In the last post we discussed Contract Classification based on the Mode of Project Delivery (i.e. Level of Integration). We read that depending upon the mode of project delivery; contracts are classified as EPC, EPCM and Package Contracts. Further we discussed EPC Contracts in more detail in the previous post. Please click here to read that post: http://www.rkstrainings.com/difference-among-epcm-multiple-packages-and-epc-contracts/
In this post we wish to discuss EPCM and Multiple Package Contracts in further detail. Both posts together shall bring out more clarity on the distinguishing features each type. A careful analysis and comparison among EPC, EPCM and Multiple Package Contracts shall reveal the appropriate usage of each one
Contract Classification based on Mode of Project Delivery:
Please re-read the example of Construction of Ramesh’s House in the previous post by clicking the above link
EPCM and Package Contracts in more details:
B) Multiple Packages Contracts
In the last post we discussed that EPC Contracts are best option if Owner intend to award the entire scope of works to a single agency. This is done to minimize the interfacing issues and holding single agency responsible for completion of the entire job within agreed cost and timelines.
However, another Owner may not prefer to award the entire scope of work to a single agency. This Owner may be cost conscious or desire to have better control on the project. Further, a single agency (i.e. EPC Contractor) may not have enough experience in all disciplines of the project. Accordingly, such EPC Contractor also ends up subcontracting certain parts which are outside his portfolio.
In view of the above, Owner may find it better to split the work into various packages keeping in view the nature of work and/or availability of contractors (e.g. Civil, Mechanical, Electrical, Supply, Installation etc.). As a result, Owner may appoint a separate agency for the execution of each package.
In the above contracting mode, Owner supervise the work of each contractor. Further, Owner also assumes responsibility for coordination and interfacing between different contractors. Under Package Contract, each package is executed separately as per the scope under individual packages and communication between various contractors is through the Owner.
C) EPCM Contracts:
EPCM means Engineering, Procurement and Construction Management.
This is not a third type rather it a modification of other types to remove its disadvantages. Multiple Package Contracts offer advantages of overall lower cost. This is because Owner is awarding each package directly to an entity who is most competitive for the given scope under individual package. However, coordination between so many agencies and resolving interfacing issues is a major problem in this model.
EPCM is a hybrid model and could help the Owner to take the benefits of Multiple Package Contracts plus the convenience of resolve interfacing issues. Under EPCM Model, Owner appoint EPCM Contractor in addition to various Package Contractors and place him in between Owner and Packages Contractors
EPCM Contractor work as agent of the Owner; complete the design; support the Owner in procurement of Project Plant and Equipment and manage the Construction Services. Construction Contractor work under the supervision of EPCM Contractor. EPCM Contractor responsible for interface management and advise. Owner Responsible for all technical and commercial matters associated with the Project
EPCM Contracts are most suitable for smooth execution of project when;
i) Owner does not have enough experience for execution of similar projects
ii) Owner is not very skilled in monitoring the contractors
iii) Owner lacks expertise in resolving interfaces between various agencies
iv) Owner intend the cost the construction cost and ready to take reasonable risk
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