The Management for EPC Projects

The definition of project and construction

A project can be defined as a group of interrelated activities constraint by a specific budget, scope, schedule and other related factors to achieve certain goals. While according to the International Standard Industrial Classification issued by the United Nations (1968) defines construction as: “constructing, altering, repairing and demolishing building; constructing, altering and repairing highways and streets and bridges; viaducts, culverts, sewers, and water, gas and electricity mains; railways roadbeds, sub-ways and harbor and water ways; piers, airports and parking areas; dams, drainage, irrigation, flood control and water power projects and hydroelectric plants; pipe lines; water wells; athletic fields, golf courses, swimming pools and tennis courts; communication systems such as telephone and telegraph lines; marine construction, such as dredging and under water rock removal; pile driving, land draining and reclamation; and other type of heavy construction… mining services such as preparing and constructing mining sites and drilling crude oil and natural gas wells… specialist trade contractors’ activities…”.

Categories of construction

Construction projects can be categorized in several ways. The most commonly used categorization as described in Jimmie Hinze’s works in Construction Contracts (2011, p.10) is housing construction, nonresidential building construction, engineering construction, and industrial construction. Each categories has their own determinants and demand factors.

What is EPC project?

Meanwhile, EPC is the abbreviation for Engineering, Procurement and Construction. EPC is a type of construction contract where the contractor is responsible for engineering services, procurement of materials, and construction. Due to its characteristics, EPC project is also known as turnkey project service. The term ‘turnkey’ here is used to indicate that the project is delivered to the client ready for operations.

The scope of EPC projects

In EPC project, the contractor holds all responsibility from the beginning. It includes the provision of engineering services, materials procurement and construction services. Power plants, factories, gas development project, infrastructure projects, and industrial plant construction sectors are the typical examples of EPC project. As the improvement of construction delivery systems, EPC type of contract is more widely used all over the world. One of the main reasons is that it will distribute the client’s risk to the main contractor. By this way, client expects to get a higher degree of certainty as to time and costs, and the contractor takes total responsibility for the design and execution of the project. The popularity of this procurement method has made organizations such as FIDIC to respond the need for appropriate standard form of contract that are more closely reflected today’s market conditions, namely FIDIC Conditions of Contract for EPC/Turnkey Contracts (the Silver Book).

Figure 1. Typical EPC Project Organization

Project Performance and Project Management’s definition

Figure 2. TCQ Triangle

There are three main aspects which should be considered in executing any project, i.e. the TCP Triangle which stands for time, cost, and performance aspects in a project. In order to get a project successfully completed, we need to apply a good project management. PMI as in PMBOK Guide 2008 (p.6) has defined project management as the application of knowledge, skills, tools, and techniques to project activities to meet the project requirements. Project management is accomplished through the appropriate application and integration of the 5 Process Groups; i.e. initiating, planning, executing, monitoring & controlling, and closing.

Five process groups in Project Management

Initiating process deals with the identification of project key players, feasibility and viability study of the project, and development of project charter. Planning process deals with project scheduling and cost estimating, development of WBS, project design and planning, and development of subsidiary plan (risk, human resource, quality, procurement, monitoring and reporting, etc). Executing process deals with execution of project design according to statutory provisions and technical specifications. Monitoring & controlling process deals with project monitoring and reporting status, management of project risk and future impacts, etc. While closing process deals with close-out contract, complete administrative close-out, and deliver project to the client.

Figure 3. Project Management Process Group

Source: PMI, A Guide to PMBOK 4th Ed. (2008)

Figure 4 below shows the typical project life cycle for any construction project. From this figure, we can see the significance of each stage of project management in delivering the new project until its completion. This is mainly because each stage is always dealing with cost, time, and performance. Considering this reason, a good implementation of project management is a must in ensuring the success of a project.

Figure 4. Typical Project Life Cycle

The significance of good implementation of project management

The project implementation process is complex, usually requiring simultaneous attention to a wide variety of human, budgetary, and technical variables. As a result, the organizational project manager is faced with a difficult job characterized by role overload, frenetic activity, fragmentation, and superficiality. Often the typical project manager has responsibility for successful project outcomes without sufficient power, budget, or people to handle all of the elements essential for project success. In addition, projects are often initiated in the context of a turbulent, unpredictable, and dynamic environment. Consequently, the project manager would be well served by more information about those specific factors critical to project success. The project manager requires the necessary tools to help him or her focus attention on important areas and set differential priorities across different project elements. If it can be demonstrated that a set of factors under the project manager’s control can have a significant impact on project implementation success, the project manager will be better able to effectively deal with the many demands created by his job, channelling his energy more efficiently in attempting to successfully implement the project under development (Jeffrey and Dennis, 1987).

Figure 5. Critical Factors in Project Success

Adapted from: Edmond W.M. Lam, Albert P.C. Chan & Daniel W.M. Chan (2004)

The implementation of project management for traditional procurement system

Project management implementation for EPC projects is quite different with project management implementation for building and civil engineering works. One thing that differentiates this is the project procurement system. In traditional procurement system, whether for building and civil engineering works, design will be prepared by the employer and his architects. The contractor will only be responsible for managing the project during the construction period and this responsible will be completed by handing over and closing ceremony of the project. In another aspect, contractor also is not been troublesome with financial problems because the project financing is in the concern of the employer and not the contractor. The contractor will only receive the payment for his work performance based on the payment procedure which is already been agreed under its contract.

Figure 6. EPC Project Management Aspects

The implementation of project management for EPC projects

The implementation of project management for EPC projects

However this is quite different in EPC projects. EPC projects are basically a design and build type project. Therefore, design is prepared by both the architect and contractor with the main responsibility will be fall to contractor. Plus, in EPC projects usually applies the contractor will finance some or whole of the project cost and only will be paid after the completion of the project. This system is known as project pre-financing[1]. The amount and procedure of payment will depend on the agreed terms in the contract.

[1] The practice of arranging funding in advance of the start date of a project ( pre-financing)


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