What type of contract is typically used for chemical EPC projects?
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When I was studying project management theory in school, I remember that a fixed-price contract is suitable in the following situations: (1) the scope of work is small and the project duration is short, with little change in environmental factors during construction, and stable and reasonable project conditions； (2) The engineering design is detailed, with complete and clear drawings, and the project tasks and scope are well defined ； Today, I suddenly heard that a certain EPC project (including preliminary design and detailed design) has a duration of over 3 years, a contract value of over 2 billion, and it uses a fixed-price contract. Now there are the following questions: 1. Since no preliminary design has been carried out, there are no drawings, and the scope of work is not clear – how can the contractor calculate the volume of work and submit a quote under a fixed-price contract? 2. If a fixed-price contract is not used and a unit-price contract is adopted, without drawings or quantities, how can the contractor determine the unit price? Furthermore, the final total price is calculated as unit price * actual volume of work. For a project of this scale, how is the volume of work determined?
The volume of work is small and the construction period is short; it is estimated that there will be few changes in environmental factors during construction, with stable and favorable project conditions
1. Since no preliminary design has been carried out, there are no drawings, and the scope of work is not clear – how can the contractor calculate the volume of work and submit a quote under a fixed-price contract? This practice is used internationally: for device projects whose technology is already mature and standardized, quick quotes can be generated using the basic parameters from specialized large databases. We previously used “Gulf 2000” to provide quotes for petrochemical projects in the Middle East, and the accuracy was fairly good. In recent years, in China, some petrochemical, refining, and coal chemical projects have exhibited a high degree of homogeneity in their construction, allowing the volume of work and pricing for such projects to be referenced. For example, after Shenhua Baotou’s 600,000 tons per year MTO plant was successfully commissioned, one project adopted the same approach by replicating the existing model: using the same process, the same EPC contractor, and the same suppliers, thereby rapidly creating another large-scale project in just over two years. For another example, many local refining projects in Shandong use the same approach to rapidly build these facilities, sacrificing time in exchange for market share.
The final total price is the unit price multiplied by the actual volume of work. For a project of this scale, how is the volume of work determined? Determine the quantity of work based on the basic design.
For large-scale chemical projects, once the basic design (preliminary design) is approved, the owner issues a tender based on that approved design, using a fixed-price contract to select an EPC contractor.
Generally, the patent holder provides the basic design, which is then handed over to the EPC contractor for detailed design, procurement, construction, and commissioning
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So the role of large databases is really that significant; no wonder **it was decided to make significant efforts to develop large database technology.
For large-scale chemical projects, once the basic design (preliminary design) is approved, the owner issues a tender based on that approved design, using a fixed-price contract to select an EPC contractor. The problem is that with many EPC projects, the owner selects the contractor through bidding before the preliminary design (basic design) has even begun, and the work is awarded at that stage. In recent years, especially for many coal chemical projects, the overall design, preliminary design, and detailed design are all included in the EPC contract. In this case, how can a fixed-price contract be used?
This is not necessarily the case; many patent holders do not have the capability to provide basic designs, especially some universities and research institutions.
As discussed on the 3rd floor, coal chemical projects have too much homogeneity. After the successful commissioning of a 600,000-ton/year MTO plant at Shenhua Baotou, a number of 600,000-ton/year MTO projects using DMTO first- and second-generation technologies were launched one after another. A similar pattern of copying was observed in coal-to-oil and coal-to-gas projects as well, with the same processes, the same EPC contractors, and the same suppliers being chosen. In this way, the quantities and quotes for similar projects can be used as a reference, with a fixed total price that varies little.