What is an EPC Construction Contract?

Construction projects usually involve multiple stakeholders, complex supply chains and significant financial investments. This means there is a lot to consider, and to help streamline projects and reduce risk, many clients opt for an EPC construction contract to ensure full responsibility for the work falls to one centralised contractor.

Widely used for large-scale infrastructure projects in industrial and manufacturing sectors, EPC contracts provide a clear framework that helps to deliver projects on time and to the agreed specifications. Known as a turnkey agreement, these contracts combine procurement and construction responsibilities into one single agreement, offering greater certainty to project owners.

Here at Contractwise, we’ve spent years supporting the construction industry with a wide range of CIS compliance services, protecting both contractors and subcontractors. This has provided us with a thorough understanding of the industry, and in this article, we’ll explain everything you need to know about EPC construction contracts.

Read on for more information…  

What is an EPC construction contract?

An EPC construction contract is a type of contract where a single contractor is responsible for handling the entire project from start to finish. This includes engineering, procurement and construction.

The term EPC stands for engineering, procurement and construction contract, and it is sometimes also referred to as an engineering procurement construction contract. Under this arrangement, the contractor takes responsibility for designing the project, sourcing the materials and equipment and managing all the relevant construction activities.

Once the project is finished, the contractor delivers a fully operational facility to the client. This is why EPC contracts are often known as turnkey contracts, as all the owner has to do is ‘turn the key’ once the work is complete and they have been handed the asset.

EPC contracts are common in a range of industries, including:

• Power generation
• Manufacturing facilities
• Energy
• Infrastructure
• And much more

Due to the fact that a single contractor assumes entire responsibility for the project, it means project owners benefit from a more streamlined process and reduced management requirements.

Key features of EPC contracts

EPC contracts are identifiable by several key characteristics, including:

• Single point of responsibility: One of the defining features of an EPC construction contract is that a single contractor is responsible for delivering the entire project. Rather than managing separate designers and suppliers, the client only has to deal with one party that is fully accountable for the work.
• Fixed contract price: Many EPC agreements are structured using a fixed-price model. This provides cost certainty, and the client will agree a price with the contractor before work begins. While this isn’t always the case, in general, the price will be known ahead of time.
• Completion date: EPC contracts usually come with a specific completion date. This means the client will know when to expect the work to be finished and can plan accordingly.
• Performance guarantees: Contractors should also offer guarantees or warranties as part of these contracts that ensure high standards of performance once work has been completed.
• Termination policy: An EPC contract will also outline the circumstances in which the agreement can come to an end. Usually, this will be if the contractor has breached the contract in some way.

Stages of an EPC contract

An engineering procurement and construction contract is typically delivered into three core phases. These are:

Engineering

The engineering phase is the very first part of a project. It involves planning and designing the work.

During this phase, engineers will develop designs, technical specifications, drawings and calculations that are needed during construction. The contractor will ensure the design meets both the client’s requirements and any regulations or legislative obligations.

This phase is vital to get right as it sets the foundation for the entire project and has a big influence on budgets and overall project costs.

Procurement

Once all the designs have been finalised, the procurement phase will begin.

This is a critical part of any project and involves sourcing materials, equipment and all the services that are needed to complete a project. The contractor will also manage supplier relationships, negotiate contracts and coordinate any deliveries.

Some common procurement tasks include:

• Purchasing materials
• Ordering equipment
• Selecting suppliers
• Managing logistics
• And more

Construction

The final phase is construction itself. The EPC contractor will manage all activities on the site, overseeing subcontractors, ensuring health and safety rules are adhered ot and checking quality control.

Construction responsibilities include:

• Site preparation
• Groundworks
• Structural construction
• Mechanical installation
• Electrical installation
• Testing and commissioning  

Pros and cons of EPC contracts

Like any type of contract, an EPC agreement comes with advantages and disadvantages. Let’s take a look at both:

Pros of EPC contracts

EPC contracts have become increasingly popular in the construction industry due to the efficiency, certainty and accountability they can provide.

• Simplified project management: With just one centralised contractor managing the entire project, communication becomes much more straightforward with less admin to worry about.
• Greater cost certainty: Fixed-price agreements mean that clients have a clearer understanding of how much everything will cost, reducing the chance of unexpected expenses.
• Reduced risk: As responsibility for everything is under one umbrella, it limits risks.
• Faster project delivery: One contractor handling everything means that delays are reduced and projects can be completed much faster.

EPC contracts have become increasingly popular in the construction industry due to the efficiency, certainty and accountability they can provide.

Cons of EPC contracts

However, while EPC contracts offer several benefits, there are also some potential drawbacks that should be considered before entering into an agreement.

• Higher costs: Sometimes, contractors charge a premium for exclusive access to a project to factor in risk. This means that it can end up being more expensive than other contract types.
• Reduced client control: Owners have less influence on the day-to-day project management, so if you would like more autonomy, it may not be the approach for you.
• Less flexible: Changes requested after a contract has already been signed may be rejected.

Carefully weighing these disadvantages against the benefits will help determine whether an EPC contract is the right fit for your project.

Stay CIS Compliant With Contractwise

No matter what kind of contracts you negotiate, staying compliant with the Construction Industry Scheme is always important. At Contractwise, we specialise in a wide range of CIS services, including payroll audits that eliminate the risk of HMRC reclassification. Our experienced team can handle everything on your behalf, reducing administrative burdens and ensuring you are always fully compliant.

From major infrastructure developments to everyday construction work, no matter what work you do, we’re here to help. Contact us today to find out more.