Improving the chances of success with EPC contracts

Written by: Stephen Wise | Published:

Stephen Wise, waste sector director and waste technical lead at Amec Foster Wheeler, looks at how waste management services can use EPC contracts to their best advantage.

Whilst speaking at a recent European conference on the successful delivery of waste management engineering, procurement and construction (EPC) contracts it was interesting to observe that many of the delegates related to one of the key points that risk transfer is not fully defined or discussed at the outset of the project. It led to an interesting discussion on the key principles of EPC contracts and how these can be best followed.

EPC contracts are where the engineering and construction contractor undertakes the detailed engineering design of the project, procures all the equipment and materials necessary and then constructs and delivers a fully functioning facility or asset to the client.

They are also referred to as lump sum turnkey projects or fixed price contracts. A key element is that the asset or facility is delivered at a fixed price. EPC contracts were originally developed to deliver non-processing infrastructure such as buildings and bridges.

Over time they have been used in many sectors that also include processing of materials. The waste management and resource sector has seen EPC contracts used over the last 10 years or so to deliver large scale, typically complex waste treatment and disposal infrastructure which has included energy-from-waste plants, mechanical and biological treatment plants and materials recovery facilities.

Why should businesses opt for EPC contracts?

Within an EPC contract the contractor is typically fully accountable, will hold the project risks, use a fixed completion time, and use a fixed price, with the contractor responsible for procurement, quality and performance guarantees.

This approach means that the EPC contractor must fully understand and account for all of the project risks within the price that they provide.

Waste management EPC contracts often involve a number of processing activities and technologies as well as the building, and waste in itself is not a homogenous material introducing more complexity into the project. It is often this interrelated risk which increases the cost of EPC contracts.

In addition, not fully understanding the risk can mean that the cost further increases. With waste management projects often involving complex processing leading to higher costs, many have been led by large construction companies. These have limited waste processing experience supported by generally smaller technology companies which has not always led to harmonious relationships.

It is perhaps this misalignment and lack of full understanding of the risks that creates challenges within contracts and not the fact that they are EPC contracts.

What are the benefits?

Where EPC contracts have worked well and delivered successful projects it is perhaps because they have fully followed and worked through the key EPC principles and have developed a robust risk register which allocates risk to where it can best be managed, not to where it can simply be pushed.

They have a clear strategy for each phase with solid costings and contingency included, keep the structure as simple as possible to reduce interface risks, work with the client to make sure that they are capable and intelligent and use a suitable form of process based delivery contract such as the FIDIC Silver Book or IChemE Red Book.

Amec Foster Wheeler has a successful record of delivering EPC contracts in both the oil and gas and power sectors and has long understood that for these types of facilities understanding the process risk is key critical to their successful delivery.

As waste sector director this was a strength I wanted for us to extend into waste projects and as a result we have taken this approach and applied it to waste sector EPC projects where the process risk is also key critical.

We therefore approach the risks from a process view and using our experience from the oil and gas and power sectors go through a robust protocol to fully identify risks and make sure that they are with the most suitable part of the supply chain not just pushed down.

Whilst going through these steps robustly and spending time at the start of the project to work through all the key principles does not guarantee success it will certainly increase the likelihood that the project will be delivered successfully.


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