Without a doubt, the Middle East is amongst the fastest growing region in the world.
The United Arab Emirates is the most developed in the Gulf region with unified transportation systems and clusters of iconic mega structures. The World Economic Forum in 2015 presented infrastructure ranking in UAE firmly stand at the 17th position of highly advanced infrastructure with immense macroeconomic nature and robust foundations. The country is the most appealing spot for investment. It offers great opportunities and UAE being a welcoming business environment makes it a chosen path for global companies to enter the Middle East market.
After the declaration of Dubai 2020 Expo, the famed city became a basket of opportunities with the government allotting 17 billion dirhams in 2016 budget in lieu of infrastructure expansion until 2020. This budget is spread throughout a variety of asset which includes roads, housing, school, railways, medical facilities and public buildings. And then there’s the emirate of Abu Dhabi which is very much attractive for long term investors. The city has set aside 100 billion dollars to be capitalized until the year 2030 and most of it will be dedicated to the transportation and real estate sector.
On the other hand, UAE is also seen to be having financial difficulties that may impact the implementation of bigger plans. In line with this, a study advised that in the coming years, the country needs to identify the opportunities as well as the present challenges to create a more truthful view on the market. The research presented a detailed look on the industry of construction and infrastructure with a meticulous sub-sector assessment. It contains sizing the market of impending project pipeline at a more detailed level and offer forward looking study on topmost client, consultants, contractors, suppliers with their work or partnership model. Additionally, it shares the latest and modern trends in the market and how it can affect the business decisions of concerned companies.
- 1 UNDERSTANDING THE BASIC CONCEPT OF EPC
- 2 ADGECO GROUP – A leader in EPC Contractors in UAE
- 3 Effectivity of EPC from Project Owner’s Standpoint
- 4 An EPC Contractor’s Outlook on Being Global
- 5 Finding the Correct Choice of EPC Contractor
- 6 Key Developments in the EPC Contracting Industry
- 7 EPC/ EPCM Definition & Comparison
- 7.1 Project conveyance of EPCM Contracts
- 7.2 Classic stages of an EPCM Arrangement
- 7.3 Further concerns
- 7.4 Conclusion
- 8 Three billion dollar EPC contract for refinery upgrade awarded by ADNOC
- 9 List of Technology Patterns for EPC Companie
UNDERSTANDING THE BASIC CONCEPT OF EPC
EPC stands for Engineering, Procurement and Construction. The term is used in specific type of contract agreement applied in certain industries wherein the EPC Contractor takes charge on all operation from design, procurement, and construction to hiring and transferring the project to owner.
What is an EPC CONTRACT?
Basically, an EPC Contract is a commonly used form of legal contract used in the industry of construction, infrastructures and power plant projects. It includes the details of engineering design, procurement and construction to produce a facility to clients within agreed time frame. The man in charge of executing the contract as per approved conditions is called EPC Contractor. A lot of firms in the renewable energy business and power sector frequently utilize Engineering, Procurement & Construction agreements for multifaceted infrastructure projects.
Elements of an Engineering Procurement Construction Contract:
Since there will only be one company that will manage the project, it is vital that the contract agreement signed by client and contractor should be exactly what is agreed. A basic contract must present the following points:
- Cost of Project.
- Project size and setting.
- Estimated project time frame.
- Project quality.
In addition, this kind of agreement could also include some clauses aimed to safeguard both clients & firms, such as specific milestones, quality control specifications, and payment timeline.
How an EPC Contract Work?
A well-known form of agreement in construction industry, Engineering, Procurement, Construction agreement is what EPC contractors use to carry out EPC Projects.
This type of contract puts in place the rapport among contractor and project owner for the establishment of technical or professional services. Based on an EPC agreement, the owner or principal takes part into an agreement with the EPC contractor, who will, in turn, move into variety of subcontracts with subcontractors for carrying out specific parts of work. They will be answerable for the engineering side of the project and procurement of tools and layout and formation of the structure or project.
The Execution phase or EPC phase usually follows what is called Front End Engineering Design Phase or FEED. It is basically an engineering design utilized as the core for the EPC Phase. The FEED may be split into single packages that cover independent portions of project. These packages are utilized as a base for bidding when clientele offers the EPC work to the market.
Usually EPC Contracting Company has to carry out and deliver the project in approved budget and timeframe, also known as Lump Sum Turn Key (LSTL) Contract. This agreement places the risk for cost and schedule on the EPC Contracting Company. For project owners, EPC contracts permit them to handle risk more efficiently and also allow contractors to distribute and specialize in the performance they carry out. This model is used where the owner’s concept design is grounded on functionality and they require a person to come up with a solution to produce that functionality. Based on usual EPC contracts, contracting companies have full command of the design, procurement and building of the project from setting up to completion.
The client to EPC Contractors or owner of the project are generally present in the offices of EPC companies all throughout the implementation of the EPC contract. Client may put up a project management team or PMT to oversee the EPC contractor. The may oblige a specialist to assist and look for consultants onboard the team. They will make sure that the EPC Contractor is executing all the works according to the approved work scopes and according to agreement. It’s usual for Eng’g. & Construction Contractor which provided the FEED to be proposed a contract on Project Mgt. Consultancy or PMT.
A lot of people imply EPC contracts as turnkey construction contracts because it permits the owner to easily ‘turn the key’ as soon as the project is finished for the system to be entirely functioning. Further to providing an entire facility or plant, contractors must also deliver it for a definite date and cost. This assurance means that the contractor, and not the owner, will gain any extra expenses. If the project is not carried out completely to the stated degree after completion, the contracting company may also incur fiscal charges.
In other cases which may be connected to a period the client opts the project to be handed over, an eng’g. And construction firm can be work on basis of direct reimbursement to begin with and then converted to LSTK as soon as enough resources and time can be given to pricing and quantifying the work scope. A process to convert from reimbursable to LSTK Contract is termed Open Book Estimate or OBE wherein the Contractor will open all work documents or books for client’s representative to study the overall work scope for carrying out the project. A settled LSTK work scope and price will discussed amongst EPC Contractor and Owner of the Project during accomplishing the EPC activities.
