When is it not appropriate to use EPC Lump Sum for project delivery?

Al O.
4 months ago
When is it not appropriate to use EPC Lump Sum for project delivery?
Early Production
Art Halik
4 months ago
In my experience, EPC or its derivatives can be used in all scenarios and sizes of project. It may not be the best solution for all projects, however with appropriate risk allocation between the Company and Contractor most projects can succeed.

The real problem that EPC strategies have struggled to overcome is the management of the risk. The tendency is to push, via complex contract language, all risks and unknowns onto the Contractor to manage. This is not wise as some risks and unknowns the Contractor is not capable of managing effectively.

Here are some things to think about:

Tender Timelines
The typical major project tendering sequence is long. Projects are bid and priced years before they are given the go-ahead. Economies, commodities and access to capital change rapidly and present a risk to the Contractor

Design Data and Design Development
Certain design data, such as geotechnical data, may be provided as part of the EPC tender package. The Contractor typically assumes the risk in the accuracy of this data even to the extent such data may be inaccurate, old or be provided from offset locations. This is the same for the FEED carried out by the Company.

Brownfield Facilities
Brownfield facilities are so hard to work with as often you cant get full picture until you are onsite working especially if the facilities are older.

With margin tight and risk high, one poor piece of fortune can place the project at a deficit early leaving the Contractor fighting uphill to cut cost (cheaper equipment, more expensive life cycle costs) and raise claims.

EPC is not inherently bad – the way we have decided EPC should operate is.

anonym user
Verified User1
4 months ago
There is no one-size-fits-all. The fundamental problem of the current industry practice is that we tend to outsource the project all the time, irrespective of the complexity, size and the nature of it. We like to transfer all the risk to a contractor and held them responsible for coordinating all suppliers and service providers. While this approach, also known as EPC ( and its derivatives), Lump Sum, Turnkey is a perfect solution for many projects, this should not be a default solution all the time. Hence, selecting the right project delivery approach based on internal and external analysis is crucial, in-house capabilities, risks and supplier base

EPC projects are best suited when 1) the scope of work is very clear and accurate, 2) little delay risks, 3) the expertise in delivering or managing the project lies far away from the project owner 4) when the cost certainty is highly critical to the project owner, or a requirement from project financiers and lenders.

SCM Daleel - Admin
4 months ago
We have an interesting article about project delivery, that may be of interest to you - "Things you probably didn't know in Project Performance". YOu can find it here https://scmdaleel.com/article/things-you-probably-didn-t-know-in-project-performance/518

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