The epc master contract model avoids design, procurement and construction contradictions, promotes the in-depth integration of the three phases and reduces changes due to design errors and omissions, which can significantly reduce the duration of the work and reduce the cost of the project。
However, the epc master-contracting project model has a high risk of misstatement and understatement in the cost decision-making process and is highly susceptible to various cost management risks。
This paper presents an analysis of the risk identification and problems of cost management in the context of the epc master contract model, proposes a corresponding management response and demonstrates the advantages of the epc model through the practice of the seven-road project in the new high iron zone, which serves the purpose of generating revenue and can inform similar projects。
Cost management risk recognition under the epc master contract model
The construction of each project is cyclical, there are too many uncertainties during the construction cycle and there are a variety of risks associated with the price management of the project. In order to better identify risks and avoid them, it is particularly important that the costs of the project be based on sound science。
1. Contractors ' own risks
For the total contractor, the risk of cost management comprises four main categories:
(1) lack of careful, accurate and thorough investigation of the project environment and inadequate consideration of environmental considerations; outside the country, some construction work is often more difficult than domestic work and detailed investigations are not carried out。
These costs can easily cover many unnecessary security threats in subsequent construction during the project period。
(2) without the contractor's design capability, there would be no initiative in terms of engineering design, equipment procurement, effective control, etc. Of the entire project. In other words, there is insufficient customer design standard information under the epc master contracting model。
At the same time, procurement requirements for the entire design project are not dependent on design standards and are vulnerable to subsequent construction, which tends to be reactive in general。
(3) design, procurement, construction risk. Large-scale contracting projects often require cooperation in design, procurement, construction, etc., in an economic environment. In practice, there is a need for continuous exploration and consideration by both the project parties and the construction parties, so risk-sharing is inevitable and does not favour more efficient cost management by the general contractor。
(4) the management of construction planning organizations is unclear, such as changes in the overall population size and structure. In the early stages of construction, project scientific planning and the allocation of human, material and financial resources are required for optimal deployment。
However, in some cases, the complexity of the construction environment, the lack of full consideration of unforeseen factors and the high risks associated with design and forward planning, construction organization and management have resulted in additional project costs。
2. Risks from owners
(1) epc contractors are unlikely to be able to effectively file claims because of minor changes in design and construction required by the owner, which would certainly increase costs. In some cases, such as high-temperature noon, climate change, etc., owners cannot contribute to the cost of air conditioners associated with construction, which is undoubtedly borne by the general contractor。
(2) the owner may extend the duration of the work and the project stage cannot be fully reviewed. In the course of construction, construction costs have increased significantly as a result of higher prices for materials, labour, etc. As markets change。
There will be force majeure during the construction process, resulting in delays in the construction schedule, which will prevent the construction party from completing as agreed in the contract and increase the cost of unnecessary contract extensions。
(3) owing to the insufficient attention given by owners to contractual risks, some owners have been unable to effectively meet the conditions associated with the construction site, the supply of water and electricity, and the expropriation of land, resulting in higher project costs, which pose serious obstacles to project management and costs。
Problems in cost management of the epc master-contracting project
▌1. Main role conversion not completed
Currently, there are three main types of general engineering practice:
The general contracting model for engineering units, the general contracting model for construction units and the general contracting model for construction units。
The construction unit group master contractor did not achieve an organic combination of design and construction, neglecting the central elements of project cost management, which adversely affected the project's progress。
2. Lack of economic perception among project managers
For project contractors, all internal staff must work together to achieve good cost management in order to maximize economic benefits。
There is a clear division of labour among the company's employees, but there has been insufficient coordination among them。
For technicians, feasible construction options are usually considered only at the technical level, with little consideration given to the economics of project management。
In order to ensure that the quality of the work meets the requirements of the owner, the material procurement department selects better quality materials, which require higher prices。
The material procurement department focused on the quality of the material, ignoring the pattern of changes in the price of the material, which, while increasing the utilization of the material, resulted in increased cost inputs。
The project contractor needs to strengthen the economic awareness of all managers to optimize the efficiency of the management of the investment of project funds。
Lack of scientifically effective cost-management controls
Management efficiency needs to be improved and supported in the pricing of works. If cost management is left to one person alone, it creates implementation difficulties and does not increase management efficiency。
In order to strengthen the cost management of the epc project, it will be necessary for the entire staff of the project department to change their mindsets and actively learn, accept and cooperate with advanced management techniques, experience and controls to control the overall investment in the project and optimize project management。
Many of the current advanced management techniques and experiences are not widely disseminated, resulting in enterprises lacking effective cost management and better economic benefits。