Benefits and Drawbacks of EPC Contracts
One of EPC Contracts substantial advantage is that it permits the owner to be involve with a single contractor who will handle the subcontractors. This assigned duty becomes simpler for owner to watch over the project and assess development on performance based as contractor executes the project. This kind of arrangement is also good for contractors who are given more jurisdiction on the design and in choosing subcontractors. Although contractors take in more risk, they may perform more cost-effectively to lessen the cost of building.
Whilst the owner can have advantages from the sole responsible for carrying out the project, they are unable to be involved with the design process, a more impending risk if the design of the project is crucial. Owners must make sure they are cautious on marking out the project’s highlights to steer clear from lifecycle costs and scope amendments. Furthermore, as the contractor executes the construction and design, the common checks and balances don’t exist for the project owner.
The significance, flexibility and assurance that comes out of an EPC agreement in comparison to other forms of agreements like work orders is a substantial benefit in the construction industry. Nearly all EPC contracts offer a set budget contract, a scheduled date of completion and sole responsible person. Additionally, parties usually contain performance guarantees to make sure the constructed facility functions as required in terms of output, reliability and efficiency.
Engineering, procurement and construction, otherwise called as EPC contracts are becoming the most common types of contracting put into practice by the private sector to carry out construction works of large scale infrastructure projects. It is of utmost importance to have a good contract management in position or negative consequences for everyone may occur. Poor implementation of contract management, in effect can bring adverse impact on the overall project. These failures can be a delay in schedule, safety, quality, cost overruns etc. In these days, certain contractors turn down EPC contracts in some jurisdictions because some contractors went through hefty losses beforehand.
Due to complexity and size of projects, terms of construction contracts tend to be complicated too and that usually pave way to an increase on number of disputes. Because they are internationally recognized, a standard form of contract may retain the number and rate of claims. Thus, the EPC contracting scheme may perform very well mainly when the EPC Contractor is acquainted with all the details of the contract and is fully informed of the possible risks following from risk-related agreement clause.
Previous experience of contractor on EPC contracting is regarded as a considerable precondition to have a positive delivery of project. It was also discovered that EPC contracting scheme may function exceptionally for power projects, specifically in situations where the contractor is in suitable position to apprehend every legal issues of the contracts such as risk allocation. In the event that contract is not prepared to take in the level of risk that result from the EPC contracts, which is common in the construction industry, other approaches are considered such as strategic alliance or multi-contracting.
ADGECO GROUP – A leader in EPC Contractors in UAE
The wealthy industry of oil and gas has heavily relied on the manner its construction projects have been carried out, constructed, operated and maintained.
During these periods, once cost optimization and operations excellence drives are influencing the development of energy industry, the task of EPC Companies has expanded manifold since oil and gas operations rely heavily on these companies to not only carry out excellent projects, but also oversee several expenses and manage the features that are connected with the completion of the overall project.
Adgeco Group upholds remarkably high standards for health and safety, ethics and compliance and environmental protection, and is compelled to deliver quality projects on budget and on schedule to the complete satisfaction of its clients.
The company started way back in 1992 in a modest office in Abu Dhabi when talented young businessmen formed one of the initial Arab construction company. Decades after, it continues to grow and applies the same management style when it was founded, an approach that is grounded on common trust with customers, straightforward communication, and smooth partnership in department and location. The company has gone a long way since its foundation. It has grown to consist of quite a few subsidiaries, strengthening the company’s local and international status.
A world leader in delivering project, eng’g & technical services to industrial and energy sector. Having more than 26 years of solid, client focused method and unremitting pursuance for world class quality, Adgeco Group have unrivaled authority in engineering, technology, infrastructure projects, construction and manufacturing area of business.
The company provides solutions in engineering, procurement and construction projects and deals with an extensive scope of advisory and consulting services. It is an international management and dev’t. Consulting firm centered on supporting customers along a variety of the globe’s most complex challenges.
Adgeco strives for excellent construction quality, performance, safety, satisfied employees and social responsibility. These features allowed the company to be the most reliable and sought after engineering, procurement, construction, and Management Company in the region. It’s consistent in delivering projects that provide value added engineering and service skills to clients whom the quality executed and efficiency is important.
As the company values customer satisfaction, Adgeco Group seeks to be a partner in life for clients, a rewarding place of work where their labor force can make their dreams happen and a corporate citizen known for honest and bringing exceptional results. The firm also endeavors to put on the highest value on behalf of shareholders grounded on belief and care amongst parties.
The company pays attention to developing long term customer relations which leads to being one of the most diverse and biggest providers of professional technical and construction services that includes every facet of construction, engineering, architecture, operations, maintenance and specialty consulting.
Located in United Arab Emirates, the company, headed by its Chairman and Founder, Mohamed Dekkak, is now on its 26 years in the business. The company has gone a long way since its foundation. It has grown to consist of solid partnerships, strengthening the company’s local and international status.
The firm takes pride in working with international clients in providing technology, value added service, integrated EPC delivery as well as long term operations and maintenance service to make sure the constant delivery with foreseeable results.
In addition, the firm is now offering broad engineering and construction solutions for infrastructure and plant projects that includes houses and buildings. The company continues to keep its unparalleled status as a top global company through raising client value with outstanding work and better service.
The firm maintains a stable and adaptable contract approach that take into account a set price, can be reimbursed or a fusion of two. Additionally, Adgeco’s do self-perform leading to a more constant and secure execution even in the most demanding setting.
A big part of the company’s success is directly credit to systematic project management, top technical skills, wide international reach built through the years and extensive business sense. Adgeco continues to upgrade and look for new market opportunities to improve its position as a leader in the industry and at the same time accomplishing the organization’s social responsibility and bring added values to stakeholders to achieve global excellence.
Through the combination of modern, economical engineering along with effective and adaptable and management, the company can provide important and strong value to customers.
For many years, customers choose Adgeco to execute challenging projects.
