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EPC article

For those readers in Mining, Oil & Gas, LNG, Renewable Energies plus many other industries, this acronym is familiar as Engineering, Procurement and Construction (EPC). As further defined, this function is a very broad mandate that typically delivers a complete package of resources to fulfill various infrastructure projects.

How did this evolve?

For a long period of time, poor performance and poor efficiency in construction projects was evident and concerning. Consequently, Supply Chain Management (SCM) practices that were successfully applied in manufacturing were introduced to construction projects with the aim to improve efficiency and reduce waste.

What is the process?

Generally, a resources company awards such a contract to an EPC to provide a single responsible source for executing a project, thus alleviating risk for the owner. Nowadays, the terms may even include a fixed price.

As mentioned, the EPC works in various domains and is awarded on a turnkey basis. Even though these companies are primarily involved in construction, the sectors they cater to range from project completion in Oil & Gas or MINING to plant construction for the Hydroelectric sector.

In an EPC contract, the client has no responsibility to oversee the work of other subcontractors deployed by the main contractor, as the contracts are awarded independently and might be for a certain area or part of the project only. In a turnkey contract, on the other hand, the client’s authority prevails over the subcontractors.

There is a limited number of major EPCs globally

EPC companies often are very labor intensive. The workforce can be a complex mix of permanent and temporary employees, as well as subcontractors. One such major is Bilfinger, in Germany, with revenue at $5,176 million and over 35,000 employees. The EPC mainly caters to the energy and utilities sector.

While there are some major American players like Fluor Corporation (currently building LNG Canada plant/infrastructure in Kitimat, British Columbia) and KBR, there are quite a few Asian players that are leading the market as well.

What is FEED?

Some EPCs are full-service suppliers with experience in engineering from concept studies to pre-front-end engineering design (pre-FEED) activities. FEED (Front-End Engineering Design) means basic engineering which is conducted after completion of conceptual design or feasibility study. At this stage, before start of EPC (Engineering, Procurement and Construction), various studies take place to figure out technical issues and estimate rough investment costs.

While construction projects have rebounded to pre-pandemic levels, there are some challenging trends.  One of them is the scarcity of skilled workers. EPCs have also indicated longer lead time and a shortage of materials due to an imbalanced supply chain. All of this driving a significant increase in costs. Nonetheless, 2021 proved to be a strong growth year as the sector picked up steam and reengaged most projects that were put on hold or delayed during the pandemic in 2020. Increased government and private spending will likely continue to fuel new projects.

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