There are E+P+C mode, E+P+CM mode, EPC (E-P), EPC (D-B), EPC (E-P) and EPC (P-C).
The construction unit may, according to the characteristics and actual needs of the construction project, adopt the general contracting mode according to the principle of reasonable risk sharing and the contents of the contracting work.
I. Overview of General Contracting
Since 1980s, China has started to implement EPC mode in the field of engineering construction. Mainly limited to petroleum, chemical industry, processing and manufacturing, water supply, transportation, electric power and other fields with complex technology, large investment, large equipment procurement and difficult management.
On February 13, 2003, the Ministry of Housing and Urban-Rural Development issued "Guiding Opinions on Cultivating and Developing Engineering General Contracting and Project Management Enterprises" ([2003] No.30), clearly promoting EPC general contracting mode as a major engineering general contracting mode.
In the past ten years, the state has successively issued several documents, such as Several Opinions on Further Strengthening the Management of Urban Planning and Construction, Several Opinions on Further Promoting the Development of General Contracting, Opinions of General Office of the State Council on Promoting the Sustainable and Healthy Development of Construction Industry, and Management Specification for General Contracting of Construction Projects, which have played a very good role in solving the problems that hinder the development of general contracting of construction projects and promoted the general contracting of construction projects in China to gradually become scientific and standardized.
After years of continuous development, the general contracting industry in China has made great progress, laying a foundation for a number of high-quality enterprises in China to go abroad and conform to the Belt and Road policy. But generally speaking, the development of China's engineering general contracting industry is still in its infancy, and there are some problems such as imperfect laws and policies, immature owners, strong dependence on traditional construction models, and weak enterprise strength.
EPC/ turnkey projects are usually suitable for BOT or similar financing projects, as well as special E&; M projects (electrical, mechanical) and other engineering projects.
When using EPC mode, the following four factors are mainly considered:
(1) During the bidding stage, the bidders have sufficient information and time to carefully study and check the requirements of the employer, or carry out their design, risk assessment and estimation.
(2) According to the situation of the project itself, there are few underground concealed works in the construction content, and the scope of the work area that the contractor can investigate before bidding is moderate.
(3) The Owner does not require strict supervision or control of the contractor's work or review of most drawings. Under EPC mode, the owner or the owner's representative has the right to supervise the contractor's work, but he can't interfere with the contractor's work excessively, and he can't approve most of the construction drawings. The past performance of the contractor, especially the performance of other projects adopting EPC mode (if any), the technical documents in the contractor's tender and the quality assurance system shall be emphatically reviewed.
(4) The owner shall directly pay the interim payment of the project according to the contract. As the EPC mode of general contracting mainly adopts the general contract, the payment of project funds should be based on the contract agreement, rather than the payment certificate determined and issued by the engineer after reviewing the engineering quantity and the contractor's settlement report, as in other engineering construction modes. Under EPC mode, the interim payment can be paid monthly or in installments (or image progress); The specific amount of each payment can be stipulated in the contract, and the percentage of each payment in the contract price can also be stipulated.
Second, the advantages of EPC mode compared with the traditional construction general contracting mode
In the traditional construction general contracting mode, design, procurement and construction are out of line, and the implementation of engineering projects must be carried out in the order of design-bidding-construction. When adopting the traditional construction general contracting mode, the owner signs a design contract with the design unit, and the design unit is responsible for providing the design and construction documents of the project. With the assistance of the design unit, the project will be handed over to the bidder whose quotation and quality meet the requirements through bidding. In the construction stage, supervision usually plays the role of supervision and is the bridge between the owner and the contractor.
In this mode, because the contractor can't participate in the design work, the "constructability" of the design is poor, the design changes frequently and the construction period is long, which leads to the complicated coordination relationship between the owner and the contractor, and at the same time leads to frequent claims, which increases the project cost and makes the investment cost easily out of control.
EPC mode of engineering general contracting has realized the deep integration of design, procurement and construction. EPC mode is to make full use of the design link, perfectly integrate the advantages of procurement and construction, and systematically complete the selection of materials, equipment, construction technology and machinery in the design stage that has the greatest impact on the project cost, and integrate them into the design; At the same time, the design work will also be integrated into all aspects of P and C, so as to achieve high efficiency, low cost and environmental protection to complete the construction task, and finally achieve a harmonious and win-win situation between the owner and the contractor. To sum up, it is mainly manifested in the following aspects:
(1) For the contractor, it can be better controlled, reduce the project cost, shorten the construction period and improve the construction quality. In EPC mode, because the contractor can give full play to the leading role of design, it is conducive to the overall arrangement of construction, easy to control the cost, schedule and quality of the project, and the profit space is relatively large.