Effectivity of EPC from Project Owner’s Standpoint
Key projects in the oil and gas industry generally take advantage of EPC contract because of some essential benefits that improves the effectivity of such contract from project owner’s point of view. As EPC requires a set budget for the project which then allot small finance risk to the owner and high risk to contractor who must go through the mandatory performance based on identified and approved time frame of the project.
On the other hand, the fixed cost feature of the EPC contract which is commonly thought to be a benefit to the owner can be challenged by getting a chain of change orders that hands over added expenditures to the owner for contractor’s benefit. These disparities are because of work delay, changes in scope of project and submitting incomplete design. To be able to extend more time and financial benefits, the EPC contractor’s company give contract specialist after commencing the project to classify project variations deemed as change orders. As a result, it’s advised to not only involve legal contract specialists and professional project managers but the contracting company’s top management as well especially during negotiations to strengthen the effectivity of EPC contract from the perspective of contracting company. Meanwhile, other claims that low EPC lump sum bid may not be an effective substitute for owner because the bidding contractor may rely on offering variation orders for profit recovery. Therefore, from the owner’s point of view, an EPC contract’s efficiency in accomplishing the objectives of a project entails transparent technical evaluation, stable project condition, and efficient appraisal of submitted bids.
An EPC contract not just require a specific time frame and set project budget but also includes a sole point of responsibility amongst the EPC contractor and owner. The progress of such relationship caught the eye of researchers as the people from owner and contractor sides need to work harmoniously throughout the implementation and development stages for years under challenging settings.
Taking into consideration inevitable work issues, the relationship involving the contractor and client is expose to a variety of behavioral or technical conflicts. Multi-cultural differences, weak communication among workers, bad management, poor implementation, delay in finance and technical requests, low quality of product or service, inability to give correct estimated project expenses are some plausible causes that may result to conflicts.
Thus, a project management team is vital to deal with contracting company for project owner to control difficult conflicts that may happen throughout the execution of project and therefore make sure efficient management and supervision of project implementation. Therefore, it is crucial for the project management team bring together each and every project stakeholder for their ideas, observations and approvals. The capability of an EPC team to manage well the relationship amongst investors, balance primary competencies and seize opportunities as they come contributes to the success of projects. The EPC team must be made up of specialists who are capable to manage all the required conditions all through development and implementation phase.
An EPC Contractor’s Outlook on Being Global
A unified vision with strategy will prompt fruitful project conveyance for EPC contractors.
Productive approach of an eng’g, procurement & construction (EPC) venture entails the contracting company to work with a unified, strategic foresight. Lack of it, an EPC organization’s offerings break apart.
Lower product costs are affecting our clients’ money flows and their capacity to finance extends the way they’ve done before. The EPC business has a duty to meet people’s high expectations and enhance the capital effectiveness of ventures with the goal that customers can proceed with their strategized investments. What the EPC contracting company can offer must be brought together behind that vision.
Regardless of either an EPC organization works across the globe or just one area, taking on a “global” outlook—guaranteeing that all assets are centered on conveying greatest certainty and capital proficiency—will enable customers to move forward with their most significant capital undertakings.
The objective of work in the home office is to help development, and a construction development driven outlook is fundamental in each stage for undertakings to accomplish capital effectiveness. Management and construction groups must be engrossed from the very beginning, making creative and modern design plans concentrated on effective construction development.
For instance, considerably expanding the part of facility that may be modularized, for example, electrical and instrumentation materials, can incredibly lessen plot area requirements, material amounts and on location work prerequisites, producing generous cost reserve funds. This style compels critical arrangement in advance between eng’g. Disciplines and on location tasks groups. Broad modularization on Shell’s Quest Carbon Capture and Storage Project in Canada conveyed the capture segment of the facility at 30 percent lower than first estimated costs.
Construction Development Budget Savings
Scaffolding works, which may range around 20 to 40 percent of direct work costs on an extensive scale industrial undertaking, is another part where significant savings on cost funds are accomplished through construction driven plan from the earliest starting point. Including the scaffolding into a task’s meticulous design plan will essentially enhance amounts and on location efficiency and can possibly lessen scaffolding hours by half when measure up to different undertakings. Utilization of this kind of arrangement on Canada’s Northern West Redwater Partnership’s Sturgeon Refinery Project was as of late perceived with a Celebration of Eng’g and Technology Innovation (CETI) Award by Fiatech, a worldwide association devoted to the improvement of the capital project industry, for the executed project and benefits it provides.
A tight work relationship and collaboration with fabrication yards permit fabrication groups to work as one with building and acquisition, prompting on module outline and delivering suggestions. This coordinated effort enables work to stream flawlessly between stages, making plan conviction and cost investment funds from limited interfaces. It holds huge difference as compared to usual execution method when engineering group’s hands over designs and obligation to fabrication yards, making storehouses amongst stages and requiring fabrication yards to begin from square one.
At the same time, gifted, capable art experts are fundamental to finishing ventures with the quality, spending plan and timetable assurance customers anticipate. The EPC business has a duty to put resources into the art workforce without bounds through a feasible, long haul responsibility to craft training.
Good preparation not just expands profitability and security in the ground, yet underpins worker retention in these demanding profession.
For instance, due to its United States Gulf Coast Craft Training Center in Pasadena, Texas, the company, Fluor, intends to build up a solid pipeline of craft resources for forthcoming opportunities. The Training Center proposes first level preparation training in the instrumentation, electrical, millwright as well as pipefitting disciplines and in addition welder improvement training for free to students and with no commitment to work for Fluor. With very qualified craft experts, organizations can use the joint and effective designs created in the home office to additionally upgrade production and protection at the job site.
More EPC Companies to Compete in Renewable Sector
A recent study presented that contractors that provide engineering, procurement and construction services in renewable market must be able to adapt to a developing competitive market.
In conclusion, even though the renewable sector is anticipated to largely improve by 2021, the shortage of big projects will eventually compel the biggest EPC companies to modify their business strategies. The study was published a tax and accounting company that practice renewable energy.
