UK: EPC/EPCM Briefing Note

Last Updated: 15 July 2015
Article by Cecily Davis, James Flynn, Louise Elmes and Zina Ieseanu


This short briefing note sets out the principal characteristics of EPC and EPCM contracts, looking in particular at some of the issues which may inform a potential lender as to the bankability of the project. It assumes, of course, that the project is viable from an economic perspective but that the project structure is not settled.

Engineering procurement and construction contracts have become the favoured procurement method for the delivery of large scale infrastructure projects, particularly those financed with off balance sheet debt. Their time focused, cost certain approach offers a compelling response to the need for what is typically described as bankability.

What do we mean by "Bankability"?

Typically this term is used to describe whether or not a project structure is sufficiently robust to allow a lender to get his money back. Traditionally, lenders have had a clear preference for a structure where one entity takes full responsibility for the delivery of a project and hence the engineering, procurement and construction contract has gained, and largely retained, its popularity. That said, the EPC contract is not alone in offering smart procurement solutions. This note looks at circumstances in which an EPCM contract might be used and, if so, how it might be modified to keep the lender on side.

A single point of responsibility may not be required in circumstances where the project sponsor is sufficiently sophisticated to manage without one or indeed the project is insufficiently complex. It may also be that the nature of the project means that a single point of responsibility is simply not achievable and, in any of these circumstances, it is possible that alternative structures would be viewed.

Under a typical EPC structure the contractor shoulders the risk of design, cost and time (save for a limited set of circumstances in which he is relieved). The employer need not be concerned by competing arguments about why a failure occurred because it is the EPC contractor's obligation to deliver a turnkey solution. He will be responsible for poor design as well as poor construction. A typical contractual structure of an EPC procurement is set out below.

Inevitably the apparent certainty offered by the EPC structure comes at a price and some project sponsors are considering whether the price is too high to pay. They may well prefer to retain some risk in return for a reduced price in situations which may be driven by sector, geographic location or other factors. The project sponsor will be evaluating increased cost and likely reduced equity return against the key benefits of an EPC contract which are price certainty for project delivery and increased likelihood of securing project finance. There has, accordingly, been a change in appetite to pursue projects solely through an EPC structure. It would however, be wrong to suggest that the popularity of the EPC has waned, but so too would be it be wrong not to recognise that there are alternatives to this procurement structure which are gaining market recognition.

The rise and rise of EPCM contracts

EPCM contracts, with or without a target cost mechanism, whilst not replacing the EPC contract as a procurement method of choice, are certainly being viewed as a credible alternative, where lenders are able to get themselves comfortable with the prospect of an enhanced risk profile. A typical EPCM structure is set out below.

EPCM contracts are quite different to EPC contracts. Fairly frequently there is some confusion as to their structure. Most importantly, the contractor does not undertake any physical works but, instead, he acts as a manger of other contractors. In some sectors, most notably the petrochemical industry, there are insufficient contractors with a sizeable enough balance sheet to take on all the risks under the project. This makes EPCM attractive. In large part, an EPCM contract is, in fact, a contract for the delivery of professional services, and so it has many of the characteristics of a service contract. In particular, the payment of a fee for the delivery of the services rendered. Those services are typically the delivery of developing design, the acquisition of equipment and materials and the administration and management of the contracts which are ultimately awarded.

The successful use of an EPCM model arguably requires the employer to have at his disposal more resource than would be the case under a more traditional EPC structure. On paper, of course, the EPCM contractor is being paid to administer the contracts and to manage them but in practice it remains the case that it is in the employer's interest to keep control over and visibility of the various interfaces so as to minimise claims for delay and disruption and additional time and money which this structure cannot eliminate.

It is worth thinking about the matters for which the EPCM contractor avoids liability. The EPCM contractor will not take responsibility for the delivery of works by a scheduled completion date, nor would he take responsibility for the ultimate out turn costs of the project. That said the trend towards the marriage of EPCM contracts and project finance has meant that there is a greater need to incentivise EPCM contractors to achieve over all delivery within time and cost constraints so more and more of these incentives are being used.

Target cost incentives in EPCM structures

Target cost contracting is a method of procurement which delivers an incentive to the contractor for efficient procurement. It means that the contractor has an element of "skin in the game" and is frequently used in conjunction with some form of reimbursable contract. This is a common contracting structure in tunnelling projects where the risk of out turn cost would be difficult to leave with the contractor.

In the context of the EPCM contract it will be apparent that lenders and sponsors alike will have every reason to want to find ways to control cost. There is not the contractual equipment which would be set out in a traditional EPC contract to exert an element of cost control. The EPCM contractor will no doubt be charged with setting his budget for work in conjunction with the employer's costs consultant or quantity surveyors but the EPCM contractor will give no warranty that these budgets will be achieved.

Typically, the EPCM contractor's responsibility is to use reasonable skill and care in monitoring and reporting on costs and their relationship to the budget.

The other central component of the EPCM contractor's role is in the proper co-ordination of packages of works which will be undertaken by the works contractor. In reality, it is difficult to demonstrate that failure in the performance of the EPCM contractor's duties give rise to loss.

On balance......

The clear advantage of an EPCM contract over an EPC contract is that the price paid will be lower than the EPC contract because less risk is being transferred. Incentivisation is now being used as a method for creating a more robust contract structure which does not, in and of itself, create bankability, but which encourages adherence to budget and programme.

Inevitably no one size fits all and a holistic view of the project sponsor's appetite for risk, availability of finance and the lender's own requirements need properly to be ascertained before opting for one structure rather than the other.

Treatment of Risk under EPC/EPCM

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.