The EPCM Approach - Mannvit

MaPro´s take on 

PROJECT DELIVERY 

Comparison of contract forms 

Author: Gestur Valgarðsson, M.Sc.

2 | MaPro´s take on... 

Contents 

Introduction 2 

Background 3 

The Three 3 

Approaches 3 

Owner’s Team Approach . . . . . . . . . . . . . . . . . . . . . . . . . 3 

The EPCM Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 

EPC Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 

EPCM Organizational Design 9 

Owners Organization 10 

Conclusions 11 

Introduction 

Mannvit has developed a suite of project management tools, collectively referred to as MaPro. The 

components of MaPro rest on the pillars of time proven management techniques and tools combined to a 

module based method which is fully scalable to the size and complexity of projects or programs. 

The following paper describes and discusses MaPro’s approach to various project delivery options with 

emphasis on the organizational design and the allocation of risks and responsibilities within the different 

delivery options.

...PROJECT DELIVERY | 3 

Background 

For the past few decades, and for the most 

part event today, the common way for project 

Owner to manage a capital spending project is 

to contract outside resources and combine with 

indoors resources to form a project team, charged 

with preparation, execution and delivery of the 

project. Even though the required components 

for a successful execution are often present, this 

approach does not always yield maximum benefit 

to the Owner. The main reason for these benefit 

shortfalls may be attributed to lack of attention to 

the placement of project risks and the systematic 

tendency for people to be overly optimistic about 

the outcome of planned projects, under-estimating 

the likelihood of negative events, along with the 

illusion of control and superiority - collectively 

referred to as optimism bias and cognitive bias. This 

paper will explore three different project delivery 

setups, EPC, EPCM and Owners Teams which all 

have been used to successfully manage projects, 

but all need correct project setup, placement of 

project risks and professional approach to biased 

tendencies of stakeholders. The paper will contrast 

the strong and weak points of each method. Of the 

three methods, the EPCM should be considered a 

novel approach in Iceland. 

In the past, the solution to the predicament which 

the Owner Team approach often brought upon the 

Owners, was thought to be EPC contracts; often 

referred to as turnkey contracts. Even though a 

legitimate approach, when correctly executed, this 

paper will show that when the EPC approach fails, it 

is, to a large degree, due to lack of front end project 

definition. Social structure and biased behavior of 

the interacting stakeholders during preparation and 

bidding process also play a big role. 

Prior to the downturn in 2008, as the speed of 

the economy increased, demand for capable EPC 

companies amplified. Front end engineering and 

planning, the absolute must for a successful EPC 

project delivery, suffered due to too high workloads 

on EPC companies and short time frames for 

project preparation or premature project initiations. 

Increase in the price followed and a demand for an 

alternative approach developed. As a response to 

this demand, Mannvit, through its MaPro initiative, 

has developed a completely new approach, the 

EPCM approach. Long known outside Iceland, 

to Owners of infrastructure projects and major 

industrial capital spending projects, the approach 

is novel to the Icelandic market. EPCM has proven a 

successful alternative to the EPC approach but has 

virtually taken over projects which otherwise would 

have been managed by Owners Teams. This paper 

will look at the merits of the EPCM delivery approach 

and compare it to the other two approaches. 

The Three 

Approaches 

The main distinction between the three approaches 

is allocation of the project risks, flexibility to make 

changes during execution, and the prevalence of 

project management techniques in the project 

team. 

Owner’s Team Approach 

If the owner chooses to form his own team, he 

will have to formulate all contracts with service 

provider – be it a contractor or a vendor. Inherently 

most of the risks lie with the Owner. Even though 

it is possible to transfer risk to some of the multiple 

contracts, ultimately success will depend on the 

Owner’s ability to manage the multitude of contracts 

and the interactions of the multiple stakeholders. 

Experiences show that without a proper project 

execution plan, procurement strategy and the 

discipline of an experienced project manager, the 

project fast becomes a difficult exercise in project 

firefighting. 