(2) For the owner, the contractual relationship of EPC general contracting is relatively simple, and the owner only provides the principle and basic design of basic functions, so the workload of organization and coordination is relatively small, the responsibilities are relatively clear, and the risks borne by the owner are relatively low.
Third, the main risk analysis of the contractor under EPC mode
In EPC project, the contractor replaces part of the position of the traditional general contractor and is at the core of the project construction. In addition to the conventional risks undertaken by the contractor under the traditional construction general contracting mode, many risks, such as adverse geological conditions, rising prices of equipment, materials and labor, and management coordination of subcontractors, which were originally undertaken by the owner, have also been transferred to the contractor. Aiming at some outstanding problems in the development of EPC mode in recent years, this paper summarizes the main risk points of contractors, including bidding risk, bid price limit risk, contract risk, management risk, owner's compulsory risk, change risk and audit risk.
(1) bidding risk. The traditional construction general contracting mode is a closed boundary. The owner provided a set of fixed contract conditions, design drawings and technical parameters, and the boundary conditions were very clear. In EPC general contracting project, the completely closed boundary condition is not put forward in the owner's requirements. The owner put forward relatively clear conditions, functional requirements, technical standards and approximate scope, but the construction drawings and engineering parameters are not clear. Not only is the boundary blurred, but the contractor's time is also tight. Contractors often don't have enough time and energy to review documents and survey the site, are uncertain about the design and construction scheme, can't make a reasonable estimate of the increase of labor, equipment and materials, and can't make an accurate quotation for EPC projects due to uncertain factors such as engineering changes and unforeseen circumstances during the construction process.
(2) Bid price limit risk. In general bidding, in order to control the project investment cost and prevent bidders from colluding in bidding and driving up the bidding price, the tenderer will set the bidding control price, that is, the maximum price. In EPC general contracting project, the owner bids immediately after the feasibility study, scheme design or preliminary design is completed, and the conditions for setting the maximum price are not met, and the unreasonable maximum price is forcibly set, or the owner deliberately sets the maximum price lower than the total cost required for project implementation after evaluation, and the contractor will suffer losses if he bids rashly. This is the case for a government investment project with a bid of 510.5 million by a consortium of state-owned provincial companies. After winning the bid, the state-owned provincial company organized the design unit to deepen the bidding scheme, and at the same time organized professionals to calculate the cost. It is found that the total project cost is about 750 million yuan, far exceeding the bid price of 5150,000 yuan, and the bid price limit of 545 million yuan is unreasonable or even maliciously set, which makes the state-owned provincial companies lose a lot in continuing construction and the construction quality cannot be guaranteed.
(3) Contract risk. Contract risk mainly includes contract clause risk and contract management risk. There are many EPC contracts for turnkey projects, including turnkey contracts, subcontracts and equipment procurement contracts. In the process of signing the contract, it is inevitable that the contractor is unclear about the scope of the project and the terms of the claim, thus causing disputes in the execution of the contract. In the process of contract execution, the contractor's contract management system is not perfect, the contract management level is low, and even some construction workers have no awareness of leaving evidence when submitting the project contact list, and their comprehensive knowledge is not comprehensive, which makes it difficult for the contractor to claim compensation in the later period and the dispute cannot be resolved.
(4) Managing risks. Management risks are divided into cost risk management, quality risk management, schedule risk management and safety, health and environmental risk management. EPC project requires high management level of the contractor, which tests the management ability and resource integration ability of the contractor. At present, there are three ways to do EPC for domestic engineering general contracting: consortium bidding; 2. The design unit takes the lead; 3. The construction unit takes the lead. Which way is better, each has its own advantages and disadvantages, it's hard to say. Both design units and construction units are design institute thinking and construction enterprise thinking, which are fragmented and lack the whole process thinking mode; Project management has no comprehensive management ability to co-ordinate the three stages, and the design institute has become the second supervisor; Lack of management system to complete the project; There is no mechanism for coordination, communication and information sharing between different units and departments; The design unit and the construction unit have not established a benefit sharing mechanism. Obviously, if the contractor's management level is low and lacks the corresponding organization and system, it is difficult to complete the EPC general contracting project efficiently.
