacturers who are needed to bring the project to completion.
What Are EPCM Contracts?
EPCM contracts or Engineering, Procurement and Construction Management contracts refer to an engineering project where an engineering company will design and guide the project. An EPCM contract calls on the engineering company to provide the services of designing the solution and assisting the owner to procure the parts. The engineering company will then manage the contractors and manufacturers on behalf of the customer, but ultimately they work for the client and not for the engineering company. The engineering company is not responsible for the final product. The responsibility for the end result remains with the client.
A client will often require an “Owners Engineer” to ensure that the EPCM engineering consultants design and build a plant or process according to the client specifications, on time and within budget.
In a situation where an engineering firm is contracted under an EPCM contract, the client needs an engineer to make sure the other EPCM engineers are fulfilling their responsibilities in a satisfactory manner. To guarantee this, the client will typically hire an engineer or specialist engineering firm to manage this part on their behalf. This position is referred to as an owner’s engineer or sometimes a client’s engineer.
With an EPC contract, the client will hire an engineering firm to deliver a product. This would include all the costs associated with hiring different specialists, contractors and manufacturers and includes all the material costs required to finalise the project. The engineering consultant takes responsibility for the performance of suppliers and the delivery of the final result. This means that the customer will ultimately get an end result and the engineering company takes full responsibility for the project.
With an EPCM contract, the engineers will work on behalf of the client, but the owner will ultimately pay the suppliers and will be responsible for the end result of the project. The client will take responsibility for the outcome of the project and the engineering company will manage the engineering, procurement and construction process on behalf of the client.
A simple way to think about it is to use this simple formula as a guide:
EPCM + Owners Engineering = EPC
The difference between an EPC and EPCM contract lies in how much responsibility and liability the engineering company will take on behalf of the client. The difference lies in who takes control of the funds and ownership of the plant during the execution of the project. EPC contracts call for funds to be paid directly to the engineering firm and the engineering firm will then take responsibility for completing the project. EPCM contracts call for the engineering firm to design the plant or process and then to oversee the procurement and construction as a service while it is being completed.