#epc total contract # construction # project cost # engineer # project management
Who hasn't eaten the cost of losing control
It's a good bid, with 10% of the profit space, and it's a lot of work, and it's a lot of work: design conservativeness leads to material overload, material prices go up, owners change their demands, they don't add money, they're done, they don't make money, they lose millions。
A lot of people throw the pot at the "low-price medium" "a" and say the truth from the point of view of the construction industry: 90 per cent of the losses of the epc project were never handled during the construction phase, and you misdirected cost control from the outset. The project cost of 80 per cent has been determined at the bidding and design stages, and only the remaining 20 per cent can be managed during the construction phase. You're putting all your energy into the construction phase, pulling steel, saving cement, essentially picking sesame and losing watermelon。
Tender stage: low-price winning is not the right thing to do, but to calculate the risk
The losses on the epc project were rooted from the moment the tender was tendered。
The core logic of too many construction parties to the epc project is the same as that of the traditional master contractor: to take it down at a lower price and then to make amends and claims. However, the epc is a lump sum contract, and most of the risks are on the general contractor, and the risks that you failed to calculate when you bid will end up in loss。
The most common fatal error: to rob the project, blindly push the offer down to 15 per cent, or even 20 per cent, without a risk reserve; to leave the terms of the contract unsubstantiated, with vague terms of reference, the owner's unlimited right to change, the full risk of an increase in the price of the material, the cost of the policy adjustment, all written in “the master contractor's own responsibility”; even the project's geological conditions, the surrounding environment, and the accompanying facilities are not on site, and the offer is based on experience。
I have seen one of the most insane projects, where the tender did not look at the site, or the large number of derelict pipes under the construction area, which resulted in a pv change of 8 million, compared to a bid profit of 5 million for the project as a whole, resulting in a lost bid。
The core of the epc bid has never been the lowest price and the best risk. A qualified epc bid must contain three components: accurate costing, adequate risk reserve, and clear risk sharing provisions。
The geological risk, the risk of material price increases, the policy risk, if the share is agreed upon in the contract, is never fully covered; the vague terms of reference must be clearly stated in the tender response and included in the supplementary agreement to the contract; and the hegemonic contract that “takes all the risks at a single price” is simply not accepted, if any. You know, epc took the wrong one, and ten less was scary。
Design phase: 80% of the cost is fixed here, and decentralization is a waiver of profit
This is the core of the epc cost control and the worst pit on which most of the builders have stepped。
Many of the builders do epcs, which often feel that “design is the business of the design complex”, outsource all the design work and are responsible for their own construction. As a result, the design complex, in order to avoid its own risk, has always adopted the most conservative design options: steel bands match the norm with hard number one, concrete labels are raised, equipment is selected for the most expensive import brand, and construction costs are not considered。
When the drawings come out, you realize that the structural component alone costs more than 20 percent, and that the construction phase is doomed to lose even a penny. But at this point, the design house would say, "according to the design, you're responsible for the problem," and the owner would say, "the drawings are final, they can't be changed," and you would just break your teeth and swallow them。
Epc's core advantage, which has never been a simple fusion of “design + construction”, is that the master contractor can lead the design and control the cost from the source. The real epc builder would never give the design authority to the design complex, but would form his own "design + cost + construction" team that would participate in the design:
(a) to introduce a quota design that dismantles the total target cost to every professional, individual component, and to produce drawings that are cost-based first, optimizes when the limit is exceeded, and never sign drawings that do not meet the cost requirements
(b) design with construction thinking, reverse design, embedding construction feasibility, material procurement difficulties, manual costs into design, such as replacing alien components with standardized components, replacing small mass materials with commercially accessible materials and reducing construction costs from source
Multi-programmatic technology economy versus choice, same functionality, whichever is low-cost and fast to build, is used. For example, optimizing structural bands and saving excess steel bands; replacing equipment material with higher value, with minimal cost, subject to specifications and usage requirements。
I've seen a project that optimizes basic design, reduces the length of the stake from 25 to 20 metres, lowers the cost of a single piece by 20 per cent, saves the entire base by more than 3 million, which is better than the cement of a year in the construction phase。
Procurement and construction synergies: one more day off, one more day off
The cost of the epc project was wasteful, with a significant portion of the resulting disconnect between design, procurement and construction。
The process for many projects was to complete the construction drawings from the design complex and then hand them over to the procurement department for materials and then to the construction department for work. As a result, the design was slow and the purchase was limited to the purchase of materials in small batches, at no discount; the materials purchased were not in the correct specifications and arrived at the right time, and could not be used on-site, either to return the goods, or to pile up the site and to cover the cost of wear and tear and custody; the critical equipment was not ordered in advance, the arrival time was late, the construction team had to stop work, etc., and the cost of sheltering and mechanical rental was tens of thousands a day。
