【Haichuan EPC】Composition of General Contracting Management Fees for Overseas EPC Projects and Control Measures

Composition and calculation of management fees: The total management costs for overseas EPC projects mainly include expenses for externally hired personnel, domestic management staff, rent for project site offices, vehicle usage costs, on-site safety insurance fees, safety production expenses, as well as costs related to on-site office operations. The composition of these costs varies depending on factors such as the scale of the project, its duration, and the location. I. Costs of external personnel: The costs of external personnel refer to those incurred during the project implementation phase as a result of hiring foreign managers or local experts to address any shortcomings in terms of specialized skills, language proficiency, management expertise, or legal knowledge required for the project. 1. The salaries, as well as various subsidies and allowances, paid to external employees are calculated in accordance with the terms stipulated in the contracts signed with the managerial personnel employed. When preparing a cost budget, it is advisable to refer to the income levels of managers in the same industry in that region. 2. Pension and payroll taxes are calculated in accordance with the relevant regulations of the country where the project is located. 3. Travel expenses for external personnel are determined based on the location of the project, as well as the city where most employees commute to and from the project site, the cost of one-way commuting, and the employees’ commuting needs. 4. The equipment and supplies allocated to project team members refer to the various devices necessary to enable them to carry out their tasks efficiently and safely, such as computers, monitors, mice and keyboards, walkie-talkies, etc., which are determined based on the specific equipment and specifications required to support the smooth progress of daily work. II. Domestic management costs: Due to the complexity of overseas projects, it is usually necessary to assign experienced managers to the site to undertake key tasks such as project management, coordination, and supervision, in order to ensure that the entire project execution process complies with the relevant regulations of domestic companies. Domestic management personnel expenses include salaries, benefits, assignment allowances, international travel costs, etc. 1. Salaries and allowances for domestic managers: Due to the complexity of the overseas environment, the compensation levels for employees assigned abroad are usually higher than those in domestic positions, and these amounts are calculated based on the standards set by the company regarding salaries and various allowances for such employees. 2. International travel expenses are necessary costs for domestic managers to travel to and from the project site, and are calculated based on the number of employees sent abroad, the estimated number of trips per person per year to the project site, and the cost of one-way transportation.

III. Rental costs for the project department: In overseas EPC projects, the operation of the project department requires appropriate office spaces and accommodation facilities. The rental costs for a project department usually include office space rent, dormitory rent, and facility maintenance expenses. It is determined based on the number of rental units, the average rental price in the area where the property is located, and the length of the lease term; meanwhile, various living expenses such as those for furniture and household appliances, utilities, internet service, and cleaning services must also be taken into account. IV. During the implementation of the vehicle usage fee scheme, vehicle usage fees also constitute an important part of administrative expenses. These costs include vehicle purchase or rental fees, fuel expenses, maintenance costs, insurance premiums, driver salaries, etc. It is calculated based on factors such as the unit price of vehicle purchase or rental in the location of the project, the unit price of fuel, the daily mileage driven by the vehicle, the frequency of maintenance, the unit cost of maintenance, the driver’s salary (if applicable), and the rental period. V. On-site security costs: For overseas EPC projects, especially those located in areas with unstable political situations or complex security conditions, it is necessary to hire security companies to provide round-the-clock security services in order to ensure the safety of the project site. On-site security costs mainly include the salaries of security personnel, as well as the installation and maintenance expenses for security equipment such as surveillance systems, barriers, alarm systems, etc. Calculated based on the pricing of local security companies and the project duration. Due to the significant differences in security conditions across countries, security costs may increase substantially due to the specific risks associated with the location of the project. In high-risk areas, the project may need to hire companies with international security qualifications and deploy professional security teams, which also significantly increases management costs. VI. Safety production costs: In overseas projects, different countries have varying legal requirements regarding safety production; complying with local safety regulations is essential for the proper operation of such projects. Safety production expenses include safety equipment provided for construction workers (such as safety helmets, protective clothing, protective shoes, etc.), costs for safety training, expenses for safety signage, on-site fire-fighting equipment, costs for emergency rescue on site, accident prevention measures, and related insurance costs. Based on the relevant requirements regarding work safety and environmental protection in the location of the project, relevant facilities and work safety equipment are provided for the project site and its personnel. VII. On-site office expenses: On-site office expenses are a regular part of administrative costs, covering the purchase or rental of office equipment, communication costs, network setup, and daily office supplies. Although this expense does not play a dominant role compared to other administrative costs, as the project timeline extends, the cumulative expenditure on office expenses can have a significant impact on the overall cost. The maintenance of office facilities, the operation of IT systems, and the security of data storage and transmission also fall under management costs; in projects with a high level of informatization, the proportion of these expenses increases accordingly.

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