There are various methods for implementing projects in the country, which include trust agreement, traditional three-factor method (Design-Bid-Built), two-factor design and construction, implementation management and management contracting. The system used in the country is mainly three-factor design, tender and construction. Currently, according to the government's policies, it has recently moved towards the implementation of the project in the two-factor method of design and construction.
First, we will try to explain the reasons for this method change and then we will fully discuss the EPC method. But before entering into the discussion, we consider it necessary to mention that the three-factor method or EPC is not inherently a wrong and ineffective method and the decision of the former Mardan government was not a wrong decision. Rather, the idea of choosing this method in the transition period of the country can be considered very innovative and correct in its time. Anyway, as we said, this method was suitable for a certain period of time and currently, due to the reasons we will say, it no longer has the necessary efficiency.
In the EPC method, the EP contractor is first selected, and after most of the design and equipment supply stages, it is time to hold a tender and select consultants and construction and installation contractors

Disadvantages and problems in the EPC method:

1- Due to the start of the implementation after the design and insufficient overlapping of the two phases, the project time is extended.

2- The process of selecting consultants and contractors, which are not few in number, takes a lot of time.

3-Management of numerous consultants and contractors reduces the quality of work and causes delays.

Due to the mentioned problems, the government (especially in the oil, gas and petrochemical sector) has changed the method of referring projects to the international standard EPC, and the referral of work in the form of EP+C is gradually decreasing.

Before entering the discussion of EPC, it is necessary to mention some definitions.

GENERAL CONTRACTOR:

It is a contractor who is responsible for the preparation, coordination and completion of all the works of a project. (ISO 6707-2)

GC is said to companies that have experience and expertise in guiding and managing infrastructure industrial projects and projects and, relying on their knowledge and management tools, undertake the implementation of projects in the form of EPC or TURN-KEY.

TURN-KEY deals:

It is a project in which all the activities necessary to achieve a project from design to construction are assigned to a contractor. In simple terms, a certain amount of money is paid to the contractor in the form of a contract to deliver the key to the built project to the client.

Engineering, procurement, construction (EPC) projects:

EPC is actually the name of these words: Engineering/Procurement/Construction, which can simply be interpreted as engineering, supply of goods, and construction and execution.

It is another name that is considered equivalent to the same turnkey project. In such projects, all the necessary activities for the implementation of the project, from the design and engineering stage to procurement and final construction, are entrusted to a contractor. General contractors and turn-key projects exist in all industries and sizes.

Of course, the EPC contract is not limited to these contents. It is not the case that if we know the principles of engineering, supply of goods and execution, then we can execute the project as EPC. Also, EPC cannot be done by putting three different sources of engineering, supply and execution together.

Certainly, this category is deeper and beyond the juxtaposition of these three words. The combination or blending of technical operations, design, implementation and product supply is so complex that it can be written about as much as university theses.

The combination of operations, management, on-time delivery with the anticipated cost and taking into account the risks within the scope of each contract has no concept other than management.

History of EPC contracts

The use of FIDIC type contracts in the former program and budget organization started with obtaining a loan from the World Bank in the solar 40s (equal to 1960-61) and was used by translating the Red Book into Farsi. These contracts were common in the world until 1990.

In 1990 (June 1369), at the FIDIC annual conference held in Norway, the discussion about Design and Built contracts was raised and it was decided that FIDIC should do this for large and multi-purpose projects, and based on that, risk should be divided between the employer and the contractor. . Here, the word "employer" is used to be different from the word "employer".

Today, the word "Owner" or "Employer" is used instead of the word "Client" in the world. That is, if the word "employer" is used, all capabilities are hidden in it, and there is no need for a consultant or contractor. Therefore, it is recommended to use this word less.

The reason for the progress of the labor market towards EPC contracts

The first reason is the assurance of the employer or the owner of the final amount and the definite time of the end of the work. Time changes in projects that are implemented by EPC method are very few. Because there are many fines for the parties in the contract

In EPC type contracts, these penalties are actually implemented and the parties are all looking to avoid paying the penalties.

When the use of private capital in the implementation of finance is discussed, EPC type contracts should definitely be used. One of the other things that exist in EPC is to prevent the division of responsibility and division of work.

Basically, in EPC type contracts, the responsibility is demanded from an institution, and in other words, the responsibility is not fragmented. As a result, the contractor is fully responsible for the performance, testing and efficiency of the equipment.

