What is the Difference between EPC and Turnkey Contracts?

Introduction

When it comes to engineering and construction projects, EPC (Engineering, Procurement, and Construction) contracts and turnkey contracts are two widely used terms. The difference between EPC and Turnkey contracts may seem to be very thin, but each contract has unique characteristics and needs to be better understood. In this article, we will delve into these differences to gain a better understanding of each contract type and their unique characteristics.

EPC Contracts

EPC contracts are commonly used in complex projects that involve the construction of infrastructure, such as power plants, refineries, or large-scale industrial facilities. The primary feature of an EPC contract is that it combines engineering, procurement, and construction services into a single agreement.

Under an EPC contract, the contractor is responsible for designing the project, procuring the necessary equipment and materials, and executing the construction. The contractor takes on the responsibility for the project’s completion within a specified timeframe and budget, assuming the risk for any delays or cost overruns. EPC contracts are favoured for their comprehensive and integrated approach, as they offer clients a single point of contact throughout the project.

Turnkey Contracts

Turnkey contracts, on the other hand, function differently. In a turnkey contract, the contractor assumes complete responsibility for the entire project, delivering it to the client in a “ready to use” or “turnkey” condition. Unlike EPC contracts, turnkey contracts typically include the operation and maintenance of the project for a specific period after completion.

Under a turnkey contract, the client provides the contractor with a set of project requirements and specifications. The contractor then takes on the responsibility for designing, procuring, constructing, and commissioning the project. Once completed, the contractor hands over the project to the client, who can immediately begin utilizing it without any additional work or modifications.

Difference between EPC and Turnkey Contracts

1. Scope of Work

• Under an EPC contract, the contractor is in charge of the project for the duration of its existence. The contractor manages every facet of the project, from planning and engineering to acquiring materials and building the structure, guaranteeing its execution and commissioning.

• In contrast, a turnkey contract entails the building of a project in which the contractor provides the client with a fully finished and functional facility. Simply “turning the key” will allow the client to begin using the space. EPC contracts encompass the entire project lifecycle, from design to construction, ensuring a seamless integration of engineering, procurement, and construction services. Turnkey contracts, on the other hand, focus on delivering a fully operational project, often including post-completion services.

2. Execution

• Project Execution is entirely the contractor’s responsibility under an EPC contract. This entails planning, organising, and overseeing every project activity to guarantee its flawless completion.

• Under a turnkey agreement, the contractor manages the entire project, supervising all building work and completing the delivery of a finished, operational facility.

3. Drafting layout

• Under this kind of contract, the EPC contractor is in charge of design. It is the contractor’s responsibility to provide technical requirements, engineering solutions, and to make sure all applicable regulations are followed.
• The contractor may or may not be in charge of the design under turnkey agreements. If the contractor has design responsibilities, they guarantee that the facility is finished and fully functional.

4. Acquirement

• For the project, the EPC contractor is in charge of acquiring all supplies, machinery, and subcontracted services. This covers locating, acquiring, and arranging for the delivery of resources.
• When a contractor has a turnkey contract, they usually take care of the procurement process, making sure that the tools and materials needed for construction are available.

5. Cost

• An EPC contract’s cost is often determined by the contractor’s precise engineering and requirements. The complexity of the project and the materials needed for construction determine the cost.
• Turnkey agreements often have a predetermined, fixed cost. When calculating the price, the contractor considers both the project delivery and the full construction process.

6. Risk Factor

• A sizable amount of project risk is frequently transferred to the contractor under EPC contracts. The contractor takes on more risk because they handle the design, procurement, construction, and commissioning.
• A large amount of the project risk is assumed by the contractor in turnkey agreements. By ensuring that the facility satisfies the regulations, they reduce the client’s risk.

7. Client Involvement

• One of the main differences between EPC and turnkey contracts lies in the level of involvement an risk assumed by the client. In an EPC contract, the client retains more control over the project, as they are involved in the decision-making process and oversee the contractor’s activities.
• On the other hand, turnkey contracts offer clients a more hands-off approach, as the contractor assumes greater responsibility and accountability.

8. Time Limit

• Depending on the size and complexity of the project, EPC contracts can have different completion times. The contractor oversees several project components, which could impact the project’s final schedule.
• Turnkey projects frequently finish sooner than expected. Since the contractor must produce a facility that is ready for use, they usually expedite the building process to ensure that it is finished on schedule.

9. Change orders

• Change orders are typically used in EPC contracts to account for scope modifications to the project. The project’s total delivery, schedule, and cost may all be impacted by these modifications.
• Implementing change orders in turnkey projects can provide greater difficulties. Changes to the project scope will become more complicated because the contractor is expected to deliver a fully finished facility.

10. Maintenance and Warranty

• After the project is finished, the EPC contractor could offer a limited warranty, usually in conjunction with the client taking on the responsibility for maintenance.

• A longer warranty period is frequently included in turnkey contracts, during which the contractor offers maintenance services. This guarantees the facility’s correct operation and takes care of any potential problems.

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