In April 2023, the Institution of Chemical Engineers (IChemE) published the 1st edition of The Blue Book, Engineering, Procurement and Construction Management (EPCM) Contract which is the first standardised EPCM contract. The Form of Contract contains a model form of agreement, general conditions, supplemented with detailed guidance notes and optional clauses dealing with payment jurisdiction, payment mechanism or other project specifics.
Prior to its release, EPCM contracts were typically bespoke contracts because of the lack of an appropriate standard form contract.
The Blue Book has been warmly welcomed in the industry by employers, contractors and advisers and FIDIC are expected to follow suit and release its own EPCM contract the end of 2023.
What is EPCM and how is it different to Engineering Procurement Construction (EPC)?
Under an EPC Contract, for example the FIDIC Silver Book 2017, the contractor delivers a complete facility to the developer from commencement through to final completion/hand-over. In contrast, the EPCM contractor does not carry our any construction work but takes on a role of design and project management and co-ordination, more akin to a professional services contract.
The key differences between the two forms of procurement are summarised below.
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EPC |
EPCM |
| Types of Projects |
- Commonly used in project financed deals for large or otherwise complex projects across range of sectors (eg power, oil and gas, transport and water and waste).
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- Primarily used for process plants and manufacturing facilities.
- Also suitable for various performance related projects (eg nuclear, pharmaceuticals, water, tunnelling and high voltage distributions).
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| Model |
- Turnkey – EPC Contractor is a principal and is responsible for all processes and design required to deliver the facility, so it is ready for operation by the Employer at the turn of a key.
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- Professional services contract - EPCM Contractor act as agent and provides design and engineering services, procures contracts with contractors and suppliers on behalf of Employer (but is not a party to those contracts) and manages the construction process and commissioning.
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| Responsibility |
- Single Point responsibility -EPC Contractor typically takes on all the risk as it is responsible for engineering design, procurement and construction and delivery of the project on a turnkey basis.
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- Multipoint responsibility - More risk retained by Employer as EPCM Contractor does not typically have any liability for carrying out any construction or installation works.
- Such works are to be handled by contractors appointed under works contracts between those contractors and the Employer.
- The EPCM Contractor provides professional service and expertise to assist Employer achieve successful project.
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| Pricing |
- Typically, there is a fixed date for completion, fixed price and guaranteed performance and reliability levels etc.
- Due to the level of risk involved the EPC Contractor typically charges a premium.
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- Most often a cost reimbursable model, but The Blue Book provides for optional payment mechanisms (reimbursable, fixed fee or target cost).
- Reduced risk profile reduces cost to EPCM Contractor.
- Cost control can be less certain due to flexibility in negotiation of work packages.
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| Advantages |
- More cost certainty.
- At completion, employer is delivered fully operational asset.
- Single point responsibility with EPC contractor typically assuming all risk.
- Employer is not required to devote any skills and resources.
- Traditionally the most "bankable" procurement method.
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- Employer retains greater control over project and cost and time risk.
- Lower overall costs.
- Faster procurement with multiple work contracts.
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| Disadvantages |
- Greater costs.
- Slower duration.
- Typically, no right to use part of works prior to taking over the works.
- No control over design or project.
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- Employer has to devote significant skills and resources to manage project.
- Multipoint responsibility exposes Employer to greater liability to third parties.
- Employer's legal remedies are diluted as it has to prove fault on part of individual work contractors.
- Limited rights against EPCM Contractor.
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The publication of The Blue Book fills a gap in the availability of standard forms for EPCM contracting. Primarily directed at process engineering and other performance related projects, The Blue Book contains a number of helpful guidance notes and schedules to aid the user. In addition, The Blue Book's optional conditions and payment conditions (reimbursable, fixed price or target cost) for use in addition to the general conditions means that the clauses can be aligned to the project objectives and locality. For example, Part A would be selected for projects in the UK and includes payment provisions to take account of the Construction Act; Part B contains provisions dealing with target cost pricing, and Part C allows parties to include project specific mechanisms, such as the use of dispute review boards and expert determination.
While similar in same, the EPC and EPCM contracting models are vastly different and care should be taken when considering the form of contract to be used on a project having regard to contracting and financing structure, project requirements, roles and sophistication of parties, time and costs etc.
