EPC And EPCM Contracts In The Investment Project’ Implementation

An interview with Ayatov Rahimberdi, Director of “KEREY Engineering Group Ltd”. Currently, the commercial engineering school is developed and formed very actively in the Republic of Kazakhstan. In these circumstances, an event of Traditional western anatomist practices with version to the regional and nationwide peculiarities becomes especially important and required. Rakhimberdi Ibragimovich, please reveal, the type of contractual types of relation’ regulations do we’ve in the global construction practice? Undoubtedly, the modern economic relations present some other requirements for the structure and range of engineering activity, management level and specifications of professionalism and reliability.

The crisis in the global overall economy significantly actualizes the question of more extensive study of potential dangers in the building contracts. Accordingly, in the building industry of our country, we can see the trend, where the international forms adapted to the Kazakh standards are realized rather than traditional construction agreements.

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EPC and EPCM agreements can be distinguished among various kinds of construction contracts. EPC – English abbreviation (anatomist, procurement, building) means, generally, the contract for the construction on “turnkey” bases at the agreed set price. EPCM – English abbreviation (anatomist, procurement, building management). The subject of the contract, as in the entire case of EPC is the engineering, procurement, structure and handover of ready service “turnkey” to the Client.

In this case, the EPCM service provider acts as the overall contractor and shall be fully responsible for the potential risks in the task management, from its design to the handover of facility to the Client (like the implementation of warranty). You mean that the primary difference between both of these types of contracts is precisely in the responsibility of the companies for the implementation of investment building projects? Yes, you are right.

EPC Contract means that the overall service provider, appointed by your client to apply the investment construction project, who will provide the services for design, control and management of supply, as well as – structure. EPC contract is used, as a rule, for those tasks where the General contractor is able to estimate how big is its financial expenditures with high degree of accuracy, as well as degree of risks. EPC agreement assumes that the main scope of works shall be performed by the EPC-contractor himself, however the company and management of works carried out by included lower-level subcontractors will not provide any extra remuneration by the Client.

EPCM agreement means that the Contractor appointed by your client for implementation of investment construction project, provides services for control and design / management of both source and the construction process itself. EPCM Contractor is only going to manage the construction process and seek advice from the Client whatsoever stages of the project. The potential risks related to the task implementation would be the responsibility of the Client, since the summary of agreements with sub-contractors will be Client’s responsibility.

In which situations EPCM agreements can be interesting for your client, if the final outcome of this contract unlike EPC model expands the area of Client’s responsibility? I waited because of this relevant question, which is quite reasonable. Recently Just, EPC contract model was very “beloved” by the clients in view of “hard” contract conditions – a predetermined so-called “lump sum” with fixed price and the end result of “turnkey”.

So, we have identified the primary difference between two agreement models – this is a reallocation of obligations. How are they indicated and what exactly are their advantages towards one another? Towards the end of EPC agreement, all risks related to exceeding of the budget, pre-specified in the task are under the responsibility of EPC contractor that is beneficial for the Client. But, at the same time, savings do not impact the final contract amount and shall be already additional advantage for the Contractor. In EPCM agreements, all risks associated with the project budget, are under the responsibility of your client, but also including the savings for his pocket.