The industrial engineering sector in the Republic of Kazakhstan is experiencing significant growth and development. In this context, the adaptation of Western engineering practices to national and regional specificities is particularly important and necessary.
Rahimberdi Ibragimovich, could you please explain the different types of contractual regulations used in global construction practices?
Undoubtedly, modern economic relations demand new standards for engineering activity, management standards, and professional levels. The global economic crisis has intensified the need for a thorough evaluation of potential risks in construction contracts. Consequently, in Kazakhstan’s construction industry, we see a trend towards adopting international contract forms adapted to Kazakh standards, replacing traditional construction contracts.
Among the various types of construction contracts, EPC and EPCM contracts stand out.
-
EPC (Engineering, Procurement, Construction): This typically refers to a “turnkey” construction agreement at a fixed price. An EPC contractor, equivalent to a General Contractor in traditional terms, performs the main scope of work for an investment and construction project at a fixed price. They are responsible for all risks involved, from design to the handover of the completed facility to the Client, including warranty implementation.
-
EPCM (Engineering, Procurement, Construction Management): Similar to EPC, the contract involves engineering, procurement, construction, and “turnkey” handover of the facility to the Client. However, an EPCM contractor acts as a General Contractor responsible for project management risks, from design to handover, including warranty implementation.
Are you saying that the primary distinction between these two contract types lies in the contractors’ responsibility for project implementation risks?
Yes, that’s correct.
-
EPC Contract: The General Contractor, appointed by the Client, provides design, supply control and management, and construction services. The EPC model places project management responsibility on the General Contractor, who enters into subcontracts as needed and assumes all risks related to quality, deadlines, and costs. EPC contracts are generally used for projects where the General Contractor can accurately estimate financial expenses and risks. The EPC contractor typically performs the main scope of work themselves, and there is no additional remuneration for managing subcontractors.
-
EPCM Contract: The Contractor, appointed by the Client, provides design and control/management of supply and construction. However, the EPCM Contractor only manages the construction process and consults the Client at all project stages. The Client bears the project implementation risks, as they are responsible for contracting with subcontractors.
The key difference between EPCM and EPC is that in the EPCM model, the contractor provides professional design and supply management services but does not perform construction work. The EPCM Contractor’s role is to assess the capabilities of selected contractors/suppliers, clearly allocate work and responsibilities, coordinate their actions, resolve disputes, plan the overall project, adapt to critical changes with minimal impact, and ensure continuous progress.