What does EPC and EPCM formula in an investment project mean?

In today’s world, we have access to an unlimited amount of information in both a traditional paper form and a digital form, and we can use it online or store on media. In many cases, we have too much information, often very elaborate, and in order to extract the essence of the matter, we often need to read an extensive article or brochure. We do not always have time and feel like doing this, but, on the other hand, we need fast and condensed knowledge.

As participants in all processes taking place, we are required not only to be involved in activities, but above all to have the necessary knowledge to participate more or less actively in various types of activities.

This can be observed, among other things, in the area of investment projects where we move within a fairly precise framework, defined by various types of documents (e.g. standards, codes, laws, competences, technical conditions, terms of reference). The restrictions (rules) defined in this way naturally help both parties of the investment project (i.e. the investor and the contractor) to build a platform for communication together. With these restrictions, we know if something has been done correctly or not (it is not always precise information, sometimes we have a large margin to interpret, i.e. a margin for a potential conflict).

Participants in the investment projects carried out in the general building industry (the power engineering construction is a subset of this large area) must have not only knowledge gained from school but also acquire new skills during their participation in the process in order to manage the scope of work assigned to them efficiently.

And so, in the case of the technical staff, it is important that awareness of the legal responsibility is built (provisions of codes such as, but not limited to, the Code of Administrative Procedure, the Civil Code, and the Building Law Act, along with the related laws, acts and safety at work regulations). This is, of course, verifiable by means of state examinations to check the appropriate qualifications or grant licences.

In conclusion, we can quote a simple statement that everyone knows: lack of knowledge does not relieve liability. It is essential that participants are aware at every stage of the investment project not only of their rights, but also of the obligations imposed on them.

What types of contracts are concluded between the investor and the contractor?

The essence of each investment project is to establish the relationship between the investor and the contractor, i.e. to define the way of communication, the liability assumed and the rules for mutual settlements. This is included in the detailed contracts concluded between the participants in the project.

Based on information from various types of publications and the Civil Code, we can identify the main types of construction work contracts:

• general contractor contract
• partial contractor contract
• subcontracting contract

The above division is a starting point – depending on your needs, you can build a number of functional solutions tailored to your actual needs and situations. So in practice, we can encounter the following solutions, but not limited to:

• Design contract
• Build contract (based on the design supplied by the investor)
• Design and Build contract
• Design, Build and Operate contract
• project investment contract
• general investment contract (EPC / turnkey)
• contract management agreement (EPCM / contract engineer)

and others, which are a specific compilation of those presented above, depending on how tasks, responsibilities and powers are distributed between the contractor and the investor.

EPC formula, i.e. the general contractor

What is an EPC contract? EPC abbreviation is the first letters of the English words Engineering, Procurement, Construction. Investment projects and services carried out in the EPC formula are often referred to as a “turnkey” project.

The main benefits of the EPC cooperation model for the investor include in particular:

• The amounts of completion are known from the beginning of the process
• The completion dates for the individual stages are set by the contractor at the beginning of the process
• The contractor has complete control of the project, which facilitates its coordination and communication between the various execution teams
• The investor may dedicate its time to the process management areas rather than to direct supervision of the execution of individual activities
• The general contractor provides a warranty for the entire facility

The EPC formula also has potential disadvantages from the investor’s point of view. First of all, the entire responsibility for the process is transferred to the contractor, and in the event of poor communication between the investor and the contractor errors and misunderstandings may occur, resulting in a failure to achieve the assumed parameters by the investor.

From the contractor’s perspective, the major advantages and disadvantages of the Engineering, Procurement, Construction project are as follows:

Major disadvantages of the EPC

• The scope of the work is not always specified in contract documentation (no detailed technical documentation) – the source of conflict with the investor
• The procurement of the necessary materials, equipment and services is the responsibility of the contractor
• The entire liability is transferred to the general contractor (who is responsible to the investor for damages caused by potential subcontractors)
• The resulting cost (timely completion) risk presented in the project documentation is the contractor’s risk

Major advantages of the EPC

• Ability to respond quickly to emerging threats (continuous contact with the execution teams), both in terms of the costs and the completion date
• Acquisition of unique competencies while performing technologically complex processes, and the skills acquired may contribute to the acquisition of new orders

Due to its unique competences, the implementation of EPC projects in the field of power engineering is one of the core business areas of Eltel Networks Energetyka SA. The company is currently implementing (either alone or in consortia) a number of EPC contracts in the area of both the distribution networks and the transmission networks.

Examples of the current projects:

• construction of the Pomorzany substation
• construction of the 110 kV Koronowo – Żur overhead power line
• construction of the 400 kV Stanisławów – Ostrołęka overhead power line

The major facilities implemented in the EPC formula so far are:

• 400 kV Czarna – Pasikurowice overhead line
• 400 kV Jasiniec – Pątnów overhead line
• Modernization of the 400/220/110 kV Krajnik power station
• construction of the 400/110 kV Jasiniec substation

Read also Eltel Networks – why is it worth to cooperate with us?

EPCM formula, i.e. the contract management

What is EPCM? This abbreviation is the first letters of the English words Engineering, Procurement, Construction, Management.

The basic element that distinguishes the difference between the EPC and the EPCM is the responsibilities borne by the contractor and the investor.

In case of the EPC formula, the entire responsibility for the contract execution is with the contractor, whereas in the EPCM, the investor has greater responsibility for the project execution.

The EPCM contract is an agreement for the provision of professional services in which the EPCM contractor is an impartial supervisor and controller of both the preparation and the implementation of the construction investment process.

The basic scope of the contractor’s work in the Engineering, Procurement, Construction, Management formula includes the preparation of tender documentation, the verification of design documentation, the technical supervision of construction works and the quality of their performance, the control of the execution of the task according to the schedule, and the control of the project budget.

The hiring of contractors for specific stages of the investment implementation is a joint action of the investor and the contractor employed under the EPCM contract.

Due to the complexity of the problems, the EPCM service provider often employs professional technical consultants to carry out part of the task entrusted to it.

Such a technical consultant that specializes in activities in the power energy sector is Eltel Networks Engineering SA, which provided, for example, the technical consulting services to Orlen during the construction of the 110 kV cable lines on the premises of the manufacturing plant in Płock.

Why is it worth to cooperate with Eltel Networks on the EPC/EPCM formulas?

Before starting an EPC or EPCM project, the investor must have a suitable partner to perform the task. The EPC/EPCM contractor must have experience in the execution of contracts, extensive knowledge, appropriate tools and must continue to expand its competences. Such a partner in the area of power engineering construction is Eltel Networks. The scope of the services offered by both our companies fits perfectly into the EPC/EPCM implementation formula.

By starting cooperation with Eltel Networks, you receive the guarantee of completion of the most demanding tasks in line with the technical, financial and time parameters assumed by the investor.

Author: Jarosław Pietrucin