What is EPC? Differences between EPC and PPP contracts

In all business activities, if you want to professionalize, a contract is required. However, in each business field, there are specific types of contracts. In construction industry, EPC is a concept known by a lot of people. So what does EPC exactly mean? Let’s find out in this article!

What is EPC?

EPC stands for Engineering – Procurement of goods – Construction, which can be understood as a type of mixed contract widely used in the construction industry. When receiving the bidding package, the bidders needs to fully perform the following 3 basic tasks:

  • Consulting implementation, including actual survey, design plan, construction supervision.
  • Supply of materials: The contractor is responsible for purchasing and selling materials for the construction process of the project.
  • Construction: After completing the consultation and supply of materials, the contractor will move to the construction phase.

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Normally, the EPC contract is applied to large construction projects with more than 30% of investment capital provided by the state. In a nutshell, this is a form of contract for the supply of materials, engineering design and construction. The terms of construction time, work quality, technical technology, completion time, etc. are specified in detail in the EPC contract.

Differences between an EPC contract and an EPC bidding package

Similar to the definition of EPC contract, EPC contract is used to refer to mixed bidding packages. In this bidding package, there will be some basic items such as checking whether the commitments in the contract are properly implemented or not. In general, the contractor’s film needs to fulfill all the terms signed in the EPC contract.

What is an EPC contract?

Engineering, Procurement and Construction (EPC) contract is understood as a type of construction contract in which the contractor will perform all the works from drawing design, technical design, equipment and material supply, construction and handover of works.

Advantages of EPC contract

EPC contracts bring benefits to both the contractor and the investor to fully play their role,improve initiative, creativity and the efficiency of the project. Let’s see some advantages of this contract.

For investors:

  • The EPC contract allows the investor to take full advantage of the contractor’s technical qualifications and management experience because there is only one responsible contractor.
  • Reducing costs and human resources for investors.
  • More convenient in project construction progress.
  • Avoiding many risks during design and construction.

For contractors:

  • EPC contracts create conditions for contractors to be more proactive in their work.
  • Not subjecting to investor supervision.
  • Minimizing downtime in construction.

See also: What is a limited liability company (LLC)? advantages and disadvantages

Why does every construction project need an EPC contract?

In construction, professional bidding requires EPC contracts. This is the basis for assessing the seriousness of the contractor. It also ensures benefits for investors.

  • The contractor’s support reduces the financial burden when implementing the project.
  • Minimizing disputes between parties during the construction process, strengthen the connection between the parties.
  • Limiting risks for investors in the process of coordinating activities as the responsibility has been attributed to one term as the EPC contractor.
  • Helping the contractor take the initiative in terms of completion time, investment costs, and quality of the work after completion. Because in the EPC contract, there are very clear provisions on the terms of compensation and fine payment for failure to comply with commitments.

Differences between EPC and PPP contract

Before learning the difference between EPC and PPP, you need to understand what PPP is. PPP can be simply understood as a form of cooperation between the homeowner and the investor,  which leads to the completion of the infrastructure system.

PPP projects often have simple procedures but take longer to complete than EPC projects, because capital mobilization in PPP projects takes place relatively slowly. At that time, PPP investors have to negotiate with many financial institutions. They must demonstrate that the project will be profitable in the future once completed.

Meanwhile, the EPC contractor only needs to mobilize enough capital to complete the project, without having to take responsibility for whether the project will bring economic benefits in the future or not.

Conclusion

So by now, you must have understood the concept of EPC, right? This is essentially a form of general construction bidding, in which the state will contribute 30% capital.

See also: What is cash flow? 5 easy steps to plan cash flow

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