Lump sum turnkey and EPC Contracts: How do they differ?

 

In construction and engineering projects, various contract types are undertaken to define the scope, cost, and responsibilities of different parties involved. Two common contract structures are Lump Sum Turnkey and Engineering, Procurement, and Construction (EPC) Contracts. This blog will explore the differences between these contract types and their respective advantages and considerations.

A lump sum turnkey (LSTK) is commonly used in construction and engineering projects. It is a contractual agreement where the contractor or service provider agrees to complete a project for a fixed price and within a specified timeframe. Under a lump sum turnkey contract, the contractor takes full responsibility for delivering the project on a “ turnkey “ basis, meaning that the client or buyer will receive a fully functional and completed project without any additional effort or investment.

Key features of a lump sum turnkey contract:

EPC is a contractual model commonly used in large-scale infrastructure projects. It involves a single entity or consortium responsible for engineering, procurement, and construction.

Key features of an EPC project:

• Integrated Approach: EPC projects provide a holistic approach, bundling engineering, procurement, and construction activities into a single contract. This streamlines coordination and enhances efficiency.
• Turnkey Solution: The EPC contractor takes responsibility for delivering a fully functional facility or infrastructure to the project owner. From design and engineering to procurement and construction, the contractor manages all aspects of the project.

Both lump sum turnkey and EPC projects serve distinct purposes in construction and engineering. Lump sum turnkey provides cost certainty for project owners and clearly defines the scope of work. On the other hand, EPC projects offer integrated solutions, performance guarantees, and turnkey delivery. Understanding the differences between these contract types is crucial for project owners and contractors alike, as it allows for informed decision-making and successful project execution. Ultimately, the choice between these contract types depends on the project’s nature, complexity, and desired level of control and risk allocation.

Shapoorji Pallonji is a leading EPC turnkey solutions provider with expertise in both contracts, Shapoorji Pallonji Engineering Procurement and Construction has completed projects of varying magnitudes and complexities.

To know more about Sterling and Wilson, visit — https://www.shapoorjipallonji.com/company/SPEngineeringProcurementAndConstruction

Originally published at http://realestateandepc.wordpress.com on May 30, 2023.