【Haichuan Chemical Salary News】General contract for the construction of the demonstration project on the selective utilization of coal to produce new chemical materials by Shaanxi Coal Group Yulin Chemical signed

The contracts signed this time involve 12 EPC, EPCm, EPCo, and PC turnkey contracts related to project construction and installations, with a total value of 17.1 billion yuan. These include: the EPCm turnkey contract for the plant-wide works, utility systems, auxiliary facilities, and storage and transportation facilities in Phase 1, Stage 1, to be carried out by China Global Engineering Co., Ltd., with an estimated contract value of 3.69 billion yuan； ● The EPC general contracting for the Phase 1 of the second phase pyrolysis startup project was undertaken by Shengbang Technology Co., Ltd., with a contract value of 2.647 billion yuan ； ● The EPCo general contracting for construction projects including sewage treatment plants, reclaimed water treatment facilities, and advanced sewage treatment systems, as well as the EPC general contracting for syngas purification units and air separation units, is undertaken by Hualu Engineering Technology Co., Ltd., with a contract value of 3.684 billion yuan ； ● The PC general contracting for the dimethyl oxalate and ethylene glycol production project is undertaken by Donghua Engineering Technology Co., Ltd., with a total cost of 3.818 billion yuan ； ● The EPC general contracting for the power station project and the coal storage and transportation facility project was undertaken by China Power Engineering Consulting Group Northwest Electric Power Design Institute Co., Ltd., with a total cost of 1.744 billion yuan ； ● The EPC general contracting for the construction of the gasification plant project was undertaken by Tianchen Engineering Co., Ltd., with a total cost of 1.523 billion yuan.

The EPCM model, namely Engineering Procurement Construction Management, refers to a situation in which the contractor is fully responsible for the design and procurement of a project, as well as for managing the construction phase. It is a project delivery method that is widely used in the international construction industry today. At the same time, the EPCM manager is also responsible for managing other aspects of the project, such as the schedule for the design, procurement, and construction phases, communication with relevant departments, as well as preparing cost plans, cost estimates, and ensuring document control. Due to the high requirements it places on the general contracting capabilities, overall competence, as well as technical and managerial skills of engineering contractors, and given that most domestic construction companies still fall short of international standards in terms of project management, technological innovation, and information technology development, the EPCM model has not yet been widely adopted in China.

Feature: Under the EPCM model, after the owner expresses its intentions and requirements regarding investment, the feasibility study, surveying, design, procurement of materials and equipment, as well as the construction of the entire project, are all entrusted to a selected management company (the EPCM manager) to carry out； The EPCM manager selects and recommends the most suitable subcontractors to assist in completing the project at the owner’s request, but it has no contractual relationship with those subcontractors and is not liable for any contractual or financial risks. When the quotation is paid as a lump-sum total amount, although the financial risks for the EPCM manager are kept within certain limits, they face another greater risk due to the need to manage all stages of the project, namely \"reputation\". An excellent EPCM manager will certainly do everything possible to ensure that subcontractors carry out their work accurately, and will use all effective methods and an optimized staffing structure to meet design and construction requirements, even exceeding the owner’s expectations.

EPCO is a combination of EPC (i.e., \"Engineering, Procurement, and Construction\") and OM (i.e., \"Operational Management\"). It represents a project management approach in which the design, procurement, construction, and operation phases of a project are integrated and carried out by one contractor, while the decision-making and financing for the project remain the responsibility of the project owner. This approach is not innovative; it is essentially similar to the DBO model (i.e., \"Design-Build-Operate\}), which has been used in areas such as sewage treatment for some time. Those interested can look up relevant information on this topic. However, EPC has become extremely popular, and the popularity of FEPC has not yet diminished; as a result, EPCO emerged as an extension of the EPC model.

I. Advantages of EPCO 1. The need for life-cycle management focused on operation. Under the traditional approach, the construction and operation of investment projects are often separated; typically, after a project is completed, it is entrusted to a third party for operation or managed by a platform company. However, if operational aspects are not taken into account during the construction phase, this can lead to problems such as poor operation, increased costs, and inappropriate use of technology, ultimately resulting in the failure of the project. For projects with a strong operational focus, EPCO can address the issues of disconnect between design and construction as well as between construction and operation by integrating design, construction, and operation processes. It strengthens the entity responsible for operations, ensuring that contractors take operational planning into account from the design and construction phases. Through the EPCO model, integration of construction and operation is achieved, enabling efficient management throughout the project’s entire life cycle.

2. The need to improve the efficiency of **project investment: In 2019, the main channels for financing local **projects shifted to special bonds and market-based financing. With the requirement from the State Council to ensure that special bonds yield quick results, adopting the EPCO model allows for a separation of investment from construction and operation. The funding for projects is secured through special bonds and market-based financing, while construction and operation are carried out by contractors and operators, which greatly enhances investment efficiency and facilitates effective coordination among design, construction, and operation phases.

II. Key points of EPCO 1. Scope of application At present, there are no clear policy documents available for either EPCO or DBO; only the \"Guidelines for Applying for Pilot Cities for Underground Utility Tunnels in 2016\" issued by the Ministry of Housing and Urban-Rural Development includes whether to use the EPCO model as one of the criteria for evaluating construction and operation models. Given the advantages of EPCO, it is suitable for projects that are operation-oriented and have clearly defined operational parameters. Among the EPCO projects that have been implemented, these are mainly found in areas such as sewage treatment, water environment management, and municipal pipeline systems. Therefore, it is not necessary for all projects to undergo full-life-cycle integration through EPCO; for projects where the boundaries of operational services are unclear, using EPCO actually increases the risks for both parties, and the associated risk premiums ultimately result in higher costs for project construction and operation.

2. Payment milestones: The funding for the construction of EPCO is to be provided by the owner. Currently, the payment milestones for EPCO can be divided into: (1) payment of construction costs during the construction phase, and payment of operational costs during the operation phase. If a deposit is paid in advance as part of the design fees, the remaining amount is settled based on the design work delivered. For project costs, payments are made on a monthly basis according to the progress milestones, with a payment rate of around 80%; 97% is paid after completion and acceptance, and the 3% remaining serves as a warranty deposit, which is refunded after the warranty period expires. Costs during the operation phase are paid in installments in accordance with the operation contract ； (2) Part of the construction costs is paid during the construction phase, while the retained portion of the construction costs and operating costs are paid during the operation phase. To ensure that contractors fulfill their construction responsibilities, it often takes some time to verify whether a project meets the operational requirements. As a result, many projects reserve a certain percentage of the construction costs to be paid along with the operational expenses in the early stages of operation. However, if this reserved percentage is too high (over 40%), it will inevitably dampen the contractors’ enthusiasm for construction, and it also does not comply with the requirement set out in Document No. 369, which stipulates that 60%–90% of the project payments should be made at various stages of construction.

3. Project companies are often used in EPCO projects in order to transfer construction and operation risks. In practice, after a consortium of contractors and operators wins the bid, two types of transaction structures can be adopted: (1) After winning the bid, no project company is established, and the project payments are made directly by the owner to the contractor； (2) After winning the bid, the operator establishes a project company; the owner entrusts this company with project management and authorizes it to make payments for the construction work. The project company oversees the construction carried out by the contractor, thereby enhancing control over the construction process and ensuring the quality of design and construction, which is beneficial for subsequent operation.