A precondition for success in large industrial investments is the appropriate selection of the project delivery model. Alternatives range from turnkey to component deliveries or consulting services; a single solution that is suitable for all cases does not exist.
The purpose of project delivery models is to help identify and clearly define the responsibilities, tasks and duties of the parties involved (customer, partner and component suppliers). An appropriate selection of the delivery model can have a remarkable influence on the profitability and success of the entire investment, which is why it is good to carefully weigh up different implementation models already before making any investment decision.
The most typical models, especially in the energy and chemical industries, are: distributed delivery or EPCM (engineering, procurement, construction, management), turnkey delivery or EPC (engineering, procurement, construction), and partial delivery or EPS (engineering, procurement, support).
In the EPCM delivery model, the partner is responsible for engineering and procurement as well as supervision and management. While the customer carries the main responsibility for the overall project, the EPCM partner acts as the customer’s representative and consult coordinating and carrying out the project in accordance with the targets, schedule and budget defined by the customer. The scope of collaboration is always defined together with the customer to be consistent with the customer’s needs and resources available.
The EPC delivery, on the contrary, means a turnkey model from the customer's point of view. Here, the partner takes responsibility for all areas of the project from engineering to the final implementation while the customer only bears the costs. The supplier is also responsible for all procurement: machines, equipment, installation and the related warranty, which means that the customer is left without room for negotiation.
The EPC and EPCM delivery models meet different needs. A turnkey delivery may seem quite a straightforward alternative and, in fact, it suits best for situations where the customer does not have time or the necessary skills to carry through the project. Instead, the EPCM model enables flexible and cost-effective implementation, when the customer has a clear vision of the targets and budget of the project.
An experienced EPCM partner can perform equipment comparison and competitive tendering, etc., but the ultimate decision is always made by the customer.
However, despite the ease of the overall implementation, EPC deliveries have their downsides since, after signing the contract, the customer can no longer influence the course of the project, such as equipment selections or the schedule. Most often, a turnkey delivery is also notably more expensive to the customer than the other delivery models, since the EPC supplier needs to consider the costs related to risk management of the investment in their quotation. All modification needs identified after signing the contract, or a tight schedule, for example, create additional costs.
In the EPCM delivery model, project management is similarly under the responsibility of one partner, while the keys for decision-making are firmly in the customer’s hands, which makes it a notably more flexible alternative compared to a turnkey delivery. The customer has the possibility to make changes to schedules, equipment selections and the budget even during the project. An experienced EPCM partner can perform equipment comparison and competitive tendering, etc., but the ultimate decision is always made by the customer. The customer also signs contracts for equipment and component deliveries directly with the suppliers, which brings direct cost savings to the customers themselves.
Thus, it is mainly expertise required in the project that is purchased from an EPCM supplier. With an experienced partner, the EPCM delivery model saves time and money and minimizes errors in the implementation. The project proceeds more smoothly and communication is more efficient, when a single supplier carries responsibility for the overall management.
Defining the project delivery model is an important stage that steers engineering and becomes relevant already before the actual investment decision. Selecting an appropriate project delivery model requires wide-ranging expertise and an experienced partner who knows your organization and the project targets, as well as the different delivery models. Several different delivery methods or models can be used within an individual project and there is no single correct solution for identifying the most appropriate implementation model.
Ultimately, it all comes down to the fact how much the organization wants to tie their own resources to the project and, on the other hand, in which areas external expertise is needed. The right partner knows how to balance the customer’s wants and needs and put their own core competence in the right perspective to realistically estimate which is the most sensible, reliable and cost-effective way from the customer’s point of view.
As regards the success of the investment, procurement, contracts and implementation also play an important role, in addition to engineering. Therefore, it is advisable to select a partner who knows the subject matter as the back of their hand as well as the stakeholders involved, ranging from authorities to contractors. Although the customer carries the ultimate responsibility for procurement, it is the partner’s duty to perform the background study with the accuracy required by the project so that it is easy for the customer to make procurement decisions based on well-founded information.
In requests for quotation, for example, it is important to pay attention to various details depending on the procurement and application, since, if the request is too vague, the quotation will also be only approximate. This may lead to that decisions made relying on too generous information will affect the costs of the project at a later stage.
Would you like to have more information on different project delivery models? Download our guide Project delivery models in industrial investments, in which we discuss the different models and their differences in more detail.
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