Even though the Owner resources possess the 

capability to manage projects, the Owner’s 

resources are frequently preoccupied with other 

company duties leaving too little time for the 

projects. The in-house engineering, normally 

sized to deal with existing operations, are to a 

lesser degree experienced in the intricacies of 

project management. Thus, once the project gains 

momentum, the ability to effectively contribute is 

limited. In conclusion, the Owner’s team approach 

should only be applied to smaller or repeated 

project and when the Owner’s resources possess the 

necessary project management skills and time to 

commit to the project.


The EPCM Approach 

Increasing number of project Owners, who do not 

prefer the convenience and the price of an EPC 

contract, trust their projects to EPCM companies 

who have demonstrated abilities to manage 

projects successfully. The EPCM contract is primarily 

a professional service contract and the services 

offered include the following main responsibilities: 

1. 

2. 

3. 

4. 

5. 

Design, including any basic engineering or 

FEED 1) , but excluding input of any technological 

provider, proprietary information or technology. 

Thus, design refers to the remainder of the 

design necessary to accomplish the project. 

Planning of procurement, implementation, 

bidding and administration of contracts. 

Expedition and inspections to make sure that 

the overall schedule of the project is met. 

Bidding, evaluation and eventual administration 

of construction and vendor contracts at project 

site. 

Regular reporting to the Owner. 

The following two charts bring out the differences in 

organizational setup between the two approaches. 

Owner 

Tech Providers 

Specialists 

Vendors 

Trade 

Contractors 

Site 

Services 

EPCM 

GEO, MUD, 

LOG, DRILLING 

CSA MEC ELE 

Site Services 

IT 

Chart 1, EPCM setup 

Owner 

EPC 

Tech Providers 

Vendors 

Trade 

Contractors 

Site Services 

CSA MEC ELE 

Chart 2, EPC setup 

IT 

1) 

Front end engineering and design, FEED.


At first glance, it is tempting to compare the EPCM 

services, to Consultant/Client service contract – 

e.g. the FIDIC, White book. This should be avoided, 

because detailed engineering and design function 

is carried out by the EPCM service provider but not 

usually by Consultants. 

While the EPCM service provider provides 

professional services (design, supply and install 

management) or any combination thereof, he is not 

party to a contract in respect of the construction or 

vendor provision to the project. The relationship of 

the EPCM service provider and the Owner is that of 

a principal-agent relationship. The role of the EPCM 

service provider is to act as the Owner’s agent and 

on his behalf create: Contract documents, conduct 

the bidding process, evaluate bids and recommend 

path forward to the Owner. In other words, 

ultimately each contract is a direct contract between 

the Owner and Vendors or Contractors. Whilst this 

is a very large part of the important role for which 

the EPCM service provider is paid, it is vital that 

the Owner keeps a careful eye on the performance 

of each project functions. Thus, the EPCM 

service provider should also be charged with the 

responsibility to provide all the necessary project 

control functions, allowing the Owner to monitor 

and influence the progress and performance of the 

project. 

The EPCM delivery approach has the potential to 

provide continuous responsibility for engineering 

from the concept stage throughout execution and 

commissioning. However, since the EPCM approach 

only assumes responsibilities for engineering, 

procurement and construction management and 

leaves out the responsibility for construction, the 

Owner should be advised that he needs to be more 

pro-active in managing EPCM projects. Furthermore, 

some Owners are not at ease with handing the 

control of their project over to an EPCM service 

provider and point out, as will be explained below, 

that they will ultimately carry all the risks anyway. 

This is an understandable concern. To respond to 

these concerns, the Owner can opt to integrate key 

resources into strategically important positions, 

within the EPCM organizational structure, and thus, 

achieving a day-to-day monitoring and control. For 

many Owners this has alleviated their concerns. 

liquidated damages provisions in EPCM contracts. 

If there are, they are “net contributions” implying 

only limited acceptance of liquidated damages – 

often bound by a percentage of the EPCM’s fees. 

Incentives and key performance indicators can and 

are often built in to the EPCM contract in this regard. 

Accordingly, the following potential liabilities of 

the EPCM service provider as they relate to breach 

or negligence should be firmly fixed in the EPCm 

contract: 

1. 

2. 

3. 

4. 

5. 

The responsibility for the performance of the 

design work. 

The responsible for the preparation of the 

budget cost estimate. 

The preparation of the estimated duration of 

the work – planning and scheduling. 