In a setting where simple projects have been made, being distinct and informed are relevant. A couple of EPC companies have focused on wind in the past are beginning to expand their focus to solar, which can provide a stronger policy environment.
Finding the Correct Choice of EPC Contractor
An organization that deals with turnkey work for a solar based power plant usage – from configuration, to acquisition of parts to development of power plant is called EPC contractor. Engineering, Procurement, Construction, some EPCs additionally take up preservation work that deciding on a company’s EPC choice is an important element to consider especially for large scale solar power plant projects.
Why is selection of EPCs a critical activity for the success of solar power plants?
Finding the right EPC contracting company for your construction project is a vital aspect for a successful execution of solar PV power plant, as they act like a bond that puts together blueprint, acquisition and the entire development. For an industry in its underlying stages, choosing the correct organization for turnkey execution isn’t shockingly a standout amongst the most basic practices of a project developer.
While the distinction between a decent and great (or extraordinary) EPC won’t seem like a considerable measure on paper, recall this: Even a 2% addition in profit because of great selection of EPC (rather than a decent EPC) builds your yield per MW by around 30000 units annually, or almost a million units over a 25 year lifetime. That would be extra revenue for you and this is only for 1 MW. Simply envision the extra benefits for a 10 or 25 MW plant you are setting up!
Moreover, a great EPC may even have the capacity to help you in getting credit at a somewhat less expensive financing cost (or your running with a decent EPC may influence the bank to see the task as lower risk and lessen the loan cost). Indeed, a good deal on financing could altogether add up on your RoI.
Also, there could be more. A great EPC, due to careful preparation, could even finish the solar power plant a month prior to decent EPC which translates to fund that flows a month early. As a financial specialist or a businessman, you know how essential getting that money a month sooner could be!
Choosing the Right EPC is more than just a Choice
While it may appear to some that the EPC is simply a construction and electrical company put together, with regards to solar, EPC is substantially more than that. Provided that solar is a renewable source that needs to be in good operation for 25 years, choosing the privilege EPC may have a significant effect between a successful power source and a fizzled venture.
Despite the fact that the solar energy initiatives is still a new area there have just been instances of poor power plant development. There have been cases chronicled in Asia where projects such as these, scarcely a year old, must have been rebuilt! A good business lesson would be trying not to go for an EPC in light of the fact that he cites a low value, first assess the EPC on basic execution parameters and simply after he had scored well on every one of the parameters, then think about the budget cost.
- As a solar developer, selecting an EPC is definitely a vital process. Any extra parameters you utilize while picking your EPC, do not neglect to take after these 3 rules:
- Try not to go for most minimal cost EPC. There is an exceptionally probability you will wind up with the least quality sun powered power plant
- Try not to go for EPCs who are unwilling to talk about quality parts of the segments and arrangements tattered. An EPC company that do not sit with you and examine every single quality parameter of each segment conceivably does not know enough information about them himself!
- Try not to go for EPCs who begin their advertising pitch with their cost. An EPC for whom cost is the beginning stage likewise is an EPC for whom cost will be the closure point – he very likely has no other target offering!
- What are the main parameters that ought to be utilized to choose EPCs or do due persistence on them?
The EPC contracting company basically ensures fulfillment of the plant on schedule and budget, and furthermore plant execution, along these lines to enable the developer of the project to secure financing from their finance partners. Therefore, a careful assessment of the EPC is required before making a final decision.
Guidelines for Selecting EPC
- Company profile, background and number of years they are in operation.
- Projects executed
- Who’s who in their team of experts and partners
- Financial capacity of the company
- Affiliation with banks or finance institutions
- Previous sub-contractors
- With good operations and maintenance skills
- Adaptability to work on varied conditions
- Top professional expertise in the following engineering fields: Design for PV Panels, Electrical Design, Inverter Selection, and Design for Power Evacuation, Civil & Structure Design
- Procurement: Modules Inverters Other BoS – AC & DC Side Electricals, Cables, Monitoring Systems
- Commissioning: Project Management, Liaising with Government
Points to Consider for Utilities on the Lookout for EPC Contractors
Now that oil and gas, power, water and wastewater utilities has started on studying means to plan their forthcoming projects in infrastructure, the significant key resolution in the overall procedure lies on choosing the right EPC (engineering, procurement, construction) contractor. Although there are many EPC providers today, these companies function in a variety of fashions.
There are some important points to consider in the selection process and these areas may not be evident on the website. Some may take a little more research and due diligence because in the end, they are important to the success of the project, much like the manpower and materials that will be utilized in the project construction.
Things to take into Consideration:
- Choose an EPC that always engage in lean practices in engineering and construction.
- Select an organization that boasts of its committed experts with solid emphasis on putting together a strong team.
- Work with an EPC company that fully supports ownership engagement
- Find a company that promotes good safety practice with keen compilation of near miss reports
- Search for an organization with solid financial growth and expertise on risk management.
Qualities and Capabilities
Aside from the 5 main points mentioned, project owners must also be careful in inspecting latest projects carried out by EPC contractors to make sure the intricacies of the present time are met.
One must also take into consideration how smooth the project flowed, how was the work relationship between the EPC team and owner’s group, how they handled issues, if communications went easy and smooth and the transparency of the EPC Contractor. These factors may come subtle but they are as much important as the legal contract and price quote that offers a lot of convenience.
Key Developments in the EPC Contracting Industry
Taking into account the features such as digitization and fluctuating oil process, the industry of Engineering, Procurement and Construction is experiencing a fascinating stage that affects it progress and development. Business establishments in the EPC industry particularly are trying to look for means for rewarding and continuous function.
An industry report in 2017 presented that there are 3 emerging trends that shapes the market and maintains good success.
In the recent years we can see a decrease in number of mergers and acquisitions in the EPC sector due to the uncertain market. Nonetheless, analysts can see that consolidation will bounce back due to a variety of reasons.
