Engineering procurement and construction management (EPCM): a complete guide

Engineering, Procurement, and Construction Management (EPCM) is a method of contracting widely used for industrial and infrastructure projects such as mining, oil and gas. Unlike traditional turnkey contracts where a single contractor bears almost all risks, EPCM gives the project owners a chance to retain control and be transparent while still obtaining external engineering expertise.

What is Engineering Procurement and Construction Management (EPCM)?

Engineering, Procurement and Construction Management (EPCM) is a method of project delivery where the client contracts an engineering firm to deliver the professional services required to design, source and manage the construction of the project, without the engineering firm necessarily acting as the constructor.

In this system, EPCM services mainly focus on advisory and supervisory work. The EPCM contractor operates as a client’s team member, managing complex engineering issues, procurement tender processes, site construction activities, and coordinating the client’s representatives.

The fundamental advantage of EPCM project delivery lies in the fine-tuning it offers: both providing expert guidance and allowing client autonomy. Since the project owner remains the primary contracting party for construction and equipment supply, they enjoy full transparency regarding costs, vendor selection, and design changes. This method especially suits technical specialty projects where the client utilizes deeply knowledgeable consultants to assist with decision-making, and still retains the final approval power at significant project milestones.

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How does an EPCM Contract Work?

An EPCM contract, usually, is a professional services one, often arranged on a cost-reimbursable or time-and-materials basis, which means the contractor receives payment for the expertise and management resources they provide.

What is expected from the EPCM contractor?

The EPCM contractor is responsible for the intelligent brain of the project – conceptual and detailed engineering designs, technical evaluation of tenders, and providing construction management staff to supervise work on-site. However, they do not physically build the project themselves.

Who contracts third parties?

In an EPCM arrangement, the client is the party that contracts suppliers, vendors, and construction subcontractors directly. The EPCM contractor manages these interactions and makes suggestions, but legally and financially, all obligations rest with the client.

EPCM FEE STRUCTURES

• Cost-Reimbursable: The contractor receives payment for the actual incurred costs (e.g., labor hours) plus the agreed management fee or profit margin.
• Unit Rate: The contractor’s payment depends on predetermined rates for specific services or deliverables provided.

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WHAT IS THE CLIENT’S ROLE AND LEVEL OF CONTROL?

The client should be very hands-on when working with EPCM. The client must approve any significant changes to supplier selections, designs, or other aspects. To do this effectively, the client needs an in-house experienced team that can review recommendations provided by the EPCM firm.

The Three Phases of EPCM Explained

Engineering, procurement, and construction management services are organized into three separate yet interrelated phases to keep the EPCM project delivery on track.

1. Engineering Phase

This stage is about the technical realization of the project. It features:

• House plans and architectural drawings
• Material requirements
• Site plan
• Layout of the buildings

2. Procurement Phase

The EPCM team acts as the client’s agent to source materials and equipment:

• Vendor selection: A very important part of the procurement phase is selecting vendors who are technically capable, have a reliable track record, and meet safety standards.
• Organizing the bidding process, evaluating proposals, commercial and technical, and negotiating terms.
• Managing purchase orders and administration, working on the client’s behalf to find the best value.

3. Construction Management Phase

Although the EPCM firm does not physically construct the project, they are actively involved in professional on-site management:

• Making sure subcontractors follow designs and safety protocols – a very important job of contractor coordination.
• Monitoring the performance of the project with regards to schedule and budget.
• Construction Quality Control ensures that work on site complies with technical specifications determined during the engineering phase.

EPC vs EPCM — What is the Difference?

Knowing the difference between EPC vs EPCM is a must if you want to line up your project with the right delivery risks.

What is an EPC (turnkey) contract?

The contractor in an EPC contract is the one who, under a fixed lump-sum price, takes on the risks of the entire project, including engineering, procurement, and construction management. The client ends up with a “turnkey” facility—that is, when the project is done, all the client has to do is turn the key to operate it.

Key differences between EPC and EPCM

• Responsibility: EPC contractors bear the construction risks; EPCM contractors represent the owner’s interests.
• Cost Predictability: EPC contracts lock the price (fixed price); with EPCM there’s cost transparency (cost-plus).
• Flexibility: EPCM allows for design changes even after the project is underway; EPC is quite inflexible due to the fixed-price nature of the contract.