(5) Owner's mandatory risk. On the one hand, in the traditional construction general contracting mode, the owner closely supervises or controls the contractor's work, and the contractor is restricted by many factors from the owner. Most contractors have become accustomed to the routine and strict process control under the traditional contracting mode. After the owner gives an instruction, the contractor will basically carry it out, whether it is correct or not. Therefore, when EPC general contracting mode is adopted, both employers, consultants and contractors will naturally bring the thinking under the traditional general contracting mode into the project implementation process, such as providing too detailed drawings and specifications in the employer's requirements, auditing the contractor's drawings in detail during the project implementation process, and hiring a supervision company to closely monitor the contractor's construction, which are the main reasons for a large number of project failures and disputes. On the other hand, as an experienced contractor, he can judge the correctness of the owner's instructions and foresee the consequences. After the owner gives the instruction, the contractor shall refuse the owner's wrong instruction while ensuring the project safety and realizing the owner's functional requirements, so as to avoid catastrophic safety accidents and the loss of the contractor's own interests. In my opinion, the collapse accident of the construction platform of Jiangxi 1 1.24 Fengcheng Power Plant was due to the owner's wrong instruction, requiring the construction unit to speed up the construction progress, which led to the illegal removal of the formwork when the strength of the cooling tower wall concrete was insufficient, resulting in the wall concrete losing its formwork support, unable to bear the upper load and collapsing from the weakest part at the bottom, resulting in the continuous collapse of the upper wall concrete and formwork system. In addition, in another arbitration case in which the author participated, in order to save costs, the owner asked the construction unit to dismantle the protective materials of the wading layer of the underground garage, and the construction unit did what the author asked, resulting in serious water seepage in the underground garage. After the expiration of the warranty period, the owner forcibly detained the quality deposit of the construction unit for maintenance, so that the losses caused by the owner's wrong instructions were passed on to the contractor.
(6) Change risk. EPC mode of general project contracting generally adopts the form of lump sum contract, but lump sum contract is not a fixed price, which can be adjusted under the conditions stipulated in the contract. Article 19 (Form of Contract) of the Management Code for General Contracting of Construction Projects issued by the Ministry of Housing and Urban-Rural Development, the general contracting project shall adopt a fixed lump sum contract, and the contract price shall be reasonably determined on the basis of full competition. Except for the principle of price adjustment stipulated in the tender documents or the general contract, the general contract price shall not be adjusted. In EPC project, the owner only puts forward relatively clear conditions, functional requirements, technical standards and approximate scope, and the bidding boundary is not clear, and the bidding of EPC scheme, preliminary design and engineering boundary are not clear. Whether the subsequent construction is within the contract scope or outside the contract scope is controversial.
(7) Audit risk. The EPC contract is a lump sum contract. No matter how the actual engineering quantity changes, it should be based on the engineering quantity or price agreed in the contract, which can urge construction enterprises to optimize design and procurement, or adopt new technologies and new management methods to reduce costs and obtain benefits. If the fixed lump sum contract is audited, it will become: if the actual engineering quantity or price is higher than the contract, it will be implemented according to the contract; If the actual engineering quantity or price is lower than the contract, it shall be settled according to the facts. This pragmatic audit method is extremely unfavorable to the contractor. Although the Law Committee of the National People's Congress believes that the provisions in local laws and regulations that directly take the audit results as the basis for completion settlement, and that the audit results should be specified in the tender documents or agreed in the contract limit civil rights and exceed the local legislative authority, they should be corrected. However, this does not prevent the owner from directly writing this clause into the bidding documents at the bidding stage, or using its dominant position to stipulate it in the contract. In practice, the government audit time is too long, ranging from one or two years to as long as six or seven years. The audit conclusion is wrong and difficult to remedy, which leads to the contractor's operational difficulties and even the risk of bankruptcy because he can't get the project payment in time.
Iv. contractor's risk response under EPC mode
1. Countermeasures for bidding risk. In EPC project, the design link is dominant, and the contractor should estimate and quote with the help of experienced design units. At the same time, the contractor must seize the time and opportunity, obtain and consider all relevant information as much as possible, conduct detailed on-site investigation, and understand the geological foundation, water temperature and climate of the project site. The contractor should also communicate with the owner as much as possible, understand and determine the owner's requirements, restore the owner's design ideas to the greatest extent, and reduce the number of revisions of the scheme.
2. Measures to deal with the risk of bid price limit. In practice, it is really a difficult problem how to set the maximum price so that it can not only curb the malicious price increase, safeguard the economic interests of the tenderer, but also ensure the successful completion of the tender. Especially for EPC projects, it is difficult to accurately estimate the contract price after the scheme design and preliminary design are completed. At this time, the bidder should strengthen communication with the tenderee, clearly understand the functional requirements of the owner, and arrange professionals to estimate. For the unreasonable setting of the maximum price by the owner, the contractor should avoid bidding to avoid losses after communication failure. At the same time, the contractor should adopt new materials, new technologies and new construction techniques through scientific management to improve the management level and reduce the construction cost. On the premise of meeting the requirements of the bidding documents, the labor, materials and machinery consumption should be determined independently, and the price and expenses should be selected independently and estimated scientifically.
