Contributors
In the complex world of construction and engineering projects, selecting the right contractual framework can significantly influence outcomes in terms of cost, risk, and control.
There are two models frequently seen in these projects - Engineering, Procurement and Construction (EPC) and Engineering, Procurement and Construction Management (EPCm). While these terms are often used interchangeably, they offer different approaches to project delivery, fundamentally differing in their structure, responsibility allocation, and risk exposure.
What are these contracts used for?
Projects that typically use EPC and EPCm contracts are those relating to:
- Oil and gas
- Chemical or manufacturing plants
- Energy, and
- Pharmaceutical facilities.
How are EPC and EPCm projects structured?
Under EPC contracts, the Purchaser appoints an EPC Contractor to carry out the design, construction and commissioning of the project. These are often called "turn-key contracts" as the EPC Contractor delivers the whole project and the Purchaser just “turns the key” when it's completed. The EPC Contractor engages all of the consultants, subcontractors and suppliers required to complete the project and as such takes the riskon everything, including the design, the budget and the programme.
Compare this to EPCm contracts. These are effectively a services contract between a Purchaser and EPCm Contractor for project management, design procurement, construction supervision and commissioning - but not for construction or installation works. The EPCm Contractor does not enter into any contracts with consultants, subcontractors or suppliers; instead, these contracts and the trade contracts for the civils works are entered into directly by the Purchaser. Whilst you sometimes see incentive mechanisms linked to achieving budget and schedule, ultimately the risk of delivery of the project and performance of the plant sits with the Purchaser this time, not the EPCm Contractor.
Important differences between EPC and EPCm
Some of the main differences to be aware of between the two models, broadly speaking, are:
| Aspect | EPC Contract | EPCm Contract |
| Responsibility and risk | EPC Contractor is responsible for design, build and commissioning. They assume the risk as they fully control the delivery of the project. | EPCm Contractor oversees the design and construction carried out by others and has no responsibility for delivery or performance. The Purchaser retains more risk as they manage the separate trade contracts directly themselves. |
| Cost | EPC contracts are like design and build contracts, and tend to be on fixed or target prices. | EPCm contracts usually have variable pricing, often on a reimbursable basis which is far more favourable for contractors. |
| Timescales | Project delivery tends to be quicker as the EPC Contractor manages everything. | EPCm can be slower, in some cases considerably slower, as multiple parties must be coordinated to complete the project. |
| Performance guarantees and testing | Specifies performance standards required of the plant, with damages payable by the EPC Contractor if these are not met. Detailed testing provisions included at pre-completion, commissioning and post completion. | Performance standards, damages and testing will be in the individual trade contracts that the Purchaser has entered into directly with other contractors, and the Purchaser will manage this process for each package. |
| Interface | Interface between the Purchaser and EPC Contractor. | Given the larger numbers of contractors, there tend to be more interface risks to deal with in an EPCm model. |
On the issue of liability, Nicola Deedes, Managing Associate in Womble Bond Dickinson's Construction and Engineering team adds:
“In EPC contracts, while indirect and consequential losses are typically excluded and there are typically caps on liability, the EPC Contractor remains fully accountable for both design and schedule obligations. In contrast, EPCm contracts operate quite differently - liability is generally limited to their management services, which means they have no responsibility for design flaws or for delays in project delivery. However, an EPCm Contractor should be aware that if it fails to perform the services to the required professional standard and as a result is a material cause of delays and costs increases, a Purchaser could successfully seek recovery for losses caused by an EPCm Contractor's breach of professional obligations.”
Which model to choose?
From the Purchaser's perspective, the EPC approach provides more certainty and less risk, with the EPC Contractor fully controlling and being responsible for project delivery. EPCm comes with higher Purchaser risks, in terms of price, project management, timescales, and outcome.
However, choosing the EPC route is not always possible. Vicky McCombe, Partner in Womble Bond Dickinson's Construction and Engineering team explains:
"While Purchasers may initially prefer the simplicity and certainty of an EPC approach, the reality is that in some industries, they simply have no choice but to pivot to an EPCm model. Securing a full EPC wrap is becoming increasingly difficult and expensive due to the growing complexity and risk profile of large-scale projects. Contractors are often reluctant to take on the full burden of delivery under a fixed-price, turnkey arrangement, especially in volatile markets or where project scopes are evolving. So Purchasers are compelled to adopt the more flexible EPCm structure, along with the greater risks it brings. But there can be good reasons to use EPCm too, for the right projects, as it is a model which allows for shared responsibilities and greater adaptability."
Final considerations
There are ways for Purchasers to reduce risk when using EPCm Contracts, like using incentive mechanisms such as Contractor bonuses for achieving key milestones, or using a target cost approach, or fixing the price for a set time. However, what is achievable in negotiations will depend heavily on the bargaining power and creativity of the parties.
The most important thing for the Purchaser to understand though is the difference between EPC and EPCm, and which one they are using for their project. Only by understanding the benefits and risks of each approach can they properly benefit from the advantages, and mitigate the risks, associated with each.
For more on EPCm contracts, read our Insights into the IChemE Blue Book.
This article is for general information only and reflects the position at the date of publication. It does not constitute legal advice.
