MindMap Gallery How to handle engineering changes in EPC projects
EPC general contracting has brought fundamental changes to the contracting method of construction projects, from the original "construction according to drawings" to the current "construction according to contract", in which the responsibilities and risks have changed greatly. From the original settlement based on actual facts to the current settlement based on the total contract price or unit price, there is a big difference in the handling of changes that occur during project implementation and visa fees.
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How to handle engineering changes in EPC projects?
EPC general contracting has brought fundamental changes to the contracting method of construction projects, from the original "construction according to drawings" to the current "construction according to contract", in which the responsibilities and risks have changed greatly. From the original settlement based on actual facts to the current settlement based on the total contract price or unit price, there is a big difference in the handling of changes that occur during project implementation and visa fees.
1. Clarify the division of responsibilities and allocation of risks
To deal with changes and visa costs, you must first determine the division of responsibilities and liability for unforeseen risks. This requires clarifying the responsibilities and obligations of both parties when the contract is signed. According to the provisions of "General Contracting Management Specifications for Construction Projects" GB/T 50358-2017, the responsibilities of both parties to the contract are as follows:
1.1 Owner’s responsibilities
(1) Have a clear and clear project definition. The owner needs to put forward clear and specific project functional requirements and expected results for the project in the employer's requirements, including functional requirements, quality requirements, technical requirements, safety requirements, project trial operation and performance requirements, construction period requirements, etc.
(2) Responsible for the accuracy of the information and data provided. Including the situation around the project and underground pipelines, design standards, trial operation and performance standards, relevant data provided to the contractor, etc.
(3) Provide the site and surrounding conditions. Assist contractors to handle relevant procedures and licenses, etc.
(4) Pay project fees as agreed.
1.2 Responsibilities of the EPC general contractor
(1) Responsibility for confirming the accuracy of the information provided by the owner. If no question can be raised, it will be deemed that the information provided by the owner is correct.
(2) Responsibility for designing according to the requirements of the contractor proposed by the owner. The design results are required to fully meet the requirements of the owner, and should comply with the requirements of various specifications and regulations. After the construction is completed according to the drawings, the completed project delivered to the owner can meet the owner's expectations.
(3) Complete the construction of the project, provide the equipment specified in the contract, ensure that the project passes acceptance, and provide the owner with projects that meet expectations according to the construction period requirements. And the owner should be provided with corresponding operation and maintenance training and related documentation.
(4) Repair relevant defects and bear the costs that should be borne by the general contractor.
2. Classification of engineering changes
Usually the EPC general contracting contract will give the owner and the general contractor the right to propose changes, but the reasons and purposes for the changes are completely different.
2.1 Design changes by the owner
No matter how carefully considered the requirements put forward by the owner in the early stage of project planning, as the project progresses, especially when entering the construction stage, the owner's requirements will always change, and some new requirements related to functions and other aspects will be put forward. According to the requirements of the specification, the changes proposed by the owner require the full cooperation of the general contractor, which will involve changes in the contract duration, costs, etc. For changes in this area, the general contractor must make a distinction and cannot blindly follow them. It must evaluate whether it is worth it from the perspective of its impact on project quality, progress, cost, etc., and provide professional suggestions to the owner.
If after weighing the change, it is not worth making the change, then the owner must be given a detailed explanation of the situation and resolutely strive to get the owner to give up the change. If there are new functional requirements, then the project design changes must be actively promoted according to the procedures. The first step is to ask the owner to confirm the substantial changes to the contract content, and then adjust the design plan and construction drawings according to the owner's requirements. After the adjusted plan is approved by the owner, the next step is to negotiate with the owner on the increase in costs caused by the change and reach an agreement. Subsequent construction can be carried out later.
Since the project is an EPC general contract, the total price or unit price is generally guaranteed. When conducting bidding, the bidding content does not involve the price of specific items, processes, etc. This results in the need to make local changes when making local changes. Negotiate and confirm prices for variable parts of processes, materials, etc. For this possible situation, specific agreements must be made when signing the general contract, and the procedures and principles for adjustment should be agreed upon, so that the contract will not be performed passively or in a hurry. Here, the author recommends that when signing a contract, there should be a benchmark price list for main materials, so that there is a basis for it when similar engineering changes occur during the execution of the contract.
2.2 Changes proposed by the general contractor
Changes proposed by the general contractor can be divided into changes to the contract and internal changes.
(1) Changes to the contract. Generally, changes to the contract proposed by the general contractor are beneficial to itself, but in order to gain the approval of the owner, the changes need to be beneficial to project implementation, including reducing the cost of project construction, maintenance or operation, or shortening construction period, or other reasons that are beneficial to the owner. Such changes can only be implemented after obtaining the owner's approval. Once the change is determined, the general contractor should determine the change plan as soon as possible and implement it as soon as possible after receiving the owner's confirmation.
(2) Internal changes. Internal changes are changes made to the project by the EPC general contractor itself, such as changes in construction technology, changes in construction sequence, changes in construction technology, changes in schedule, changes in subcontracts, etc. Such changes are within the scope of internal management and do not involve changes in contract content, construction period, etc. Generally speaking, without any change instructions from the owner, any changes made by the general contractor to its own work in order to complete the project construction Adjustments, supplements, improvements, etc. do not constitute changes to the contract. However, such changes should be fully communicated with the supervisor during the implementation process and obtained the approval of the supervisor. Especially for changes involving processes and materials, sufficient proof materials should be provided that will not affect the quality of the project.
3. Procedure for change
3.1 Confirmation of change plan
Generally, the change instructions proposed by the owner are sometimes just an idea, and it is difficult to consider the impact on the construction period, quality, etc. This requires the EPC general contractor to propose a specific change plan based on the owner's instructions, and will make changes to the construction period, price, etc. All other adjustments will be submitted to the owner, who will weigh whether to make changes. Plan changes can only be made after the change of plan has received written confirmation from the owner.
3.2 Confirmation of construction period, cost, etc. caused by plan changes
Once the change plan is confirmed by the owner, the general contractor must propose the impact of changes in construction period, price, etc. from a more favorable perspective, especially changes involving design changes. The EPC general contractor must make full use of the favorable design Tools to adjust the design plan from a perspective that is more beneficial to your own interests. After the design plan is determined, the general contractor will decompose the cost of the changed parts and determine the impact on the contract amount and construction period. After confirmation by the cost, supervision and other parties, it will be submitted to the owner. The owner and the general contractor will then review the increase. Negotiate the cost, and after determining the final cost, notify the supervision and cost parties of the plan to start implementing changes.
4. Summary
As the owner, it is always difficult to restrain changes to the design plan during the project implementation process. As the EPC general contractor, we must have a good grasp of the situation and deal with the project changes proposed by the owner in a reasonable and well-founded manner from the perspective of our own interests. , to prevent disputes or claims caused by poor handling, which is not conducive to project progress and future cooperation.