The EPC model is a type of contract used for the development of projects, usually of great magnitude. Under this modality, the contractor is in charge of the engineering, acquisitions and contracts necessary for the work, as well as the construction of the infrastructure.
That is, through the EPC model, the contractor is responsible for the design, purchases or investments required and the development of the project. In short, he takes charge of the entire work as a whole.
It is called the EPC model for the acronym of the English words engineering, procurement and construction.
This type of contract is usually used for the development of large investment projects in sectors such as electricity, mining, hydrocarbons, among other industries.
The reviewed sources do not give a unanimous answer on the difference between a turnkey project and an EPC model. Although it is well known that they are very similar concepts. In some cases, it is even suggested that both can be used as synonyms.
A turnkey project is one where the contractor takes care of everything that is necessary (engineering, construction and administration) and delivers the work ready to the client or principal so that he does not have to make any additional outlay.
Another point to take into account is that, under the EPC model, the contractor can subcontract other companies to take care of certain functions. However, before the principal, the contractor is solely responsible, assumes all the risk.
Advantages of the EPC model
Among the advantages of the EPC model we can mention:
- There is only one contractual relationship to coordinate and manage, that between the principal and the contractor.
- The only person responsible for the performance of the work is the contractor, so there will be no conflicts to determine who should be responsible for delays or non-compliance.
- Being in charge of the project as a whole, the contractor can look for ways to achieve greater efficiency, reducing costs in certain areas, for example.
Disadvantages of the EPC model
However, there are also some disadvantages of this model:
- As we have previously mentioned, the contractor assumes a high risk, in relation to other types of contract. This may mean a higher cost.
- As it takes a contractor with experience and ability to execute a large project, it is not always easy to find the ideal candidate.
- For the client, there is the disadvantage that they do not have control over the design and management of the development of the work.
- Failure or delay of the contractor has a strong impact.
Suppose the government wants to promote the construction of a new oil refinery in the country. For this, launch a call through the ministry or portfolio of energy.
Once a company with the experience and financial and management capacity to develop the work is found, this firm will win the award. The work could take, for example, about five years. During that time, the company will be in charge of the entire project, from its design to the hiring of workers and the acquisition of the necessary equipment.