In the last post we discussed how contracts are classified based on the Mode of Project Delivery. We read that depending upon the mode of project delivery; various contracts / contracting approaches could include EPC, EPCM and Multiple Package Contracts. Further we discussed EPC Contract in more detail in the previous post. Please click here to read that post: http://www.rkstrainings.com/difference-among-epcm-multiple-packages-and-epc-contracts/
In this post we wish to discuss EPCM and Multiple Packages Contracts in further detail. Both posts together shall bring out more clarity on the distinguishing features of each type. A careful analysis and comparison above contracts / contracting methods shall reveal the appropriate usage of each one
Contract Classification based on Mode of Project Delivery:
Please re-read the example of Construction of Ramesh’s House in the previous post by clicking the above link
EPCM and Multiple Packages Contracts in more details:
B) Multiple Packages Contracts
In the last post we discussed that EPC Contracts are best option if Owner intend to award the entire scope of works to a single agency. This is done to minimize the interfacing issues and holding single agency responsible for completion of the entire job within agreed cost and timelines.
However, another Owner may not prefer to award the entire scope of work to a single agency. This Owner may be cost conscious or desire to have better control on the project. Further, a single agency (i.e. EPC Contractor) may not have enough experience in all disciplines of the project. Accordingly, the EPC Contractor may end up subcontracting certain parts of the scope, which are outside his portfolio, to other agencies
In view of the above, Owner may find it better to split the work into various packages keeping in view the nature of work and/or availability of contractors (e.g. Civil, Mechanical, Electrical, Supply, Installation etc.). As a result, the Owner may appoint a separate agency for the execution of each package.
In the above contracting mode, Owner supervise the work of each contractor. Further, Owner also assumes responsibility for coordination and interfacing between different contractors. Under Multiple Packages approach, each individual package is executed as a separate contract and communication between various contractors is through the Owner.
C) EPCM Contracts:
EPCM means Engineering, Procurement and Construction Management.
This contracting approach is a modification of other types to remove their disadvantages. Multiple Packages method offer advantage of overall lower cost to the Owner. This is because Owner is awarding each package directly to an entity who is most competitive for the given scope under individual package. However, coordination between various agencies and resolving interfacing issues is a major problem in this model.
EPCM is a hybrid model and could help the Owner to take the benefits of multiple packages approach together with managing the interfacing issues through appointment of an expert. Under EPCM Model, Owner appoint EPCM Contractor in addition to various package contractors and place this agency in between owner and packages contractors
EPCM Contractor work as agent of the Owner; complete the design; support the Owner in procurement of Project Plant & Equipment and manage the Construction Services. Construction Contractor work under the supervision of EPCM Contractor. EPCM Contractor responsible for interface management and advise. Owner remains responsible for all technical and commercial matters associated with the Project
EPCM Contracts are most suitable for smooth execution of project when;
i) Owner does not have enough experience for execution of similar projects
ii) Owner is not very skilled in monitoring the contractors
iii) Owner lacks expertise in resolving interfaces between various agencies
iv) Owner intend to reduce construction cost and ready to take reasonable risk
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