The reason for the progress of the labor market towards EPC contracts

The first reason is the assurance of the employer or the owner of the final amount and the definite time of the end of the work. Time changes in projects that are implemented by EPC method are very few. Because there are many fines for the parties in the contract

In EPC type contracts, these penalties are actually implemented and the parties are all looking to avoid paying the penalties.

When the use of private capital in the implementation of finance is discussed, EPC type contracts should definitely be used. One of the other things that exist in EPC is to prevent the division of responsibility and division of work.

Basically, in EPC type contracts, the responsibility is demanded from an institution, and in other words, the responsibility is not fragmented. As a result, the contractor is fully responsible for the performance, testing and efficiency of the equipment.

Necessary prerequisites for project implementation by EPC method

1- In EPC projects, preliminary studies of the project or Feasibility Study along with Conceptual Design should be done at the beginning of the work. Otherwise, it will not be possible to provide the price within the limited time of holding the tender. In addition, the basics of the project must be fully established in the tender documents.

In this method, all or part of the various stages of project engineering works (preliminary or conceptual, primary or fundamental and detailed or detailed) are considered.

2- The ability of the executive body to accurately and completely define the project and mutual understanding between the executive body and the contractor regarding the scope and purpose of the project.

3- Capability of the executive body in terms of project management

4- Provision of required credit and access to it in pre-determined dates

5- The existence of a capable contractor who has the characteristics of a general contractor and a consultant (designer) together.

6- Existence of specifications and standard technical requirements and its stabilization at the beginning of the work.

An important point in choosing the project execution method

Nowadays, EPC projects have grown increasingly in the country, and due to its main advantages, which are the certainty of the final price and the definite date of completion of the project, they are more welcome.

The important thing about choosing the method of implementing projects is to pay attention to providing the necessary infrastructure for their implementation. Therefore, if the conditions of the project require it, the EPC method or design and construction can be a suitable method for implementation. Of course, on the condition that the necessary infrastructure for its realization has been created in the country.

Otherwise, this method will be doomed to failure, just like the previous three-factor method (employer, consultant and contractor), which lacked any content and technical problems.

The infrastructures required for the success of the EPC method and other new management methods for the implementation of projects include educational, managerial, economic, legal, social and cultural infrastructures, and the lack or weakness of each of these factors can affect the success of the project. face serious problems.

Therefore, managers and experts should be introduced to scientific and new management methods and the existing contractors should be able to implement projects with the desired quality without the intervention of other consultants by strengthening their engineering capabilities.

Quality control and supervision in EPC contracts

From the 1980s onwards, the subject of TQM or Total Quality Management was raised in the world and many of the world's major contractors paid attention to it.

The organizations that can quality control the projects implemented by the EPC method are the organizations that consider and use the TQM discussion.

Since in this method, the employer has only limited control over the project and should not interfere in the contractor's work, the employer's monitoring of the progress of the work and ensuring its compliance with the project schedule, control over the determined quality, conducting tests of good performance in EPC contracts. It is done by the employer's representative.

Basically, in such contracts, the employer's representative is in charge of monitoring and controlling the project. Basically, the employer's representative, who must perform the quality assurance work and assume the authority of the employer, must be qualified and have the necessary expertise in the field of issues related to the plan and project.

Therefore, only consulting engineers can assume this role, who have enough expertise in the field of the project in question to be able to manage the work. Fidik believes that in addition to the things that consulting engineers do in Iran (such as identifying and compiling phases 1 and 2, as well as supervising the construction), other things and missions have been assigned to this group. In the draft of the new regulation that was sent from the country's planning and management organization to the government board, these cases were also foreseen.

Things like construction supervision, project management, quality management, construction management, cost management, work review and referral, contract termination, legal services, technical training, risk management analysis, value engineering values and the like in this field are part of the engineer's duties. A consultant has been considered.

Features of EPC

1- The contractor has more freedom of action in the field of choosing equipment and implementation techniques, and also does not have a special dependence on the activities of others and following their schedule.

2- The speed in these projects is higher and by doing the work quickly, the expected payments should be made on time.

3- If the contractor uses cheaper and low-level equipment and as a result the quality of the work decreases, he will accept the risk of not receiving the last payment and in addition, he will also accept the risk of not receiving the next works of the employer.

4- Time is of particular importance in this type of contract and the parties must be committed to it according to their obligations. Therefore, at each stage of the project, only important and basic issues should be discussed so that there is no delay in the project implementation process. In fact, the certainty of the completion date of the project is very high (due to the determination of fines for each party in case of breach of obligations).