3. Countermeasures for contract risks. The terms and contents of the contract are very important to the contractor, and the EPC contract will be an important basis for resolving disputes and claims between the two parties in the future. In the process of contract negotiation, signing and performance, the contractor should do a good job in market research and on-site inspection, accurately interpret the requirements of the bidding documents, discuss the important terms of the contract with the participation of professionals, and maximize the equality and fairness of the contract. During the implementation of the project, the contractor should pay attention to keeping the corresponding contact list, visa, meeting minutes and other factual documents or claim materials, keep the contract documents well, and provide legal services throughout the project to promote the settlement of construction disputes.
4. Countermeasures to manage risks. The essence of EPC mode is the integration of design and construction, which needs mechanism. EPC enterprises should meet the requirements not only in organizational structure, but also in software construction. Including: human resources that meet the requirements of general contracting, strong market competitiveness, qualified design ability, perfect project management system, strong technical support ability, ability to purchase machinery and equipment, complete sets of equipment and building materials in domestic and foreign markets, adequate general contracting coordination ability, ability to cope with risks, advanced corporate culture, etc. At this stage, EPC enterprises should constantly try to combine with engineering procurement construction, learn from advanced EPC management and design experience, and improve the organization, system and responsibilities.
5. Countermeasures for the owner's instruction risk. In EPC contract, the contractor is in the core position of project construction and has the leading power of project construction. The contractor shall adopt the reasonable instructions of the owner and execute them according to the instructions; For the owner's wrong instructions, the contractor can notify the rejection, mainly judging from the following three aspects: (1) it is difficult for the contractor to obtain the required goods; (2) The change will reduce the safety or applicability of the project; Or (3) it will adversely affect the completion of the performance guarantee. After receiving such notice, the employer shall cancel, confirm or change the original instruction.
6. Changes in risk response measures. In the process of contract negotiation and signing, the contractor needs to use his own design management and project management ability to close the opening part of the project when bidding and signing, and clarify the engineering design and engineering parameters, so that the project is in a closed environment. The signing of the contract should determine the scope of the project and lay the foundation for the change.
7. Countermeasures for audit risks. In practice, the owners often use their dominant position to stipulate the audit results as the basis for completion settlement in the contract, but the judicial interpretation of the corresponding laws and regulations has not made the necessary provisions, which leads to the excessive discretion of the local courts and the protracted cases. Guangdong Higher People's Court Gao Yue Law (20 17)No. 15 1 The Answer to Difficult Problems in the Trial of Construction Contract Disputes stipulates in Article 1 1 that the parties agree to use the audit and the audit results as the settlement conditions for the project funds. How to deal with it: The parties have agreed to use the audit and audit results of the financial and auditing departments as the basis for project payment settlement. If the financial and auditing departments clearly indicate that the audit cannot be carried out, or the audit conclusion has not been issued for a long time without justifiable reasons, the people's court can determine the project price through judicial appraisal upon the application of the parties and if the conditions for judicial appraisal are met. The Minutes of the Judicial Committee Meeting of Jiangsu Higher People's Court (2018) No.3 Document "Answers to Several Issues Concerning the Trial of Construction Contract Disputes" Article 10: How to deal with the project funds based on the administrative audit and financial review agreed by the parties: If the parties agree to use the administrative audit and financial review as the basis for the settlement of the project funds, it shall be handled according to the agreement. However, if the administrative audit and financial evaluation departments clearly indicate that they cannot conduct the audit or fail to issue audit conclusions for a long time without justifiable reasons, the parties concerned may apply for judicial expertise. At present, the replies of Guangdong Provincial High Court and Jiangsu Provincial High Court are also vague about the parties' agreement in the contract to take the audit results as the basis for completion settlement, and unclear about the long-term failure of the evaluation department to issue audit conclusions without justifiable reasons. The author believes that the contractor can try to limit the audit period by communicating with the owner when the judicial interpretation of existing laws and regulations cannot directly stipulate the audit period. For example, if the owner can't make a conclusion after receiving the settlement data from the contractor for more than two years, the contractor has the right to request the court or arbitration institution to make an appraisal, and the appraisal result is binding on both parties. If the contractor has evidence to prove that the conclusion of government audit or financial review is inconsistent with the contract, the contractor has the right to ask the court or arbitration institution for supplementary appraisal or re-appraisal.
At present, EPC mode is the mainstream trend of China's construction industry development, and will be vigorously promoted nationwide in the future. Construction enterprises should seize the opportunity, keep up with the development trend and cultivate a number of excellent EPC projects. At the same time, in view of the characteristics of EPC mode, contractors bear more risks. Therefore, for contractors, before and after contracting EPC projects, the author advocates that contractors should pay attention to project contract management, tax management and cost consulting management, and implement professional whole-process tracking services to escort the construction of the project.