Management of the procurement and 

administration of the trade contracts. 

Co-ordination of the design and construction 

between the trade contractors. 

According to a paper by The Business Roundtable, 

The Business Stake in Effective Project Systems, 

Construction Cost Effectiveness Task Force, (1997), 

the best projects share the following universal 

characteristics: 

1. 

2. 

3. 

4. 

5. 

6. 

They provide strong cross functional teams to 

develop projects 

They provide active and project knowledgeable 

business leadership during the front-end period 

They secure that engineering and project 

functions report to the Owner, not to plant 

operational staff 

They implement continuous improvement 

systems 

They implement systematic progress and 

performance measurement 

They provide in-house resources to develop and 

shape projects until the projects are ready for 

detailed design 

Thus, Owners contemplating the EPCM approach 

should ensure that sufficient resources are available 

to integrate with the EPCM project team. Owners’ 

integration is most important during the prefeasibility 

and the feasibility phases of the project. 

From the Owner’s perspective, down side to the 

EPCM approach must be that the EPCM service 

provider will not take responsibility for the ultimate 

cost or schedule of the project. Thus rarely are there


EPC Approach 

Compared to the Owner’s team and the EPCM 

approach, which share similarities in location of 

risks, the EPC approach, should be considered as an 

entirely different project delivery approach – even 

to the point that the main advantages of EPC are 

commonly considered disadvantages for an Owner 

who favors EPCM contracts and vice versa. The EPC 

contract takes full responsibility in respect of the 

following: 

1. 

2. 

3. 

4. 

Cost of completion. 

Schedule – or time for completion. 

Quality of the design and work and the 

guarantees of performance. 

Multi disputes are greatly limited in numbers – if 

not eliminated. 

However, EPC contractor does not always honor 

the Owner’s need for modifications in design or 

requirements. Quite often the attitude is that 

the detail design is the contractor’s prerogative. 

Therefore, greater care must be taken that the 

Owner specifies and defines the design parameter 

and deliverables before giving the reigns of the 

project over to an EPC team. This may not always be 

possible, opening the door for scope modifications 

at an unreasonable cost and schedule delays. 

Accordingly, when the Owner selects the EPC 

approach, he must take greater care in defining the 

design parameters and deliverables so that the EPC 

contractor must deliver project at the requested 

standard. Unless the project is a direct technological 

transfer or the underlying technology is quite well 

known in detail, this requires extra effort on the 

behalf of the Owner. 

The only recourse for the EPC contractor is to accept 

this risk and try and add cost to the project at a later 

time. When there is a need to modify presumptions 

for basic engineering this fast becomes exceedingly 

expensive and sometimes prohibitively complex. 

Experienced EPC contractors are aware of this risk 

and price their services accordingly. To a point this is 

a well know social behavior, often resembling a tug 

of war. 

Owners should try and anticipate this behavior 

and include the impact of it into their cost and 

schedule estimates. The correct time to do so would 

be at the front end of projects. However, more 

often than not this is omitted due to optimistic 

scheduling, cognitive bias and the friendly but short 

lived anticipation surrounding negotiations of EPC 

contracts. 

Thus, when the EPC contractor is not willing to 

assume responsibilities for the basic engineering nor 

the FEED and when it becomes questionable during 

negotiations that the EPC contractor indeed has the 

strength to honor such obligations, EPC delivery 

approach should be avoided. 

Even though the EPCM and EPC approaches, are 

worlds apart as described in: Henchie, N, and Loots, 

P. (January 2011). Worlds Apart: EPC and EPCM 

Contracts: Risk Issues and Allocations, it facilitates 

understanding of each approach to contrast them 

against each other in a table: 

Known pitfall is when the EPC contractor did not 

execute the FEED, itself. In this situation, the EPC 

contractor is required to satisfy himself as to the 

adequacy of the FEED, or is pushed to acceptance – 

even if no logic implies that this was even possible.


Task / Issue EPCM EPC 

Equipment Supply 

Contracts 

On-Site Construction 

Contracts 

Vendor Selection 

Scope of Supply 

Equipment Supply 

Warranties 

Process Warranties 

Construction Site 

Safety 

(General Liability 

Insurance, 

Workman’s 

Compensation, 

Accident, etc.) 

