Engineering, procurement and construction (EPC) projects

EPC stands for Engineering, Procurement, Construction and is a prominent form of contracting agreement in the construction industry

1. ENGINEERING, PROCUREMENT AND CONSTRUCTION (EPC) PROJECTS 1/4/2018 ENGINEERING, PROCUREMENT & CONSTRUCTION (EPC) PROJECTS 1 To EPC or not to EPC?

2. Summary 1/4/2018 ENGINEERING, PROCUREMENT & CONSTRUCTION (EPC) PROJECTS 2 What is EPC procurement EPC Procurement Process Benefits of EPC Disadvantages of EPC What's the future for Vietnam's construction industry? Q & A

3. 1/4/2018 ENGINEERING, PROCUREMENT & CONSTRUCTION (EPC) PROJECTS 3 1. What is EPC procurement EPC: ENGINEERING, PROCUREMENT, CONSTRUCTION “Turnkey” contracts: delivery of a completed project from design; Contractor is responsible for Design, Procurement, Construction and Commissioning of a project; Typically associated with developing an operating facility (ie: power station) Contract contains performance standards the completed facility is required to achieve. Figure 1.1 EPC Proposal

4. 1/4/2018 ENGINEERING, PROCUREMENT & CONSTRUCTION (EPC) PROJECTS 4 1. What is EPC procurement Figure 1.2 EPC Structure

5. 1/4/2018 ENGINEERING, PROCUREMENT & CONSTRUCTION (EPC) PROJECTS 5 2. EPC Procurement Process 1. Preparation of tender documents Contracting party to prepare the tender documents 2. Announcement and invitation to participate Formulate announcement Formulate criteria for selecting suppliers to participate in tendering Publishing the announcement 3. Receiving applications for participation Opening applications Examination of applikations Selection of suppliers to participate in tendering 4. Sending tender documents, receipt and examination of tenders Distribution of tender documents Opening of tenders Examination of tenders Selection of supplier 5. Notification of decision, 10 days gracetime and signing of agreements Publish notification to tenderers of decision reached concerning awarding of contract 10 days “gracetime” to elapse Signing Principle agreement and agreement for Phase 1 After Phase 1 signing of agreements for Phases 2 and 3 Source: Inogate, Programme funded by the EU

6. 1/4/2018 ENGINEERING, PROCUREMENT & CONSTRUCTION (EPC) PROJECTS 6 3. Benefits of EPC The planning and collaborative operation of the overall project The limit between working range and responsibility is clear The total prices and duration of the contract are fixed. This could help the control of expense and progress . The advantages of project management could be showed The owner could be free from the specific affairs and the pay attention to the important factors influencing the project, finally ensuring the general direction of project management

7. 1/4/2018 ENGINEERING, PROCUREMENT & CONSTRUCTION (EPC) PROJECTS 7 3. Benefits of EPC (cont.) Remedies (such as LDs), liability caps and bond amounts are all sized relative to the total cost of the works and thus likely to cover a significant proportion of the owner's losses Administrative burdens on the owner are minimised The documentation is relatively simple and standardised EPC procurement is widely used and understood and is the most "bankable" procurement method

8. 1/4/2018 ENGINEERING, PROCUREMENT & CONSTRUCTION (EPC) PROJECTS 8 3. Disadvantages of EPC The control degree is also low for the owners The owner transfers the risk to the EPC companies . So it is important to choose the right EPC companies So the cost of  EPC companies  will be higher for the owner. The owners of the traditional construction mode will be more difficult to understand the works of the EPC companies.

9. 1/4/2018 ENGINEERING, PROCUREMENT & CONSTRUCTION (EPC) PROJECTS 9 SPOT LEVEL METHOD 3. Disadvantages of EPC (cont.) Duration – total construction time may be prolonged by required FEED → EPC sequence Capacity/competition – few contractors have the balance sheet capacity to accept (and bond) the risk of large projects on an EPC basis Claims – contractors are motivated to make claims to alleviate risk transfer Caps – EPC risk transfer is in reality limited by express liability limits and by balance sheet and bonding limitations of contractors

10. 1/4/2018 ENGINEERING, PROCUREMENT & CONSTRUCTION (EPC) PROJECTS 10 SPOT LEVEL METHOD What's the future for Vietnam’s construction industry? Until three years ago, foreign contractors nearly covered all the large and valuable construction works, from houses to hotels and trade complexes in large cities in Vietnam, especially works developed by foreigners or professional real estate developers.  There was nearly no opportunity for Vietnamese enterprises to become the EPC contractor

11. 1/4/2018 ENGINEERING, PROCUREMENT & CONSTRUCTION (EPC) PROJECTS 11 SPOT LEVEL METHOD What's the future for Vietnam’s construction industry? However, thing are getting different.  More and more Vietnamese names joined the bids to become the EPC contractors in large projects. Coteccons: The Landmark 81, Goldmark City, Ho Tram Strip… Hoa Binh Corp: has been chosen as the EPC contractor of Cocobay Why don’t Vietnamese enterprises think of joining foreign markets and implementing projects with Vietnamese skilled workers? Outdated technology, Lack of management skills Brain drain.