A truly efficient epc cost-control is to break the departmental wall and achieve the depth of design, procurement, construction synergies and cross-cutting operations:
The design phase involves pre-procurement, pre-targeting of suppliers and prices for critical equipment, bulk materials, and avoiding higher prices for later materials; the purchase of spare parts, the purchase of base drawings, the purchase of steel bars, cement, the acquisition of master drawings, the fixing of steel structures without waiting for the full set of drawings to be completed
The precise matching of the procurement plan and construction schedule, the arrival of material equipment and the tight wiring of the construction nodes have resulted in neither early arrival at the site nor late at the end of the day
Design problems, material problems identified during the construction process were fed back to design and procurement in the first instance and resolved on the same day without delay until the next day to avoid minor problems turning into work back。
Many times, you save not material money, but time money. The maximum cost savings are achieved by keeping the duration of the epc project under control at an additional cost of tens of thousands of dollars per day。
Change of claim: total price package dry, not “back-pack dry”, not less than a penny to earn
Many of the construction parties had an error: the epc was a lump sum contract, and any change would have to be costed。
This is the biggest misunderstanding of the epc contract. The total price package is dry, consisting of work and risks within the scope of the contract, not of unlimited changes by the owner of the package, nor of increased costs due to the owner of the package。
The most common owner changes: changes in building usage functionality, adjustments to renovation standards, additional work content, delays in the provision of construction sites and delays in the payment of works. These changes resulted in increased costs and delays, which should have been borne by the owner, and the overall contractor had every right to claim compensation。
However, many of the construction parties were either afraid to file a claim with the owner, fearing that this would affect subsequent cooperation; or, in the event that the claim was not managed in such a way that they would work on oral changes, without a written visa, without process information and, ultimately, without the owner's admission, would have to bear the losses themselves。
Epc project change claims management, centred on “book first, work later, leave evidence and do it in a timely manner”:
Any change proposed by the owner must be preceded by a written change order specifying the content, scope, duration and cost of the change, without any change in the written order and without any work
(a) after the change, within seven days of the submission of the request for a change of quotation and the claim, with complete process information: the more complete the chain of evidence, the higher the success rate of the claim
Establishment of a change of claim desk account, dedicated to tracking it and arranging for construction after completion of the change approval, to avoid being paid for after work。
It is important to remember that some of the profits of the epc were dry and some of the changes were due back. You take the risk, you take it; you don't take the cost, you don't give a cent。
The essence of cost control: full staff, full process, full risk closed loop management
Many felt that cost control was a matter for project managers and finance and had nothing to do with designers, builders and buyers. In practice, however, the cost control of the epc is full-time, full-process, full-risk closed-ring management, with every link, every individual and cost。
The designer drew an additional steel band at a cost of several hundred dollars; the purchaser ordered the goods one day late and the materials could increase prices; and a wrong instruction from the builder could result in tens of thousands of dollars being returned to work。
Real effective cost control requires the establishment of full staff cost accountability: the removal of the total target cost to each department, every post, every individual, designer's performance and design optimization, procurement staff's performance and procurement costs are linked, construction personnel's performance is linked to the cost of construction, duration of work, and everyone's cost index is driven by a downgrading。
At the same time, a dynamic cost-monitoring system has been put in place, using information-based tools such as bim and erp to track expenditures on a real-time basis for each cost, to compare target costs, to analyse the reasons as soon as a deviation occurs, and to take corrective measures, in no case should cost overruns be discovered until the project is finished, when everything is too late。
The epc model is no longer a novelty in the construction industry, but many of the constructioners ' cost-control thinking is still at the stage of the traditional construction master contract。
You're doing a new pattern with old thinking. You're meant to step on the pit and lose. Epc has never been capable of working with anyone, who can save a bit of cement on the ground; who can calculate risks at the tender stage, control costs at the design stage, work together at the implementation stage, and maintain profits at the change stage。
The industry has long passed the age of aggressive development, and the future epc market will only become more regulated and competitive. Only if the core capacity for full-process cost control is truly in place will it be able to establish itself on this track and earn its own money。
End interaction
Fuck the epc brothers, what are the worst cost pits you've ever stepped on in your projects? Is it a conservative cost overrun, or is the material price increase or is the claim not returned
Welcome to the comment section to share your true experience and cost-control skills, and feel that the article exemplifies the core logic of the epc cost control, avoids the pits of loss, and does not forget to add a few words to the attention, and that the follow-up will continue to share the epc project management, cost control, real-time work in contract negotiations, with all the engineers, with fewer pits and more money。
