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Navigating the Complexities of EPC Lump-Sum Projects: Understanding Causes And Determining Accountability

Proceedings Title : Proc. Indon. Petrol. Assoc., 47th Ann. Conv., 2023

EPC lump-sum projects, which offer integrated construction services and a fixed budget and schedule, are widely used in the Oil and Gas Industry in Indonesia. However, these projects often face unexpected expenses and delays. Complex projects can have deviations of over 10% from the original budget and schedule. It is important to understand the challenges of implementing EPC lump-sum projects and to learn from past and current project issues to improve their successful implementation. The EPC lump-sum project type may not be fully understood by the project owner, including its conditions and consequences. This contract model simplifies the construction process by appointing a single integrated service provider, but it should be based on a defined scope and requirements to avoid potential disputes. The project owner's organization may have personnel limitations for large projects and need to bring in additional parties for certain services. It is important for the owner to consider the uncertainties and risks that may arise in the project and implement risk management measures with all stakeholders. In implementing EPC lump-sum contracts in oil and gas mega projects, the main contractor often acts as the project owner for the specific scope of work given to its subcontractors. However, changes to the scope of work can complicate this arrangement, particularly when they are triggered by the project owner or circumstances beyond the control of the main contractor and subcontractors. Challenges can arise when changes impact the scope, specification, cost, and schedule of the project. Understanding the causes of these changes and determining accountability for their financial impacts is important for both the project owner and the contractor. In cases where the causes are mixed or involve parties engaged by the project owner, negotiation may be necessary to reach a mutually acceptable solution. Project problems in EPC mega projects in the oil and gas industry can be caused by a variety of external factors, including unacceptable design and specific regulation from local governments, as well as unexpected events such as the Covid-19 pandemic and extreme weather. These can impact the scope, specification, cost, and schedule of the project and may require changes to be made by the project owner and EPC contractor. Understanding the causes of these changes and determining accountability for their financial impacts is important to reach mutually acceptable solutions.

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