What is an EPC contract?
Engineering, procurement and construction under one contractor and one price. The owner receives a finished plant and one party to hold responsible.
Large industrial projects involve design firms, equipment makers and builders. An owner can hire them separately and manage the gaps between them, or it can sign one EPC contract and let a single contractor do all three jobs: engineering, procurement and construction.
Most EPC contracts are lump-sum and turnkey. The price and completion date are fixed, and the contractor hands over a plant that is ready to operate. If it is late, the contractor pays liquidated damages for each day of delay. If the plant underperforms, it pays again.
Lenders like the arrangement because the risk of overruns sits with a contractor who has a balance sheet. Contractors price that risk in, so an EPC bid is usually higher than the sum of its parts. A variant called EPCM has the contractor manage the work for a fee while the owner keeps the cost risk.
- EPC
- Contractor carries cost and schedule risk
- EPCM
- Contractor manages. Owner carries the risk
Explainers describe how things generally work. They are not advice for a specific project or country. See our editorial policy.