Project Contracts 

Permitting 

(Environmental, 

Construction, etc.) 

Project Budget Cost 

Overruns 

Negotiated & signed between Owner and 

Vendor /with EPCM service provider’s advice 

and assistance. 

Negotiated & signed between Owner and 

Contractor /with EPCM service provider’s 

advice and assistance. 

Vendors chosen by mutual agreement of 

Owner and EPCM service provider. 

Owners can modify project specifications. 

Owner, with the assistance of the EPCM 

service provider can negotiate independent 

contracts with Vendors at any time due 

to the fact that project is under multiple 

(independent) contracts and not one allencompassing 

contract. 

Warranties are negotiated individually with 

each Vendor by Owner with EPCM service 

provider’s advice. Issued directly to Owner 

from the Vendors and Contractors. 

Warranties are negotiated individually with 

each Vendor by Owner with EPCM service 

provider’s advice. Issued directly to Owner 

from the Vendors and Contractors (Usually 

in the form of a Performance Bond). 

Site safety is monitored by EPCM 

service provider but site safety is the 

legal responsibility of Owner and Sub 

Contractors; in accordance with Contractual 

Agreements. 

EPCM service provider selects contract form 

in cooperation with Owner and then assists 

in negotiating the contract on the Owner’s 

behalf. 

Permits are issued to the Owner directly 

with EPCM service provider assisting in filing 

the necessary paperwork. 

The cost risks for a project are borne by the 

Owner. Any cost overruns, for equipment 

and/or services are for the Owner’s account 

(with the exception of fixed price supply 

contracts) i.e. final equipment pricing bids / 

on site cost higher than originally budgeted. 

Negotiated & Signed solely between EPC 

contractor & Vendor. 

Negotiated & Signed solely between EPC 

contractor & Vendors. 

Vendors chosen solely by EPC contractor 

with no input from Owner. 

EPC Contract is only as good as the original 

project specifications presented during 

bidding process. Changes to specifications 

or scope of supply after awarding of 

contract can be expensive, due to EPC 

contractor’s sole contract with Owner and 

Owner’s inability to “Shop Around” for 

multiple quotations from independent 

Contractors/Vendors. 

Warranties are negotiated by Vendors & EPC 

contractor and issued to EPC Contractor 

directly. Warranty to Owner from EPC 

contractor is negotiated separately between 

Owner and EPC Contractor and issued to 

Owner by EPC Contractor. 

Warranties are negotiated by Vendors & EPC 

contractor and issued to EPC Contractor 

directly. 

Warranty to Owner from EPC contractor 

is negotiated separately between Owner 

and EPC Contractor and issued to Owner 

by EPC Contractor (Usually in the form of a 

Performance Bond). 

Site Safety is solely the responsibility of 

the EPC contractor and sub-Contractors; in 

accordance with Contractual Agreements. 

EPC contractor selects contract form which 

best serves the goals of the project. 

Permitting is the responsibility of the EPC 

contractor with the exception of permits 

that are required by law to be issued in the 

name of the Owner . 

The cost risks for a project are borne by 

the EPC contractor. Any cost overruns, for 

equipment and/or services within the EPC 

contractor’s scope of supply, are for their 

own account and cannot be passed onto 

Owner unless “change conditions” occur or 

the contractual agreements stipulates on 

the contrary.


Task / Issue EPCM EPC 

Project Budget Cost 

Savings 

Project Day-to-Day 

Expenses 

Project Financing 

Legal Cost 

Administration 

Contract Price 

As the cost risks for a project are borne by 

the Owner, any cost savings, for equipment 

and/or services are for the Owner’s account 

– i.e. if Equipment/Services bids are returned 

lower than budgeted. 

The day-to-day expenses for the project are 

borne by the Owner but are managed and 

administered by the EPCM service provider 

(up to pre-determined quantities, without 

Owner’s need for intervention). Usually a 

small fund is established by Owner for dayto-day 

expenses. 

Project Financing can be any combination 

of down payments, open accounts, and 

irrevocable letters of credit from the Owner 

to Vendors/Contractors; whatever method 

is negotiated during contract negotiations. 