Commercial decline for the past years has affected small business establishments (with not more than 6 billion dollars in revenue) more than the large firms and more diversified peers. The small companies today are carrying out variety of measures to lessen overhead and simplify cost structure. Several may endeavor to realize their debt agreements through the year 2020. Small firms may put themselves in position for acquisition.
Because of unclear conditions, EPC companies and infrastructure developers show fascination in diversifying their asset and putting their money in renewable energies as a business strategy and create more value.
More Challenge in the Industry
The sector of subcontracting and contracting is undergoing drastic changes that leads to new challenges for operations and management professionals. Clearly, there is a shift towards LSTK contracts otherwise known as lump-sum, turnkey agreements wherein an EPC firm takes the cost risk (lump sum) and ensures the operations is ready (turnkey). The clients from public as well as private sector have turned to be more savvy on projects cost requirements and leverage the highly aggressive bid market. Therefore, the development on EPC Turn Key Projects and agreements is on the rise and will be continuing to increase more in the coming years.
Additionally, there is also a shift in contracting domain on the approach to project definition. Clients have begun to break big projects to small, discrete work projects. This allows customers to acquire good price, although they should carry out a more distributed responsibility of project management. This option lets buyers to obtain work from the most economic proposal.
One interesting trend is the move to public private partnerships or PPPs, especially in the United States market where this development is fairly new. This supports gov’t agencies improve and restore infrastructure minus investing in capital to back up this kinds of projects. Teaming up with Engineering and construction companies that invest in their own asset to partake in exchange of some trade off like sharing in profits and other benefits to create a win-win position.
Competition from Developing Economies Are Growing
Engineering firms and contractors in fast developing markets such as China, India and Korea have built up in the past years a much needed experience and experts. After these key players have accomplished target growths in their respective local markets, they are ready to move outside and compete in the international market.
Business establishments in fast growing economies, for the past years, have focused on their respective countries, building up gradually fund assets and professional expertise. Today, as their local market has developed already, their companies are now expanding outside to seek and compete with big players in the industry.
These organizations offer scale and work benefits to traditional, on the site projects to create strong market competition with less margin.
For EPC companies, there’s been a unique modification in business model. Modern fund mechanism, increase in investments and available eng’g. Services has triggered international corporations to enter developing markets to accomplish growth.
EPC/ EPCM Definition & Comparison
EPC (Engineering, Procurement and Construction): signifies that the firm is contracted to carry out EPC services by the proprietor. Think Design & Construct type of contracts, is when the project is mostly overseen by Contractor and the cost risk and control are weighted towards the Contractor and away from the proprietor. The EPC contractor has direct contracts with the construction contractors.
EPCM (Engineering, Procurement and Construction Management): means the company is contracted to provide engineering, procurement and construction management services. Other companies are contracted by the Owner directly to provide construction services and they are usually managed by the EPCM contractor on the Owner’s behalf. Think Professional Services contracts, when the project is largely Owner managed and the cost risk and control is weighted towards the proprietor.
The EPC Contractor is responsible for developing a certain project starting from the beginning up until it is finished and contracts are accomplished directly with the contractors. The EPCM Contractor on the other hand, it is the owner who hire companies directly to give the required services. During the construction development of the project, the contractors are not involved directly. Their responsibilities, however, lies on the project’s management and design on the owner’s behalf.
Both types are significantly important to the project. It is, nonetheless, essential to select the right type of contract to prevent undesirable effects on the price and risk in line with the project.
Project conveyance of EPCM Contracts
There has been a huge move in contracting approach in the industry of construction as of late, especially with respect to conventional hazard distribution. In numerous nations in great financial conditions, it is not anymore bizarre to see Contractors declining to offer at the standard settled cost and time contracts. This change is halfway determined by Contractors winding up more complex in their risk examination, yet in addition to a great extent due to:
- The present surge sought after in the worldwide development and building divisions
- The huge size, intricacy and information profile of the known mega projects
- The lack of Contractors with the right skills and assets expected to bring these big ventures the lack of experienced work and good materials and resultant vacillations in related expenses.
Progressively, Contractors as well as Project Owners are searching for other options to the conventional set cost and time venture delivery process. While the customary conveyance procedure stay, (for example, Engineering, Procurement and Construction (EPC); design and build and construct only), the hazard designation and installment agreements change essentially.
Conveyance by conventional set time and budget plans
In the course of the last ten to fifteen years, delivery approach on projects have by and large fused some type of set time and budget plan – whether by develop just, outline and manufacture or EPC. These conveyance strategies were, and stay, prominent with Owners and Investors as the settled time and cost course of action gives assurance and, for EPC Contracts, a sole base of duty. Postponement of liquidated loss might be demanded against the Contractor to boost them to finish the job at the right time and the conditions where the Contractor can guarantee help for increments in the cost are painstakingly constrained. Normally, Contractors try to value a hazard premium into their compensation to manage such hazard assignment.
Where ventures are conveyed on a constrained or non-plan of action financing premise, the requirement for time and value conviction is amplified. While the current powers of interest and supply in the development business have additionally affected the hazard allotment on the “turnkey” EPC Contracts utilized for such activities, and bank credit boards of trustees have loose necessities marginally (credit crunch aside), the adjustment in chance portion has been significantly more restricted.
General Idea of EPCM Plan
The idea of carrying out ventures by method for an EPCM Contract isn’t new. It has faltered in fame for various decades and has, for quite a while, been utilized broadly all through the oil, gas, and petrochemical resource industry. In the present market, complex Owners are frequently not set up to pay the big risk premiums and benefits to Contractors under customary settled time and cost contracts. Add to this, the present growth in the quantity of projects to be carried out over the world, expanded strain to quick track conveyance, constraints on Owners’ assets, rising costs of materials and work, and we are seeing a rethinking of the way undertakings are being conveyed. EPCM Contracting is only one of various elective models ending up more prevalent across the board.
Conveying an EPCM venture implies distinctive factors to numerous members. The method and arrangement of an EPCM Contract will differ subject to a lot of aspects, for example, the:
- Specific industry and undertaking
- Complexity and mastery of the venture parties
- Proprietor’s necessities as to level of association
- Proprietor’s inner task conveyance assets/and range of abilities
- History and level of trust between the Owner and the Contractor
- Level of incorporation between the project group’s particular crew
- Level of hazard on the venture (such as specialized and business/money related).
