Contract Strategies for Major Projects

CHAPTER 5The Unusual EPC Lump‐Sum Strategies

As discussed in Chapter 3, the primary contracting strategies account for about 90 percent of industrial projects. But there some other strategies that have been developed to address some of the problems that bedevil the standard EPC and split forms. Most of these strategies are FEPC strategies that take single contractors all the way from the beginning of FEED (or even a bit earlier) through the end of construction (and may include startup as well). All of these unusual strategies are “continuity strategies,” which is a feature that makes them attractive to owners who worry about being capable of managing transitions.

The following are the unusual EPC‐LS strategies:

• Functional specification contracts (also called duty specification or performance specification contracts)
• Design competitions
• Convert to EPC lump‐sum (also called convertible contracts)
• Guaranteed Maximum Price (GMP, also called not‐to‐exceed [NTE] contracts)

Of course, there are compelling reasons why these contract approaches have remained niche applications in the industrial sectors rather than mainstream. Some relate to difficulty of use and others to very specific market situations. All of these unusual strategies have some strong advocates, even in situations in which they are not appropriate. Because they will be recommended from time to time, it is important to understand what the approaches entail and their strengths and weaknesses. That is our task in this ...