Perhaps the practice of engineering, procurement and construction is not yet as big an issue in South Africa as it is in more developed countries, but it seems likely that it won’t be long before it becomes routine for larger contracts. Much will depend on how such contracts are structured, and on whether or not project owners would be willing to pay the hefty premium for the peace of mind such an arrangement brings.
“EPC as a contracting arrangement is gaining in acceptance in developed construction industries in which the contractor designs the installation, procures the materials and undertakes the construction either himself or by subcontracting part of the work,” explains Rowan Goeller, director of investments and concessions at Group Five in South Africa. Where project finance is the preferred financing structure and banks and other funders are involved EPC is becoming a preferred route.
“It’s an onerous process,” says Goeller. “and you have a number of issues to be aware of, such as liquidated damages for both performance and delay according to the set timetable. The EPC contractor is actually liable for the full amount of the contract having given a completion guarantee to a certain performance standard.”
The contract owner will pay a premium that could add 5% to 10% to the project cost but he will most likely accept it is worth the peace of mind it buys.
“EPC contracting requires rigorous legal documentation to define the range and scope of the project,” says Goeller. “The contractor will carry the project risk for schedule as well as budget in return for a fixed price. As a project sponsor and lender you are paying a premium for the peace of mind.”