Labor hour management in EPCM contracts
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The following questions are open for discussion: In an EPCM contract, the costs are specified as a comprehensive unit price per man-hour, and this price applies to changes as well as any subsequent supplementary agreements； The amendment clause stipulates that the management company has the right to propose amendments under the following circumstances, one of which is changes in laws, regulations, government orders, standards, norms, directives, etc. and/or changes in their interpretations. The management company has proposed this change because Shanghai requires companies to pay social insurance premiums for their employees from other regions in accordance with local standards there (an average of 5,300 yuan per person per month). Previously (at the time of signing the contract), Shanghai’s regulations for people from outside the city stipulated that premiums be paid at a combined rate of 300 yuan per person per month; as a result of the change in social insurance policies, the cost has increased by about 5,000 yuan per person per month. The management company has around 80 project staff members, with total costs of 400,000 per month... How should the client handle such a change?
I’m also looking at it; I’m also concerned about this issue
Iming07 on the 3rd floor, why can’t I see your messages?
It can be resolved through negotiation, or in other words, it’s somewhere between giving it and not giving it. The reason is as follows: The reason for not providing it is that \"under an EPCM contract, the costs are determined based on a comprehensive unit price per man-hour\", so there certainly won’t be any detailed breakdown of individual prices. There is no evidence showing that social security contributions amount to 300 yuan per person per month; since no such evidence exists, it’s possible to state either 300 yuan or 5,300 yuan. Hehe..... a bit shameless. Reason given: With EPCM, the profit is limited to just the labor cost, which is not much. If the EPCM contractor provides good service, this amount can be used as an incentive.
Thank you, Wise Ming; you’re absolutely right! This management company is poorly organized, but to be honest, the owner is even more chaotic. By choosing an EPCM contract, the owner assumes significant responsibilities; however, they actually do not have the capacity to fulfill those responsibilities. They lack a professional team, and on top of that, the management company keeps pressing hard, leaving the owner in a difficult situation... Are there any two or three solutions that could be discussed?
For example: 1. Agreeing to the increased costs due to the change – what are the advantages and disadvantages? 2. What are the advantages and disadvantages of rejecting their request for change? 3. The owner pays 50%, while the management company covers the other 50%; or the ratio can be adjusted between the two parties. What are the advantages and disadvantages? Or, additional execution conditions can be added to the above solutions; please advise!
In fact, you already have the options to compare; you’re just struggling to decide which one is more advantageous. Option two is clearly not a reasonable approach; it will only lead to an further decline in the current level of service and quality. Option one: The owner is not happy about it, as it would increase costs. Currently, the performance of the EPCM contractor is not satisfactory to the owner, and additional expenses would certainly upset them even further. As for Option 3, both parties bear part of the cost changes resulting from the policy adjustments, with the proportion being negotiable. However, the fees paid by the owner must be conditional, with incentive clauses (rewards and penalties) established. The current chaos in management must be rectified within a set time frame, and these entities must take on the responsibility for project management on behalf of the owner. Project HSE, quality, schedule, and cost control all need to be included in these incentive clauses: rewards are given for achieving the targets, while penalties are imposed if those targets are not met.
An EPCM management team of 80 people is tasked with managing the project construction, which indicates that it is a large-scale project. If the EPCM team can truly fulfill its role in project management, I believe it is acceptable to increase the number of staff members. However, having the owner cover all the costs, with an increase of 25 RMB per man-hour, seems unreasonable.
Originally it was 300, but now it’s 5300 per person per month – they’re just stealing money
Option two is not a reasonable approach; it will only lead to a further decline in the current level of service and quality. However, it does prevent the management company from repeatedly proposing similar changes on such issues, as once they start doing so, more changes will follow... Could other supplementary measures be proposed in this regard? Option one involves adding all the costs associated with changes to the owner’s account, and obviously the owner is not willing to do that. However, under an EPCM contract, it is the management company that earns money from labor costs; in other words, the cost is borne by the owner. If they can’t charge the owner, then who else can they charge? Poor management by the management company is not only reflected in project management; on the other hand, does it also indicate problems with the management of its internal staff and cost control? Can the owner use this money to encourage and improve the quality of their management? Secondly, the construction of the project is aimed at serving future production; could we take a longer-term perspective? Option three: The implementation measures suggested by the wise one are quite good. It’s indeed necessary to consider everything comprehensively. Is this the best option? Just from the perspective of the project construction phase, I think Option 3 is the best, but in terms of proportional allocation, the amount involved is not large, so the incentive effect is also limited; after all, this is a rather large-scale project