EPC Contractor & EPCM Contractor Key Differences - No.3: Contract Price

 

EPC Contractor & EPCM Contractor Key Differences - No.3: Contract price

 

An EPC contract is typically performed by an EPC contractor on a fixed price basis (being fixed for EPC contractor at the time of entering into the EPC contract and subject to the terms of the contract, eg. right to variation costs and delay costs). As such, an EPC contractor bears the risk of cost overruns and enjoys the benefit of any cost savings. Given the EPC contractor assumes time, cost and quality risk in providing the facility, the contract price for an EPC contractor under an EPC contract may include a significant risk premium. However, the fixed price nature of an EPC contract provides the owner, and its financier, with some comfort with regard to having "price certainty" in delivering the project.

 

An EPCM contract, on the other hand, is typically performed by an EPCM contractor on a schedule of rates or cost reimbursable basis. As an EPCM contractor does not assume time, cost or quality risk in providing the facility. EPCM contracts typically contain significantly lower margins than EPC contracts done by EPC contractors.

 

Source: Ashurst