5- The employer and his advisors should trust the contractor's skills and experiences. As a result, except for the cases where the contractor deviates from his duties fundamentally and generally, it is not necessary to interfere in the contractor's work or examine the proposals with a long delay.

6- The detailed design stage is of particular importance and the employer and his consultants must make sure that the contractor has not deviated from the specifications and has not lowered the project standards.

7- Financial agreements and the payment method have a significant impact on the contract, so it should be clearly and clearly defined in the contract and acted upon. If the employer is fully aware of his demands at the beginning, a lump sum contract is considered the best option. In this case, the contractor must have a suitable financial foundation.

8- Regarding the launch of the project, if the employer has any demands and requirements, it should be mentioned in the contract.

9- The employer and his consultants will be most active in the bidding process and high supervision during the implementation of the project. As a general rule, any defects that occur within the defined scope of the work will be the responsibility of the contractor, and the risk and executive responsibility will be transferred from the employer to the contractor.

10- It is possible to reduce project costs due to the possibility of economic design and implementation. The important point in this case is the economic benefit that should be divided fairly between the employer and the contractor. In other words, the client is assured that the final costs of the project will not exceed the agreed amount (changes may rarely occur).

11- The tender stage is very important and in this stage the employer must spend enough energy, cost and resources to ensure the capabilities of the contractor and the quality of their proposed plans. On the other hand, the contractor must spend a lot of time and energy to prepare the proposal, ensuring its feasibility and profitability. It is better to see the expenses spent by the contractor to prepare the documents for participating in the tender (design expenses) as a part of the project expenses.

12- In our country, the lack of contractors who can work in this way is one of the basic problems. There are few companies that have enough experience in the three different fields of engineering (E), procurement (P) and implementation (C) while having adequate financial power. Basically, the benefit of these types of projects is related to experience and ability in the above three areas and high risk tolerance, which domestic companies lack.

13- The use of financial resources in the form of finance is done more easily in this method.

14- Foreign purchases can be done seamlessly.

15- It becomes possible to improve the capabilities of construction and innovation inside the country.

16- Due to the need for less control in this method, the employer can do his main activities and will need the least amount of staff in his system..

​​​​​​​EPC and its implementation problems in domestic plans
In our country, the implementation of large projects using the EPC method has certain issues and problems, the most important of which are mentioned:

1- Lack of project management knowledge

Directing and monitoring EPC projects requires a very strong capability in the field of MC. One of the problems in this field is not valuing the category of project management.

Project managers in our country are experienced engineers who have been appointed to this position due to their specialized work records, but they do not have a clear vision about the project (especially large projects) and basically lack sufficient knowledge to guide this type of projects. As a general principle, if the executive staff of the project (employer's agents) are weaker than the contractor, one should doubt the proper management of the project.

2- Lack of general contractors

In the country, there are very few general contractors (GC) who can manage a project with a turnover of over 10 billion Tomans per year, and by increasing this figure to over 20 billion Tomans, it can be claimed that finally one or two successful companies (maybe) would have existed.

Therefore, if we consider the existence of a capable GC company as the main condition for carrying out the project as EPC, we are facing a problem at the very beginning of the work. The formation of a consortium between domestic and foreign parties is one of the solutions that could not solve this problem with certainty due to the significant level difference between Iranian companies and foreign companies.

3- Many changes and fluctuations

Based on a series of preliminary estimates and reviews, a project is defined at the macro level. Due to the existence of many problems in the country's administrative system, there will be a significant delay until the start of the project. With the lengthening of the time during the implementation (2 to 3 times the initial forecast), the possibility of changing the executives and relevant officials is highly likely, and with the announcement of new policies, the issue becomes more complicated and complicated. Finally, on the first day, the plan had an economic justification based on the estimates of that time, but as many years passed and the end of the plan was approaching, its economic viability was seriously questioned.

4- The weakness of the country's financial system

One of the problems of big projects in the country is the weakness and inability of the country's financial system. Due to various reasons, the demand for money (from the contractor) and the supply of money (from the contractor) do not match with each other and ultimately cause the postponement of the projects. Also, the domestic contractor, unlike the foreign contractor, cannot enjoy credit facilities at the right time (opening of Rial L/C) and the employer's failure to pay the statuses on time (or complying with the payments according to the contract) causes serious problems in the contractor's performance.​​​​​​​