Risk allocation

The risk of cost overruns and delays rests with the EPC contractor. While with the EPCM model, the client takes on those risks, but the EPCM contractor is still contractually responsible for the quality of their professional management and engineering services.

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Advantages of the EPCM Model

• The client keeps control over the whole project: Owners have the last word on critical decisions, like which contractors to select and whether to make any design changes.
• Procurement is fully transparent: Since the client holds the contracts, they can see everything that is being paid for materials and labor.
• Design can change quite easily: If the project needs get changed during construction, the EPCM model can handle those changes without forcing the client to pay the kind of exorbitant “change order” prices that are a common feature of EPC lump-sum contracts.
• Less risk from single-point-of-failure: By cutting the project into manageable packages and using different subcontractors, the client is not exposed to the risk of a single contractor defaulting.

Disadvantages and Risks of EPCM

• Client takes on more contract risk: If things go wrong with the project, it is the owner that will face extending the budget and pushing back the schedule.
• Managing multiple contracts can become a headache: The client is responsible for administering many individual subcontractor agreements which could be quite challenging.
• Not so sure about the final cost: Unlike an EPC lump sum, you will not be able to predict the exact amount of money needed for the project until it is almost finished.
• Strong client-side skills are necessary: The owner has to be both technically competent and able to manage the work done by the EPCM firm as well as to provide informed approvals.

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When to Use EPCM vs EPC

Choose EPCM when:

• You want to maintain a high degree of control over design and vendor selection.
• The project is complex or there is a possibility that the scope may change during execution.
• Your company has a very competent internal project management team.

Choose EPC when:

• A fixed and guaranteed budget is the top priority.
• You do not have or want to have in-house expertise or interest in day-to-day project oversight.
• The project is well-defined, simple, and does not require significant changes in the middle.

Decision Checklist for Project Owners:

• Am I capable of managing multiple contracts?
• Will the project scope completely remain fixed or is it expected to change?
• Is budget predictability more important than design flexibility?
• Who will be the best party to manage the risks associated with construction?

EPCM in Key Industries

EPCM in oil and gas and petrochemicals

These types of projects are quite complicated and usually involve huge capital expenditures as well as detailed safety requirements. EPCM in the oil and gas sector gives the operators the opportunity of strict quality control over the procurement and installation of critical process equipment, while at the same time making use of the worldwide group of engineering experts for the design of their facilities.

EPCM in mining and minerals processing

Mining operations often have to deal with uncertain geology. The EPCM model offers mining operators freedom to modify their mine and plant designs on the fly as geological information is revealed, something that would be impossible under strict EPC contracts.

How to Select an EPCM Contractor

It is quite a critical step in the right direction that you are looking for the right partner, as they are a kind of your in-house team.

Key criteria for evaluating EPCM firms:

• Industry Specific Track Record: Is the firm capable of handling your industry-specific project and delivering high value to your organization?
• Technical Depth: Is this team technically competent at the scale of your needs to meet the design requirements?
• Safety Culture: Are their safety standards exceptional and will they complement your company’s brand?

Questions to ask during the tender process:

• “How are the procurement activities harmonized with your ERP system?”
• “When a change occurs, how do you handle it and keep cost transparency?”
• “Would you mind sharing projects where you managed multiple subcontractors?”

Red flags to watch for:

• Having an opaque internal billing and profit margin policy.
• Imposing a “one size fits all” approach, i.e., not considering the project-specific constraints.
• Not enough internal manpower to manage construction activities.

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Frequently Asked Questions about EPCM

What does EPCM stand for?  

It is an abbreviation for Engineering, Procurement and Construction Management.

What is the difference between EPC and EPCM? 

EPC implies a “turnkey” arrangement where the contractor gets almost all risk with a fixed price. On the other hand, EPCM is a professional services arrangement where the owner stays in control and takes the project risks whereas the EPCM firm handles the management of works.

Who owns the contracts in an EPCM model? 

All the subcontractor and equipment supplier contracts are in the name of the client.

Is EPCM a lump sum or cost-reimbursable contract? 

Generally, this is a cost-reimbursable or fee-based professional services contract with no lump sum turnkey contract.

What industries use EPCM? 

Its predominant usage is in the complex industrial sectors like mining, oil and gas, petrochemicals and heavy infrastructure.

What is the role of an EPCM contractor?  

They perform the engineering design, manage the procurement tender process and oversee construction management so that the final product meets the client’s specifications and safety ​‍​‌‍​‍‌​‍​‌‍​‍‌requirements.