Refinement of the cost management response of the epc master contract project
1. Improving cost control systems
In order to keep costs under control and improve the quality of products, the focus must be on the continuing decline in the production costs of enterprises。
Establish a sound cost-control system, establish comprehensive and effective regulations, strengthen management and fully discharge management functions at all levels, in accordance with the relevant provisions。
In order to control the production costs of enterprises in a comprehensive and effective manner, the duties of corporate entities and managers of enterprises must be exercised in strict compliance with different regulations, and overall control over the management of enterprises must be exercised in order to ensure that cost control is carried out in a smooth and orderly manner and that the relevant accountability systems are improved。
Scientific procurement of epc project equipment to ensure full control and initiative in project design
As the epc project involves multiple stages of design, procurement, construction and so on, the epc project must be sufficiently proactive in its planning and control phases。
At the design stage, different possible conditions, such as natural, social and economic conditions, are needed to identify and implement strong policies on workers, mechanical equipment and materials。
In order to avoid unnecessary contradictions in technical structures and economic disputes, we should conduct a comprehensive review of design drawings and consult with owners before bidding。
At the same time, when approving the master-contracting project, the general contractor must be fully aware of the acquisition of equipment, be fully informed of the equipment contract and the initiative of the project, be fully aware of and record the requirements of the owner, develop a scientific procurement plan, and develop a reasonable equipment allocation, usage plan and equipment management, resulting in significant cost reductions。
3. Develop sound project cost control programmes
In the case of the general contractor of works, the completion of a perfect cost-control plan requires a combination of aspects。
For example, in the area of labour management, an implementation programme has been developed for the localization of construction, while in the case of migrant workers, it is the management of their labour inefficiency and the management of personnel costs through technical appraisals or incentive mechanisms。
In order to control the cost of materials and machinery, it is necessary to start with two aspects, namely, the price and consumption of materials, equipment and equipment。
In order to improve the performance and utilization of equipment, facilities and facilities, a sound accounting system and an internal audit system must be put in place to improve the enterprise cost accounting system。
In the absence of cost-accounting mechanisms, even if accounting methods and tools are well developed and sound, the desired results cannot be fully achieved; improved cost-accounting mechanisms can better strengthen enterprise cost management。
Establish specialized cost accounting bodies, strengthen accounting, preparation, coordination and implementation of budget plans, address issues of coordination and implementation in a timely manner, evaluate responsible units in a timely manner, continuously refine cost accounting systems, actively introduce external audit systems, periodically review the relevant departments and responsible units, thoroughly audit the quality of audits, scientifically and rationally control the cost of operations and improve the efficiency of operations. A market survey of the total price of the works and the structure of the works was conducted to scientifically and rationally assess the risks of the project, taking into account the terms of the contract and the price risk。
Case analysis
The seven-road project in the new above-high iron area was contracted for municipal road works, the main components of which included road-based gravel works, bridge works, surface works, greening works and lighting works. The contract price for the project was $276. 95 million, which was settled on the basis of the final audit price multiplied by the floating rate of 3. 47 per cent of the winning price。
The winning bid for the project was calculated as a key component of the department's revenue generation, and the full advantage of the epc project was fully realized by optimizing the design of the software-based process, increasing the volume of the software-based work and the cost of measures, subject to quality assurance。
Under the epc model, the cost of retrofitting is strictly controlled, and the revenue from the soft base is expanded to meet the quality requirements of the works。
(1) collection of the actual situation in the soft base segment, i. E., images of the original topography, geomorphology, geology, etc., that are favourable to the earth。
(2) in conjunction with ground survey units to investigate the size, volume and geology of the soft base segment for exploration, coordinate ground survey units to increase the area of the soft base segment treatment, describe the soft base segment and lay the groundwork for the design of the construction plans。
(3) the soft-based component design programme and engineering volume have been optimized. On the basis of the original design, the cost of earth-bag encircling measures has been optimized, with the addition of earth-work grids, the replacement of refilled earth-work grids with refilled gravel, and the agreement, in coordination with the design unit, to incorporate the optimized design into the map。
(4) as the soft base section is a covert project, and in order to avoid the possibility of a later review and reduction, we prepare and approve the construction organizational design, construction programme, special programme, in accordance with the optimal design, with various visa information and video data attached to the construction。
During the design phase, the design programme was optimized through active participation in design, value assessment of the programme, timely submission of relevant recommendations to the project designer to make the design programme more cost-effective, and the participation of the construction party provided a good basis for price control for the subsequent construction project。
Concluding remarks
In recent years, with the acceleration of global economic integration and the rapid growth of the chinese economy, the epc project management model has been widely applied in our country。
The project's long-term impact factors are numerous and, throughout the life cycle of the project, it is possible to minimize project costs and maximize project benefits by improving the cost control system for the epc project, developing a reasonable control programme and reasonable control of the factors affecting project costs。