In simple terms, an EPCM Contract is a consulting understanding for the arrangement of expert or specialized administrations. Toward one side of the range, an EPCM could be thought to be an unadulterated consultancy-type course of action and, at the opposite end, a coordinated EPCM Contract could look more much the same as an incorporated partnership style contract.
The EPCM Contractor is usually in charge of:
- Fundamental and itemized outline and building
- Setting up, actualizing and overseeing tender process for acquisition of all hardware and materials and granting and overseeing works contract packages
- General undertaking administration and organization of work contract packages, including amid guarantee periods.
Customarily, the Owner taking part into the development and acquired contracts for the undertaking. Be that as it may, it still depends upon the structure of the venture, the Owner and the business, the EPCM Contractor may go into agreements straightforwardly with Contractors and providers, as specialist for the Owner, (with the EPCM Contractor expecting no or restricted risk under such contracts). Where this is the situation, there are for the most part clear methods and restrictions on the EPCM Contractor’s capacity to execute such agreements.
EPCM Contractors for the most part don’t assume full liability for:
- Conveyance of the undertaking by certain key breakthrough dates
- Maintenance and authority of the works (with specific exemptions for orchestrating security and administration of wellbeing and so forth.)
- The task being conveyed as per the venture spending plan.
The EPCM Contractor is typically vigorously boosted to expedite the task to business activity time and under spending plan, yet isn’t required to repay the Owner for neglecting to do as such.
Subject to the extent of administrations to be given by the EPCM Contractor, possible liabilities may identify with willful default, fake conduct and, after some type of carelessness or rashness, in regard of matters, for example
- Execution of the outline and designing
- Planning of the task spending plan and venture plan
- Administration of obtainment, including an inability to actualize a goal and aggressive delicate process
- Administration, organization and supervision of the work package
- Coordination of the outline and development works between works packages Contractors.
Customarily, the most extreme obligation of the EPCM Contractor is far lower than is generally the case under settled time and cost plans. It is frequently constrained to the re-execution of flawed administrations and topped out at between 5-20% of the overall EPCM compensation (or, all the more as of late, to the estimation of the benefit and now and again the overhead part also). There are for the most part various cut outs from such a constraint, including for misfortunes coming about because of extortion or wilful unfortunate behavior. Clearly, these game plans rely upon various factors and shift broadly from project to project.
Classic stages of an EPCM Arrangement
Plan and building
It isn’t irregular to have the eng’g plans be separated into various parts. The EPCM Contractor’s engagement may begin as ahead of schedule as the attainability phase of the task. That is, it might be locked in to examine high state specialized angles and set up a study on the probable planning and cost, proposed obtainment preparation plans for long-lead things, extended venture contemplations and different parts of the proposed venture (normally on a straight cost-in addition to premise).
Following the probability report, the Contractor might be selected to carry out the Front-End Engineering and Design (FEED) for the venture. Extensively, the FEED stage covers the essential building and outline for the undertaking and furthermore the advancement of preparatory venture timetables, spending plans and work projects. This procedure permits the Proprietor to go to the market with adequate extension definition to guarantee that it gets offers which are focused and practical – in a perfect world on a singular amount premise in spite of the fact that this may be for the obtainment of long-lead basic way things (such as key gear or establishment work/site and access readiness). Likewise, with the feasibility phase, this segment normally continues on a cost-in addition to premise.
Following the FEED organize, the EPCM Contractor will work the fundamental building and outline into the total definite eng’g. Package. By and large, the EPCM Contractor will at last be in charge of guaranteeing that the building and configuration will meet the applicable execution parameters for the undertaking. To this end, it must facilitate these works with alternate gatherings required to guarantee that the building and configuration agrees to the general task design and other particular necessities.
The EPCM Contract may likewise be organized in such a path in order to allow the Owner, in its outright preference, to teach the EPCM Contractor to continue to the following stage. For instance, at the finish of the plausibility arrange, the Owner can choose to reject the EPCM Contractor and draw in another Contractor to attempt the FEED benefits paying little respect to whether the Contractor has appropriately played out the administrations. Likewise, the agreement might be organized in such a manner that in order to have the EPCM Contractor move into a singular amount EPC after finish of the FEED administrations and in this way going for turnkey risk on the whole undertaking. This procedure can give the Owner more prominent adaptability yet will clearly rely upon the necessities and different requirements of every specific venture.
On top of carrying out the plan and building for the task, the EPCM Contractor is typically required to obtain, for the benefit of the Owner, the greater part of the materials, gear and development works essential for the best possible fruition of the undertaking. To this end, the EPCM Contractor is required to build up a framework or take after methods for executing such acquirement courses of action. This might be a noteworthy errand if the venture is separated into numerous parts and includes the EPCM Contractor setting up a suite of standard frame acquisition and development contracts for the undertaking (most EPCM Contractors will have these as of now),
building up a delicate procedure reasonable for the venture and attempts to be endorsed by the Owner, reacting to tender classification concerns, arranging the business terms of all development work package and provide contracts and finishing every one of the contracts for implementation by the Owner or affirmed by the Owner for execution by the EPCM Contractor.
Once the works have begun, the EPCM Contractor expect the part of the Owner’s “engineer” or “Business’ delegate” under the different work and supply contracts. It oversees and manages every one of these agreements. A key part for the EPCM Contractor is planning every one of the works bundles to guarantee that the majority of the works interface as required and that postponements and variety claims are limited where conceivable. Normally the EPCM Contract will set out the points of confinement on the EPCM Contractor’s power. These confinements for the most part identify with training or concurring varieties, resolving of cases, forgoing any break or default and affirmation of last installments.
