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Mannvit on EPC vs EPCM contracts for development

EPCM Management Example (source: Mannvit presentation)
Alexander Richter 6 Mar 2013

As part of the Iceland Geothermal Conference, engineering group Mannvit provides its views on engineering, procurement and construction (EPC) contracts vs. EPC + Management (EPCM) contracts.

As part of the Iceland Geothermal Conference, Mannvit engineering group from Iceland provided its views on EPC vs EPCM contracts based on its experience both in Iceland and internationally.

The presentation of Siguardur Arnalds of Mannvit provides a good overview and introduction to the different elements of both.

He describes the main construction stage alternatives.

The first alternative he described was a turn key fixed price EPC (Engineering, Procurement and Construction) that traditionallyis done by one contractor directly for the owner of the project. The Owner in this scenario is supported by his own engineers, while all pruchasing is done by contractor. In the EPC scenario, the construction risk lies mainly with the contractor.

The second alternative is a EPCM contract (Engineering, Procurement, Construction and Management). HEre the engineering consulrtant works directly for the owner or by various integration with owner. In the scenario there is a mix of reimbursable and fixed prices and the owner is involved (and has to approve) all purchasing. In the EPCM scenario, the construction risk lies mainly with the owner.

In Iceland all main Icelandic power projects have been EPCM contracts with a very strong involvement by the owner of the project.

The main reasons as described by Mannvit are mostly that the lowest overall cost is a sum of many favourable bids and that breakdown in contracts is aimed at separate supply markets. Local participation is frequently promoted and the owner approves each purchase component.

In the experience of Mannvit, the promotion of local participation is a social responsibility and that better quality control an be applied. Risk premiums only have to be paid if the risk elements actually occurs. Furthermore the EPCM concept provides more flexibility for a change in situations for the project or allows for better/ more tailored solutions.

So while EPC is a simple solution for the owner, it generally is more expensive and the end result is not necessarily the best possible plant.

On the other hand the EPCM is a more complicated issue for the owner, but it provides for well managed projects that generally have a greater chance of success.

Source: Mannvit presentation