I had taken note of DefinedBenefit0's post that queried the risk of determining a fixed price mentioned in Sabine's post 54691298 that had these words:
“He said it that time on October 23, 2019 : [ref] when announcing Primero had completed the first stage of its’ ECI [early contract involvement] and the companies were in discussion about commencing “ the second phase of the ECI agreement (ECI Phase II – Front End Engineering Design) which will include initial detailed engineering as well as determining fixed prices based on the GMP [guaranteed maximum price] for Primero to perform all of the work involved in completing the EPC lump sum turnkey proposal.
“Primero is also offering the Corporation its EPC [engineering, procurement, and construction] services as a fully integrated package if the final lump sum is within the GMP, and if technical and commercial parameters are met during the second phase.”
ECI – stages one and two
The contractor is engaged to work with the customer to prepare the preliminary design. This is usually an amicable cooperation covering the parties combined knowledge relevant to construction, cost and the design process (breaking down a project into manageable chunks). The customer may competitively tender the design and construct model (stage two), but the relationships developed during stage one means the contractor and customer often continue to work together through stage two.
If the ECI contractor is patently the stand-out candidate to bring the project to fruition, and if the customer establishes that the contractor would back ECI reported costing via a fixed-price contract, the parties may well negotiate an EPC contract.
EPC
The words behind the acronym EPC do not in themselves convey the fact that traditionally these are regarded as fixed-price contracts. Contract provisions determine what the contract is, not its title. The provisions could refer to a schedule of rates and quantities extended to an expected total value, but overriding provisions would state how variances from the expected value are shared, and that could include a GMP. The GMP allows the contract be be regarded as a fixed-price contract.
The customer usually uses the contract to raise the required finance. EPC contracts usually require all finance to be in place before the project starts, and often a down payment is required. If you examine the LYL subforum, you would learn that LYL holds a lot of cash – some its own, and the rest being down payments.
As a standard modus operandi of a business, EPC contracts that are extensions of ECI contracts do not seem to be abnormally risky. Specialising in a field allows a contractor to be more effective, which includes lowering risk. Also, there can be an expected total price in the schedule of prices and expected quantities, and a higher value GMP. That gap is the margin of that is part of the risk mitigation considerations.
(20min delay)