EPCM service provider will assist in all 

negotiations on the Owner’s behalf. This 

allows the Owner to have partial financing 

in place at the onset of the Project with the 

remainder available as needed, dependent 

on contractual requirements. 

Compared to EPC legal cost, legal costs are 

higher for the Owner. The Owner negotiates 

multiple supply contracts directly with 

Vendors/Contractor; with the assistance of 

the EPCM service provider. 

In the event of a legal action, the Owner 

must bring proceedings against individual 

Vendors/Contractors. However, this is 

usually a shorter process than legal actions 

within the framework of EPC contracts. 

Owner’s administration costs are higher 

with EPCM contracts, than EPC. Substantial 

staffing levels are needed to assist/ 

compliment the EPCM service provider in 

administering/ monitoring the project. This 

promotes an “ownership” feeling within the 

Owner’s organization. The Owner’s project 

staff is often transferred to operational staff 

after project completion. 

The EPCM contract is often a target price 

contract, taking into consideration EPCM’s 

indirect, direct and profit. Open book 

contracts and incentives are quite often 

associated with EPCM contracts. 

As the cost risks for a project are borne 

by the EPC contractor, any cost savings, 

for equipment and/or services within the 

EPC contractor’s scope of supply, are for 

their own account and are not passed onto 

Owner unless the contractual agreements 

stipulates on the contrary. 

The day-to-day expenses for the project, 

within the EPC contractor’s scope of supply 

are borne by the EPC contractor. 

Project Financing is usually accomplished 

by substantial down payment by the Owner 

to EPC contractor and the remainder of the 

fees issued with Irrevocable Letter of Credit 

(with partial payments) from the Owner to 

EPC Contractor. This requires the Owner to 

have all financing in place at the onset of 

the Project so as to secure letter of credit . 

Legal costs are relatively low for Owner. 

The Owner negotiates only one detailed 

supply contract with the EPC contractor. The 

EPC contractor must negotiate individual 

contracts with Vendors / Contractors. The 

EPC contractor’s legal costs are high due 

to multiple contracts. In the event of a 

legal action , the Owner must bring a claim 

to the EPC contractor, who in turn must 

bring proceedings against the appropriate 

Vendors/ Contractors. 

However, this is usually a longer process 

than legal actions within the framework of 

EPCM contracts. 

Owner’s administration costs are relatively 

low with EPC contract. Only minimal staff 

(management, QC, legal, etc.) is needed to 

administer/ monitor the project. 

This approach may have a negative effect 

and reduce the project “ownership” feeling 

within Owner’s organization (often referred 

to as a “hands-off” relationship between 

Owner and the project). 

The EPC lump sum price is not always what 

it appears to be, particularly where (as is 

often the case) the winning contractor 

has “skinnied” the bid in order to win the 

contract, and with a view to making claims 

for additional work to recover the necessary 

fee for profitable the work.


EPCM Organizational 

Design 

Once an EPCM project enters execution, Owner 

usually forms a mirror organization 2) which 

is accountable to the Owner, responsible for 

monitoring and evaluating project progress as 

well as performance and is authorized to sign 

commercially binding documents. The shadow team 

ensures that risk as it relates to cost, schedule and 

quality of the construction work, is placed with the 

trade contractors, vendors and the technological 

providers. The shadow team also ensures that the 

Owner is getting what was negotiated in terms of 

performance, operability and maintenance. 

It must however, be emphasized that if the Owner 

decides to integrate some of his resources into the 

EPCM team, these same resources should not be 

part of the Owner’s mirror organization. 

The following chart shows in principle classic 

organizational design for an EPCM delivery team. 

The chart serves the purpose to explain the main 

roles and associated responsibilities of the each 

team member. 

The organizational design features to be noted are: 

1. The EPCM team points a project manager, which 

is approved by the Owner. 

2. The Owner’s shadow team compliments the 

functions and area management roles of the 

EPCM team. The responsibility of the shadow 

team is to: 

a. Provide project leadership and direction, 

especially during pre-execution 

b. Authorize project documents, such as bid 

documents and contract documents 

c. Monitor Progress and Performance of the 

EPCM team 

d. Participate in disputes and try and eradicate 

sources of such disputes 

3. The EPCM service provider’s functional team 

shall provide technical leadership, build quality 

into engineering design and secure compliances 

with: EU directives; local and civil codes and laws 

and regulations. This team is also responsible for: 

Value engineering, constructability evaluations 

and fit-for-function assessments. 