Depends upon the extent of the EPCM administrations which, now and again, advances as the undertaking continues, the EPCM Contractor is typically required to assume a dynamic part in checking and revealing amid the testing and charging period of the work package. Further, they are for the most part required to regulate the notice and amendment courses of action amid the imperfections obligation period and furthermore to manage some other guarantee issues. In specific cases, the EPCM Contractor is entailed to play a dynamic part in the administration of cases or question from work package Contractors. On the other hand, this part might be restricted to the arrangement of counsel with respect to any question that emerge over the span of the undertakings.
Financing and complete guarantee
As specified before, where the undertaking is invested through constrained or non-plan of action venture financing, Lenders will request a lot of result conviction regarding schedule and cost in light of the fact that their security is vigorously dependent on adequate and convenient income from the task stage. The borrower is typically the unit recently settled to possess the project and this generally blocks the utilization of EPCM Contracting despite the fact that the result might be less expensive and quicker.
The main conditions (with a few special cases where there is gov’t. assistance or extremely solid customer Lender connections or impact) where EPCM Contracting will be bankable where the Sponsors give the Lenders with a complete assurance. If, it propose the Lenders some type of parent organization assurance until business management or a guarantee to take care of over expense and debt commitments amid a time of deferral. Such an assurance is normally for the overall sum of the balance and falls away upon business operation.
Rest upon the Lenders, the project task and the Owner or Contractor’s reputation for conveying comparable projects, the final assurance might be more restricted and advance down before business activity or as different phases of the undertaking are finished. On the other hand, they some of the time wait past business activity to cover market price risk with subject to the kind of venture and yield.
Boosting the EPCM Contractor
KPI and motivator courses of action are particularly venture based in that capacity, it is hard to definitively recommend venture particular KPI plans without first understanding the key business contemplations driving a specific task. These are normally a mix of time, cost, quality, security, condition and group.
Given the cost-reimbursable set up of many EPCM Contracts, an arrangement of interests is clearly to a great degree pleasing from the Owner’s point of view to support beneficial conduct and positive results. However, market force and a setup of increasing expenses and rare specialized assets have been driving a few Contractors absence of excitement to put excessively in danger.
At the beginning times of a venture, absence of task definition likewise muddles the setting of important and precise targets against which execution can be estimated and proper conduct promoted. Setting the structure and standards at a beginning period, while there is an aggressive setting and fair bargain position, is for the most part the most ideal path for the Owner to secure KPI plans.
As noted before, there has been a noteworthy move in the development showcase in the course of the most recent couple of years especially in regards to customary hazard portion. This has additionally affected the type of EPCM Contracts being utilized. Remarkably, a few Contractors are liking to move far from, or constrain the degree and effect of, KPIs.
This is to a great extent since they trust these understanding can:
- Make vulnerability (and subsequently expanded risk and are more troublesome to accomplish in a rising market price)
- Cause more conflict between the parties which does not cultivate a sense of participation or belief or offer assistance to create a long-term multi-project rapport
- Squander time and assets on attempting to screen, record and concur on whether KPIs have been met (which diminishes from the fundamental objective of effectively finalizing the project).
Some Proprietors favor a coordinates approach toward regulating and overseeing the venture associated to accepting portion of, and sharing, the EPCM obligations. Given the greatness, complexity and length of the “mega projects”, a few Temporary workers may be unwilling to commit a fabric rate of their compensation to an incentive administration organized on a “whole of project” premise as contradicted to one that compares with discrete stages of work.
A few Proprietors lean toward a unified approach toward regulating and overseeing the venture associated to expecting portion of, and sharing, the EPCM duties. Given the size, density and time length of the “mega projects”, a few contractors may be unwilling to commit a material rate of their compensation to an incentive administration organized on a “whole of project” premise as restricted to one that compares with discrete stages of work.
Many ventures are nearly totally taken via “timetable”. Subsequently, and in spite of both parties’ best endeavors, a motivation course of action that overwhelmingly centers on time may definitely make wasteful aspects which comes about in expanded costs, double handling and/or re-work which moreover puts weight on costs. Any KPI arrangement adopted for a specific venture must energize the kind of conduct the Proprietor needs the Temporary worker to show so as to accomplish the project’s targets. Over all, any KPI course of action ought to center on maximizing efficiency and conveying opportune and imaginative comes about while striking on time and budget without relinquishing quality or security or making wasteful aspects. Clearly this is simpler said than done.
Where the cost-plus pattern is utilized, there needs to be a point by point evaluation of what costs are in and which are not. A few EPCM approach split as well the straight costs from venture and main office overheads and or treat them in an unexpected way or approve whole or settled rate for a few or all of the overhead or benefit component. Doing so can moreover tie into the incentivisation administration. On the off chance that settled, at that point the Contractor’s leeway lessens the longer the conveyance period and/or the more noteworthy the reimbursable component becomes.
The unified group approach of EPCM Contracting is skirting on an alliancing type contract without taking the last step of straightforwardly making a “no blame” situation. The reality is in any case, that it gets to be progressively troublesome to allocate fault and seek after a contractor for breach of contract in a coordinate’s group approach where agents of the Proprietor and the contractor work together and make choices mutually. On the other hand, numerous EPCM Contracts are more comparable in fashion to consultancy contracts and cannot be compared to alliancing.
Present projections demonstrate that the global construction development boom is likely to proceed into the predictable future. Thus, more Proprietors and contractors will look for to rethink conventional extend conveyance strategies, especially in reaction to an assortment of financial and market-driven changes. In such an environment, it is likely that unbending settled time and taken a toll courses of action will gotten to be less common and we will see a lot of cost plus, alliancing as well as EPC arrangement.
As the intricacy of so called “mega projects” rises and work, material and skilled manpower assets ended up more challenging or costly to source, Proprietors will require to select between paying an expanding EPC profit/risk premium or putting more prominent dependence on the mastery and aptitude of legitimate and experienced contractors to oversee the conveyance of their projects.
If the last mentioned is the favored alternative, a carefully arranged EPCM Contract, with fitting incentivisation courses of action, will go a few way to guaranteeing that the Owner’s commercial and other venture targets are achieved.
