Updated October 14, 2021 at 11:30 am ET
Think of the most massive construction project imaginable: a chemical plant, a sports stadium, an oil refinery. These aren’t just buildings, they’re effectively mini-cities, with a construction budget and planning process to match. They often involve difficult construction, complex regulations, and a wide network of suppliers and contractors.
Projects this big can take years to build, cost millions of dollars, and potentially involve a payroll of thousands. That’s why many of the companies who take on these projects rely on Engineering, Procurement, and Construction (EPC) contracts, a one-stop model designed to bring everything under the same umbrella.
What is an EPC?
EPC contracts can greatly simplify these enormous jobs for the contracting company, offering a turnkey solution that guarantees the full completion of the project within a given timeline. They are typically drawn up after the Front-End Engineering Design (FEED) phase and before the Execution phase begins. EPC contracts place the project management side in the hands of the contractor, who can find the solutions for the entire range of the engineering, procurement, and construction processes. This includes everything from staffing and environmental compliance to purchasing and any other requirements for the job in question.
Typically, the Project Owner has a representative or team of them on-site during the length of construction whereas EPC contracts largely help shield the Owner from managing every little detail. They are designed to get sizable projects done on time above all, with a two-party contract covering the full range of purchasing during these long-term projects.
The Difficulty of EPC Contract Compliance
With so much riding on EPC contracts, compliance is essential but extremely difficult to gauge. Contractors rely on a huge number of subcontractors and suppliers, and with the various moving parts of these jobs moving so quickly all at once, it can be challenging to ensure compliance among all the contract’s stipulations. EPC contract audits are designed to provide that peace of mind. While the Project Owner is busy focusing on the big-picture cost and timetable for the job and the contractor is handling the countless obstacles on the ground, a third party can come in at different points along the life of the contract and check that everything is financially in order.
When are EPC Contracts Completed?
EPC contract audits tend to be completed twice over the course of the contract—around the halfway point, then again at the two-thirds or three-quarters mark, leaving time in both cases to correct or even pause construction if the findings require immediate action.
In some cases, an audit confirms the accuracy of charges, giving Project Owners valuable breathing room as their expensive work continues. They may find billing errors, which, considering the amount of billing occurring in projects of these size can lead to significant overcharges. Billing items include but are not limited to:
- Payroll and taxes
- Equipment
- Supplies
- Contractor payments
- Markups
Occasionally, an audit reveals more serious and even project-endangering mismanagement or poor budgeting. Identifying and correcting errors at the midway point of a project allows time for the Project Owner to recoup the money or reassess a contract before the deadline really looms.
So, think again of that stadium or refinery, projects that can present an incredible opportunity for your organization. Here is the chance to make something lasting and lucrative, and to potentially employ thousands of people over years. An EPC contract can make that project manageable, while an audit can protect your work, your reputation, and your bottom line.
If you have any questions about EPC contracts or protecting your business, contact our Contract Compliance Audit team today.
