The most important assignment after a project gets approved after due diligence is implementation of project which include all phases of project, namely project initiation, planning, execution, close out and of course the control & monitoring. What strategy project owner must use for successful implementation of the project.

The Project Management Institute (PMI) defines a project as “a temporary endeavour undertaken to create a unique product or service.” This temporary nature of project compel management to decide whether to do everything in house or outsource the activities. In other word to implement the project what are the activities a project owner should do himself and what are the activities they should outsource. Also, it is important for the owner to finalize a plan for outsourcing the temporary activities asking what, how, when and from where.

Organization acts according to their operation and core competency for implementing the project to its success. When considering construction project for a construction company may acts differently than a pharmaceutical company. For a pharmaceutical company it may be one time but for the construction company it is their everyday works. So, organization’s strategies may differ considering their own operational strategy based on normally on total cost of ownership (TCO).

Normally, organizations use following strategies for implementation of construction projects.

• EPCM: Engineering, Procurement assistance and Construction Management
• EPC: Engineering, Procurement and Construction

Today, about 80% projects are being implemented through EPCM strategy and about 20% on EPC strategy. But as the maturity in the industry is increasing with presence of capable EPC company the trend of EPC is increasing as it is giving more value to client. Let us discuss about both the strategies to understand better.

EPC:

Engineering, procurement, and construction (EPC) contracts are considered by the clients for getting the project implemented as a single point responsibility. Under an EPC contract a contractor is obliged to deliver a complete facility to a client who need only turn a key to start operating the facility, hence EPC contracts are sometimes called turnkey projects or designed build and handover project Sometimes this is called as EPCI where ‘I’ stands for implementation and commissioning.

EPCM:

In the EPCM, as shown in the above flow chart, the procurement comes to play a role once the engineering is complete and at some stage once they get techno commercial comparison. Then they award the construction contract order and other order to various supplier/contractor. So, chance of value engineering, cost/ schedule improvement is very low. But due to collaboration in the case of EPC is very high.

Though there are many differences between the two strategies, one most important difference is providing value to project due to collaboration between the planner, design, engineering team, construction team and procurement team from planning to execution phase in the EPC strategy. The team work together to reduce the project schedule by adapting review and checks, negotiation with supplier, developing new/alternate process for work etc.

Now, let us let us further evaluate some key differences between both strategies.

Key Factors	EPC	EPCM 2	Remarks 2
Contracts & Purchase orders	One contract signed between EPC contractor and owner. Further subletting to subcontractor & supplier by EPC contractor	Signed between project owner and supplier/contractor with EPCM contractor advise	High level involvement by owner for EPCM. The owner should be very specific about the project outcome before signing contract with EPC
Scope of supplies/contract	It is a fixed contract. Changing of scope is difficult and required to go through tedious change control process	Project owner can make change before the contract/order finalization	Front end loading is advisable for all projects, that helps projects to plan better and minimizes chance of failure
Coordination & Project management	Owner to coordinate only with EPC contractor	Owner to coordinate with all suppliers including the EPCM contractor	Owner has advantage with EPC. Increasing communication channel could delay project
Value engineering	Keeping the deliverable unchanged, good chance to reduce cost & time of project by negotiation, engineering process changes etc. due to team collaboration	Teamwork in isolation and every team uses their standard processes. Collaboration are normally missing	For owner it could reduce project time and EPC contractor could finalize the contract at a lesser cost than EPCM contract considering the project lifecycle cost
Project Cost Over run	The cost risks are to contractor account unless change order on works	The cost risks are borne by project owner	Fixed price contract always benefit to project owner
Project Schedule Over run	The risk is solely on the EPC contractor	The risk can be with any of the contractor supplier. But with delay by some contractor the entire project can be delayed	Though individual supplier contractor bears the risks and can play penalties but owner has a greater risk of total project risk
Project warranties	For owner EPC contractor is responsible and single point contact	Project owner is required to every supplier separately	Cost to owner to high
Project Finance	Cash flow is higher since advance of the total contract is required to be paid by owner and rest on milestone payment	Cash flow is lower, based on every contract and payment terms agreed upon with each supplier	Overall total cost of ownership must be reviewed critically for choosing the right strategy
Legal & Administrative cost	One contract and therefore less administrative cost for contract administration	Since no. of supplier are high contract administration cost & time is very high	Owner can manage with part time legal admin person, including procurement
Safety & house keeping	Since one contract managing all, better safety practices expected out of EPC	Since there are number of supplier (small & big). Maintaining safety is a concern	Better safety control with EPC. Since safety cost to project cost ratio is better for them

Another key point in favour of EPC company is that today they are investing in technologies for managing risk, uncertainty, and volatility of their operating environment.

Lastly, EPC company can manage safety practices better as safety cost to them is sustainable for them comparing to small contractor and supplier. Never the less in case of EPC the project owner involvement is very low comparing to that of EPCM. In case of EPC owner must have his quality team for approval and acceptance of the deliverables.

Today we are in a VUCA (Volatile, Uncertain, Complex, Ambiguous) world, and to make project success it is better to go with a fixed price contract with a competent EPC company. The trend towards EPC is increasing as it is reducing liabilities, reducing risk of uncertainty & volatility of the market, and finally keeping the total cost of ownership at low. However, choosing a good EPC contractor is always challenge. One should evaluate following parameters for choosing an EPC partner.

• Scope: should be fixed, better to carry out front End Engineering Design (FEED) for finalizing scope.
• Quality: Evaluate contractors quality management system, past work.
• Follow good safety practices, should have safety management practice in place.
• Financial Strength: Should have sound financial strength. Preferably should be able to complete the project without timely contribution of owner’s finance.
• Good culture (easy to walk with) and payment history to subcontractor/supplier.