EPC vs EPCM: Who Buys the Equipment?

Under an EPC contract (engineering, procurement and construction), one contractor designs, buys and builds the plant, usually for a fixed price and completion date, so it places the equipment orders in its own name and carries most of the cost and schedule risk. Under an EPCM contract (engineering, procurement and construction management), the contractor provides professional services: it designs, runs procurement and manages construction for the owner, but the owner usually places the equipment orders and construction contracts directly. Who buys the equipment follows from that difference, and so do the terms suppliers sign, the vendor lists they must be on, and who carries the risk if an order goes wrong.

Why this matters now

EPCM now has its own standard form. IChemE published the Blue Book in 2023, the first standard form EPCM contract from a major industry body, drafted for international use with flexible pricing [1]. EPCM, once mainly a mining model, has also become more common in other sectors as market conditions strengthened contractors' bargaining power, while EPC contracts increasingly use target cost incentives rather than pure lump sums [2]. Owners, contractors and suppliers are all seeing more mixed models, so it pays to be clear about who buys what.

Who places the equipment orders

Under EPC, the contractor buys. Equipment suppliers sell to the EPC contractor's procurement team, on the contractor's terms, with the owner's requirements flowed down from the main contract. IChemE's Yellow Book, for example, is a subcontract form that runs back to back with its main contracts and covers significant equipment for the plant [3].

Under EPCM, the owner usually buys. Most EPCM arrangements have the owner contract directly with suppliers and trade contractors, with the EPCM contractor running the tenders [2]. Under the Blue Book, works contractors are engaged by the purchaser rather than the EPCM contractor [4]; the EPCM contractor proposes each package's scope and tender list, and the purchaser's representative approves each appointment [1].

Where the risk sits

A Mayer Brown analysis notes that an EPCM contractor will not usually take full responsibility for delivering the completed project, and that liquidated damages for overall delay are therefore rare [5]. Addleshaw Goddard adds that a common position limits the EPCM contractor's liability to performing its services again [2]. At the other end, FIDIC's Silver Book for EPC and turnkey projects transfers the risks of completion to time, cost and quality to the contractor, and FIDIC says it is only suitable for experienced contractors able to manage that risk [6].

The trade off for owners is control against risk. EPCM gives the owner more say over suppliers, scope and quality, but it needs a strong in house project and procurement team, and budget and schedule tolerance to absorb what the EPCM contractor will not [2].

What it means for suppliers

Suppliers should find out early which model a project uses, and get onto both the owner's and the likely contractors' vendor lists. On EPC projects, read the flow down clauses carefully: delay damages, warranties and document requirements in the main contract often pass to equipment suppliers in full. On EPCM projects, expect the owner's own purchase terms and approved vendor list, and expect the EPCM contractor's engineers to run the technical evaluation.

Long lead items

Long lead equipment often needs ordering before the main contract is placed. Under EPCM, the owner can simply place those orders itself, with its EPCM contractor's support. Under EPC, owners sometimes place early orders and later transfer them to the EPC contractor at award, so the contractor takes them over as part of its scope. Either way, the order terms must anticipate the handover. Our guide to long lead items covers which equipment usually needs early ordering, and our article on CAPEX procurement strategy covers how to split packages across a project.

Practical example

In this illustrative example, a plant needs a compressor with a lead time of about 60 weeks, roughly 14 months, and mechanical completion is targeted for month 22 of the project.

Under EPC, if the main contract is awarded in month 9 and the contractor orders the compressor in month 10, delivery falls in month 24, two months after the target. If the owner instead orders the compressor in month 3 and transfers the order to the EPC contractor at award, delivery falls in month 17, with five months to spare.

Under EPCM, the owner places the same order in month 3 directly, on its own terms, with the EPCM contractor running the tender. The schedule result is the same; the difference is that the owner keeps the supplier relationship and the risk throughout.

Where ChemCapital fits

ChemCapital supports both models. Owners, EPC contractors and EPCM teams can run structured RFQs to several suppliers, compare quotes in a consistent format, and issue and track purchase orders, with each project, RFQ and order keeping its own message thread and every action logged against the person who took it. See how it works.

Ready to run equipment procurement for your next project in one place? Start free with ChemCapital.