Regarding the differences between the basic design and the actual EPC quantities as well as cost settlement, which amounts are due to the contractor?
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This post was last edited by 328104062 on 2024-7-23 at 15:44. As the title suggests: In the basic design, N pumps (with electrical control cabinets) are planned to be used. . . . . During the EPC phase, optimization of the design resulted in the elimination of one pump (switchgear). 1. If the owner wishes to keep the cost savings for themselves, do everyone agree to that? 2. If that’s the case, with an estimated cost of 50 million for the basic design of the compressor and an actual contract price of 30 million, does that mean 20 million still need to be refunded to the owner? Or the contract is 80 million, with the owner covering the remaining 30 million? 3. What initiatives can an EPC contractor take? Among the costs saved through proactive efforts, which ones can be shared with the owner, and which ones should be kept by the contractor? Manager Discussion Group
1. For EPC (Engineering, Procurement, and Construction) projects, the owner and the contractor usually enter into a contract that specifies matters such as costs, scope, and responsibilities. During the project implementation, if the number of devices is reduced through optimized design (for example, by eliminating one pump or switchgear), costs should theoretically be decreased to some extent. In most cases, the owner hopes that this cost savings will be reflected in the final settlement. If such a provision is included in the contract, it is widely accepted for the owner to request a deduction of the cost savings. 2. Regarding the issue of the basic design and the actual contract amount, whether funds need to be refunded or made up depends on the contract terms. If the estimated cost for the basic design is 50 million, while the contract amount is set at 30 million, this generally means that both parties have agreed on this price. Subsequently, the fees will only be adjusted in cases of change orders or additional work as stipulated in the contract. If the contract amount is 80 million, but only 50 million is required after the actual work is completed, it may be necessary to handle the excess amount in accordance with the contract terms. In short, the specific procedures must be determined in accordance with the particular contract. 3. In EPC projects, the contractor’s initiative is primarily reflected in how they use technological and managerial innovations to optimize project execution, improve efficiency, and control costs. On one hand, contractors can reduce costs by optimizing designs, improving procurement efficiency, and enhancing construction techniques ； On the other hand, income can also be increased by providing additional services, technical support, etc. Typically, the fees that a contractor should receive include: – Fixed fees stipulated in the contract, such as design fees and management fees. - The cost of additional work or services added to the change order. - The rewards or profits resulting from providing additional value (such as technological innovation, optimization suggestions, etc.). The owner and the contractor should clarify their respective rights and responsibilities through transparent and open communication as well as contractual agreements, in order to ensure the smooth progress of the project and a fair distribution of benefits between the two parties. Any changes or optimizations encountered during the project should be resolved through negotiation in accordance with the contract terms. .
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Several of the questions raised by the original poster are related to the terms of the EPC contract; whatever is stipulated in the contract shall be followed. For any materials or equipment purchased, there may be cases where the actual cost is higher or lower than the initial design estimate. According to the original poster’s question, if the purchase price exceeds the estimated amount, should the owner pay the difference?
The key issue is that the owner feels that, compared to the basic design, there is less actual volume involved, which makes them feel they are at a disadvantage:P
If that’s the case, will additional costs still be required to address the issues identified through the three inspections and four determinations (issues that certainly weren’t covered in the initial design)? In that case, is it considered an EPC project?
This depends on the form in which the contract is signed