EpCM: A solution that balances cost, schedule and risk in a heated market

The urgency to deliver large-scale infrastructure that lowers the world’s carbon emissions and advances the energy transition is creating a new competitive landscape where the EpCM contracting model is emerging as a viable option.

Whether developing green hydrogen, Battery Energy Storage Systems (BESS) or gas-fired power plants coupled with carbon capture facilities, there are many energy developers chasing a constrained pool of proven equipment manufacturers, contractors and technical expertise while boldly embracing new markets – whether that be a development in a new geography, or with a technology that is first-of-a-kind or one that the developer has not deployed previously. It is under these general market conditions where an EpCM contracting model is worth a closer look, particularly when a developer desires more flexibility and wants to exercise a certain level of control and input into the project.

What is EpCM contracting and how does it differ from traditional EPC?

EpCM contracting is a flexible project delivery method including overall integration.

The EpCM contractor provides the conceptual and detailed engineering as general designer; equipment is procured through contracts on the developer’s paper with full support and management from the EpCM contractor; and for the construction phase, the EpCM contractor as general contractor manages the onsite construction subcontractors on behalf of the developer and ensures proper quality delivery of all activities. The EpCM team functions as an extension of the developer’s team, and the scope can be adjusted to suit the specific needs of the developer.

This method affords the developer the opportunity to be involved in project decisions such as equipment and construction subcontractor selections. It also provides the best opportunities for mitigation and management of risks such as the changing political and environmental regulatory climate, contractor or vendor defaults, control of scope changes, and obtaining the support of local subcontractors. The developer also owns project contingency, which may lead to an overall project cost reduction if not used.

It contrasts with the traditional Lump Sum or fixed-price Engineering, Procurement, and Construction (EPC) model, where the contractor assumes full risk and responsibility for all aspects of the project, including construction. This approach limits the developer’s flexibility in changes or decisions once the contract is signed. It requires that the developer clearly defines the project scope prior to issuing the RFP and then concedes control of the project to the EPC contractor. The EPC contractor assumes the project risk based on its contractual obligation. The EPC contractor then includes a risk cost premium in the price to accommodate the contractual obligations. Any deviations to the project after award will be handled as negotiated change orders.

In effect, the EpCM cost to the developer is lower but, in turn, some risk and responsibilities stay with the developer.

It is important to note that the EpCM contractor manages the procurement of suppliers and subcontractors. This includes tendering, screening, evaluation, commercial negotiations and providing recommendations to the developer. Also, the EpCM contractor fully manages the subcontractors and suppliers, monitoring and controlling their performances, including safety, work packaging, quality, productivity, tests, FAT etc. and leads the commercial management during the execution phase as well.

Additionally, the EpCM contractor takes the responsibility of overall integration of the plant which includes management of all scopes and tasks for which the developer wishes to have support.

While EpCM might mean different things to different market participants, commonly accepted hallmarks of the EpCM model include:

• Stage-gated engagement across the project lifecycle

• Detailed scope development prior to the final investment decision and going to market

• A disaggregated, more granular packaging approach to project delivery

• Access to an additional pool of highly specialized project delivery resources

• End-to-end procurement and project delivery focus based on overall critical path to completion

• Enhanced management of developer risk that spans the project lifecycle

Why EpCM for Energy Transition Projects?

EpCM is worth considering for bespoke projects that may not progress in a straight line. In effect, it means a more detailed scope and plan is developed and agreed upon prior to the final investment decision; however, the project requirements keep developing in a progressive approach with each stage of the project development.

This is an important consideration for infrastructure projects that integrate first-of-a-kind, novel or complex energy technology deployments where designs can evolve and mature. Additionally, with regulatory and market uncertainty often in play, understanding of external stakeholder requirements – even the off-taker requirements – may change during the project’s planning.

An EpCM model allows for progressive allocation of risk as the scope definition matures and lends a greater level of control to the developer.

The flexibility of EpCM contracts allows for a more granular approach to risk management. Developers’ project management resources retain control over key decisions, such as selecting equipment and materials, which can lead to better alignment with project goals and risk tolerance. By involving the developer in procurement decisions, the risk of selecting inappropriate or underperforming equipment is reduced. This is particularly crucial in projects where technology selection and large equipment procurement can significantly impact performance and cost.

Avoid significant cost overruns by anticipating surprises

With an EpCM model, the developer commits early to invest more of its own time and resources into the decision-making process. The developer gains greater visibility as well as influence and control over costs and schedule during key project decision moments. When those difficult decisions arise, adjustments to the project will cost less.

This differs from a fixed-price EPC contract model, where a premium is built into the price to account for the risk the contractor has absorbed and the adjustment it may have to make during project delivery. With a fixed-price EPC model, if a project requires change orders mid-development, these adjustments will also come with that premium built in.

With an EpCM model, the developer, with the support of the EpCM contractor, will be able to negotiate directly with construction subcontractors while also ramping up commitments and investment-decision in pace with the project moving through various stage gates, navigating and adjusting to regulatory, technical and commercial complexities that inevitably emerge.

Hard-to-acquire global expertise

How many utility-scale green hydrogen production facilities, Power generation with carbon capture or Battery Energy Storage System (BESS) facilities have been deployed around the world and how could a developer acquire that nascent expertise? The optimal EpCM partner adds scale and highly specialized, real-world experience to the team. Tapping into such an EpCM partner brings that immediate lessons-learned insight into the supply chain and construction planning from day one. This approach reduces risk significantly and avoids ramping up specialized resources beyond the developer’s core existing internal resources.

Black & Veatch has been a pioneer in applying the EpCM model to meet developers’ project goals and needs. Several projects in the United Kingdom showcase Black & Veatch’s effectiveness of the EpCM model in managing complicated projects with multiple stakeholders and stringent performance and regulatory requirements.

With its global footprint, Black & Veatch, as OEM-agnostic Engineering and Construction company, has built and maintained strong relationships with all major OEMs in the energy sector. With its regional footprint, it has managed for example more than 60 construction subcontractors in the UK and maintained working relationships with over 280 construction subcontractors in that market.

In some of these projects which involved complex technology and integration challenges, Black & Veatch's role extended beyond the traditional engineering and construction management scope. The collaborative nature of the EpCM contractor role teamed with the developer allowed for more adaptive and comprehensive project management services to be provided by Black & Veatch, which resulted in proactively mitigating risks with each project stage.

EpCM contracting models provide a flexible and effective approach for developers willing to balance the risk while increasing their control over bespoke projects that lack a predictable blueprint. By partnering with experienced contractors like Black & Veatch, developers can achieve better alignment with their risk appetite, optimize project costs, and enhance schedule control. As the energy landscape continues to evolve, adopting flexible contracting models like EpCM will be key to delivering successful sustainable energy infrastructure projects.

By Senior Vice President & Managing Director -Europe, Middle East and Africa