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Is EPC Concept Yielding to CPE Control?
It has been well established over decades that the mode of project implementation plays decisive role in terms of achieving the desired end results. In fact the last three decades have seen value and complexity of the projects steadily increasing considering availability of feedstocks, diversities of technologies, products slate and plant configuration as well as financial strategies. Prabhakar Bhandarkar, Director - Business Development, Simon India Ltd, writes.

Conventionally the projects in various industrial sectors were implemented in the past following the basic pattern which was selection of licensors/ preparation of basic engineering package/front end engineering design/detailed engineering/ procurement/construction and start-up. Multiple agencies got involved at various stages of the project execution but the key driver for project management was always the client himself.

However, during the last couple of decades the project execution methodology adopted globally involved appointment of Project Management Consultant (PMC) at an early project stage followed by Detailed Engineering Contractor (DEC) whereas the construction contractor at site handled all the site activities right from site development through to complete installation covering all the engineering disciplines. Many industrial projects got implemented in the world using EPCM services contractor whereas orders for hardware and site work were directly placed by the client but over seen by the EPCM contractors. In most of the above cases major risks was always taken by the clients who were always of technical and commercial nature.

The concept evolution of ¬single point responsibility' leads to EPC, LSTK, LSPB modes of project execution. In most cases the companies with engineering contracting capabilities were the leaders of such project contracts with engineering capabilities in all the industrial manufacturing sectors be it Chemicals/Fertilisers/Refineries/Power Plants/Metallurgical Projects etc. Under single point responsibility concept major risks in terms of cost, quality and delivery were resting with the EPC contractors. EPC contractors lead by 'engineering' companies required expertise in terms of management of resources, financial stability and bit of muscling power, ability to establish reliable strategic partnerships with sub-contractors/ vendors as well as adequate but essential political networking.

Due to these key factors, contractors' number with capabilities to handle ¬few billion dollars  value EPC jobs has been limited to a dozen global players. In fact, in the Middle East and Gulf countries top 10 EPC players control over 65 per cent projects in Hydrocarbon sector and around 45 per cent in the Energy sector. Nearly 60 per cent projects get implemented on EPC basis whereas about 20 per cent use EPCM route for implementation of Industrial projects.

However, the type of EPC players and their background drastically changed during the last decade or so as 'engineering lead' EPC contractors globally faced various financial setbacks for various reasons and started looking for project opportunities where the clients would look for 'cost plus' basis or ¬open book  methods of execution where the overall project cost could get fairly and accurately established after completion of major part of engineering work. All industrial manufacturing projects which were put up during the last couple of decades also simultaneously witnessed emergence of ¬high value infrastructure projects  all over the world which involved roads, ports, airport, railways, power plants, residential and commercial complexes etc which certainly increased the overall capabilities of 'construction' contractors and their financial and political clouts all over the world. Most of the construction companies having capability to manage site specific locational factors and governmental support and managing manpower resources covering all requisite categories started playing frontal role by adding to its fold requisite engineering and project management capabilities not only for the infrastructural projects but also extendable to industrial projects. Emergence of this scenario slowly but surely saw the engineering company fronted EPC concept alter largely to ¬construction company lead CPE mode  of project implementation for high to very high value projects. Therefore global major companies established as construction contracting companies are more and more getting prequalified for high value LSTK projects in manufacturing sectors. Many Korean, Japanese, European and US companies which were leading construction contractors in the past have over taken the ¬engineering companies fronted projects  and the concept seems to be shifting to 'CPE mode' in future. These companies have also developed capabilities to offer projects at times on BOO, BOT, BOOT basis due to financial muscle power.

Project investors however need to be cautious in future, depending on the type of projects and desirable end products need to ensure that no compromises are made by the new CPE contractors in terms of functionality and durability of the assets created so also that quality and safety aspects are fully implemented in practice and not left alone in the manual. Excessive emphasis on aesthetic values normally imparted during detailed design in infrastructure projects need not get the priority while executing industrial projects.