Advantages and disadvantages of the EPC general contracting model for projects

For employers, EPC allows for risk mitigation, reduced management efforts, and improved project quality. Investment and schedule are also easier to control, as everything is managed by the contractor, which also results in shorter project timelines. The downside is that the investment cost may increase, as the detailed design isn’t available at the time of signing the contract, making it difficult to estimate prices. If a fixed price is used, it is usually on the high side; whereas with an open price, the contractor still can’t reduce the cost in practice, and price fluctuations based on market conditions increase the risks. For contractors, EPC imposes higher demands on project management; it involves high risks as well as high rewards, with the contractor taking on the owner’s risks while reaping the owner’s profits.

For newly established oil refining companies: EPC is a good model, as it requires fewer personnel from the owner and reduces risks. However, for plant expansion and the construction of one or several plants within an existing refinery, the EPC approach is not recommended. The EPC model is not entirely viable in China at present; since the EPC general contractor bears the risks, these are reflected in the profits. As a result, requirements set by the client are often not met during the design, procurement, and construction phases, especially during procurement. By the time problems do arise, the client’s responsibilities remain unchanged at all.

The EPC model is becoming increasingly common and widely adopted, and it offers significant advantages. EPC companies are top-tier design firms with extensive project management experience; they can provide comprehensive design consulting services, including preliminary design and detailed design, as well as assistance with the procurement of equipment and materials. They also manage safety, quality, and progress throughout the construction process, and offer commissioning services. By sharing the risks with the owners and resolving the challenges associated with coordinating various companies and departments, the project developer does not need to assign a large number of management staff to oversee the project. However, in China, there are still no well-established regulations or guidelines for the EPC model. **For the construction authorities, EPC companies are usually classified simply as project management firms, and this is an issue that needs to be addressed urgently by the relevant departments**

Many domestic engineering companies lack the capabilities for EPC projects; they undertake such tasks in order to make more money, but ultimately fail to meet the owner’s expectations.

EPC general contracting can be regarded as the highest model for project construction at the current stage. Its advantages need no further explanation – they have been discussed above. EPC companies in Europe and the United States possess comprehensive capabilities, while domestic EPC companies vary in quality and are still in a stage of development. It is certain, however, that EPC will remain one of the approaches used in project construction, and there is still great potential for growth for domestic EPC companies

EPC is all about maximizing profits – don’t all large engineering companies do that?

As the owner, don’t you think you’re training talent for the general contractor?

The EPC model is good, but currently very few companies in China can reach the standards of foreign companies； For the constructor, adopting the EPC model allows for a reduction in the number of construction management personnel during the project construction phase; most of these personnel cannot be reassigned to subsequent operations and maintenance tasks ； Some financial pressures during the project construction process can be passed on to the general contractor, who must have a certain capacity for capital turnover.

At present, EPC in the domestic market is not yet mature

I also think that EPC doesn’t seem to be the right direction for our **chemical industry development. Engineering companies aren’t bad at construction, and construction teams lack design expertise; building bridges and roads is fine, but it’s not suitable for the chemical industry. Moreover, it is evident that an increasing number of companies, including Sinopec, are starting to use the IPMT model – with the design institute, the contractor, and the owner involved. It’s good that the interests and opinions of the owner can be taken into account; it’s a sort of outcome of interest balance:D