Three billion dollar EPC contract for refinery upgrade awarded by ADNOC
In partnership of Samsung Engineering of South Korea and CB&I of the Netherlands, the two companies have been granted an EPC contract by UAE’s Abu Dhabi National Oil Company or ADNOC.
The agreement is regarding ADNOC’s billion dollar Crude Flexibility Project, whose vision is to present crude processing flexibility at its oil refinery in Ruwais.
The project is expected to empower ADNOC’s Ruwais Refinery-West complex to process up to 420,000 bpd of Upper Zakum crude, or comparable crude types available in the market. The development, thusly, enable it to use Murban crude, which summons a pricier cost in international oil markets, meant for exportation trades.
In an announcement, the oil organization presented that the arranged adjustments, expected to be finished before the finish of 2022, will include atmospheric residue de-sulphurisation (ARDS) unit to the refinery.
As indicated by ADNOC, the ARDS innovation is broadly utilized as a part of updating medium to substantial petroleum oils and residues to more profitable, ecologically well-disposed transportation fuel, and to somewhat change over the deposits to create low-sulfur fuel oil and hydro-treated feed stocks.
Executive of ADNOC’s downstream directorate Abdulaziz Abdulla Alhajri, stated that Allowing the Ruwais Refinery-West to process Upper Zakum, or comparable medium sour crude in lieu of Murban light sweet crude, will enable the company to take out better value from ADNOC’s crude assets.
In addition, the set up will signify that the company can amplify the advantage of cost differentials to upgrade refinery margins, enhance the middle distillate items, and discharge significant Murban crude to the market.
Abu Dhabi National Oil Company likewise shared that as a major aspect of the determination standards for the EPC agreement, it takes into account the degree to which buyers would support draw In-Country Value (ICV) for the United Arab Emirates. By incorporating the ICV criteria into the business assessment process, ADNOC said it planned to augment spend on native products and services, bolster financial development, enhance learning exchange, and make openings for work openings for UAE locals.
List of Technology Patterns for EPC Companie
EPC or Engineering, Procurement and Construction (EPC) organizations, otherwise called design build organizations are commonly not as fast to embrace modern innovation for the concern (or expectation) that it is a passing prevailing fashion. Be that as it may, with the decline in oil costs, numerous organizations are setting aside this opportunity to perceive how the can enhance and stretch out beyond the opposition. We’ve delineated seven innovation trends we’ve found in the EPC world and how they affect the business.
The EPC business was moderately not that fast to adjust to new innovation on mobile – faraway jobsites with constrained availability block reception, however that is rapidly evolving. Numerous versatile applications, for example, those made by Rhumbix and InEight, endeavor to build profitability amid the development stage by permitting individuals taking every necessary step to better speak with individuals in the workplace, and visa versa. “Information” and “Efficiency” are the huge popular expressions here, with a lot of chance to utilize data assembled at site to build execution and remain on plan.
Something other than costly toys or military weapon, the innovation of drone is making a solid (and far less dubious) initial appearance on EPC ventures. Fundamentally utilized for onsite studies, advance photographs and media material drones can be spotted floating noiselessly above numerous activities today. Additional latest technology to pay attention to later on are things like review drones for checking progress in extreme location spots and infrared drones that can study for spills amid snugness testing and start-up.
It should not shock anyone that the no. 3 spot made this rundown. As the lesser-known sister of virtual reality, the augmented reality has become the dominant focal point as of late with the arrival of Pokemon Go and with the multiplication of SnapChat’s addictive channels. Augmented reality has a key favorable position over virtual reality that makes it so interesting to the EPC business: you are constantly mindful of your environment. Indeed, even with a couple of increased reality glasses on, you can at present observe everything in your field of vision and securely stroll around. This would enable architects and engineers on location to see the 3D model a venture is built, roll out plan improvements as fundamental, and get remote help from merchants while in the field. The rundown goes on – you can read about point by point utilize cases here
Amid the development stage, your venture is just on a par with your workforce, which is the reason the study spotlight has been swung to utilizing wearables to check things like individual heart rate, temperature, air quality and development. Ongoing input would enable administrators to screen if a group is getting overheated, over worked, or if the air isn’t ideal for strenuous work and address those requirements previously they turn into an episode or medical aid. Sounds like the familiar Big Brother show? All things considered, it is and that may reduce development with this pattern.
At the point when the vast majority contemplate on 3D printing they consider something like MakerBot making novel cellphone cases or perhaps Xkelet 3D printing throws for broken appendages. For EPC you have to think about larger picture. A few new companies are spearheading 3D printing pipe spools and a few have effectively shown that you would 3d be able to print solid structures. Shell is as of now well on top of things and is exploring different avenues regarding printing substitution valves. Points of interest, for example, cost-viability and meeting API principles are not exactly resolved, but rather its initial days and unquestionably a space to watch (and put resources into on the off chance that you or somebody you adore is an EPC organization).
The quantity of database and framework overseers still utilized by EPC organizations routinely confounds well informed modern day generation. As organizations and ventures develop to meet the higher requests of lower venture spending plans and high undertaking costs we can hope to see tender and more productive database programming that don’t require a little armed force of managers to run. There is a crucial opportunity to get better with EDMS or electronic document management systems, complete frameworks and procurement programming. EDMS frameworks, for example, iDocs that put the archive proprietor, (for example, an engineer) responsible for updates, transmittal and audits instead of giving it off to a report controller are picking up fame. Culminations database programming, for example, WinPCS and Zenator have been around for quite a long time – they are as of now helping ventures cut down on paper pushing by utilizing bar-coding and electronic structures. At last we can want to see more astute obtainment frameworks that impart the requirements of building, development, authorizing and start-up, rapidly and effectively, while additionally keeping provider data present and precise.
This pattern is about what EPCs are into design and build, instead of how it’s finished. Wind farm and solar parks have sprung up over the most recent couple of years, yet they are a long way from being the main income generator of EPC contracts. This likely won’t definitely change in the following couple of years, however there will be a greater amount of them. These undertakings will require an alternate range of abilities to execute and acclimation with new innovation.