4. Area Managers report to the project manager. 

Their prime responsibility is proactive 

management of their areas, facilitate 

communication between project areas, and 

manage external issues. They also assume 

responsibility for risk management in their area. 

Area Managers schedule Work Package meetings 

to revise and control the status of their respective 

work package commitment registers. 

2) 

Some times referred to as true Owner´s shadow team.


Owner´s Site Project Manager 

Owner´s Area Manager for Area 

400, 500 & x00 

Owner´s Area Manager for Area 

100, 200 & 300 

Area Manager for 

Construction Manager 

Area 400, 500 & x00 

Project 

Control 

HS & E 

Cost Control 

Schedule 

Scope Control 

Trend & 

Change 

Owners Organization 

Owner´s Project Sponsor 

EPCM 

Project Manager 


Area 200 & 300 


Area 100 

Site Area 

Managers 

Site Area 

Managers 

Risk Management 

Plan 

Procurement 

Engineering Manager 

Manager 

influence 

Functional 

MEC team for 

Area 100 

MEC 

Owner´s MEC, 

CIV and CSA 

representative 

Procurement 

Team 

This is the CIV & CSA 

team for Area 400, 

500 & x00 

Discipline 

influence 

CIV & CSA 

Construction Team 

Owner´s ELE, 

INST & AUT 

representative 

ELE, INST & AUT 

team for Area 100 

ELE, INST & AUT 

Safety, Health, 

Environmental 

& Permitting 

Name title 

This Team will assist area managers with permitting related issues 

P


Conclusions 

As can be inferred from the above analysis, the three 

project delivery approaches share similarities but 

to large extent are quite different. With respect to 

the risk allocation, the EPCM and the Owner’s team 

approach share similarities as ultimately the project 

risks are borne by the Owner. 

For complex projects the Owner should employ 

an experienced EPCM service provider, but opt to 

integrate his own resources into the EPCM team as it 

will reduce overall project risks. 

Only small projects should be attempted applying 

the Owners team approach. 

From the Owners point of view, the merit of the EPC 

delivery approach is that the project risks, to a large 

extent, can be transferred to the EPC contractor. 

However, if the project lacks in preparation 

and the EPC contractor is not willing to assume 

responsibilities for the basic engineering and when 

it becomes questionable during negotiations that 

the EPC contractor indeed has the strength to honor 

such obligations, the EPC approach should be 

avoided. 

The EPCM delivery approach has the potential to 

provide continuous responsibility for engineering, 

procurement and construction management from 

the concept stage throughout the execution and 

commissioning. However, as the EPCM approach 

only assumes responsibilities for engineering, 

procurement and construction management and 

leaves out the responsibility for construction, the 

Owner is advised that he needs to be more proactive 

in his management of EPCM projects. 

Perhaps, an integrated EPCM team approach with 

a clearly defined Owner’s shadow team should be 

looked at as an optimum approach as it will provide 

strong cross functional task force enabling: 

1. Active and project knowledgeable business 

leadership during the front-end period 

2. Secure functional reporting 

3. Continuous improvement systems 

4. Systematic progress and performance 

measurement 

5. In-house resources to shape projects until the 

projects are ready for detailed design 

Mannvit has developed a team of capable experts, 

who possess the necessary project management 

skills, leadership and project control systems to 

bring home successful EPCM projects. 

ROJECT 

EPC

Mannvit 

Mannvit of Iceland was founded in 1963 and now employs a staff of 

approximately 400. The company provides a broad range of engineering, 

technical research services and project management. Since the early 

seventies, Mannvit has been active in the area of renewable energy and 

has been involved in the development of most power plants in Iceland, 

both hydroelectric and geothermal. Services for these projects range 

from research and other preparatory work to complete design and 

construction management. 

The Mannvit website 

Mannvit’s corporate web site, www.mannvit.com contains further 

information as well as contact information. 

TRUST / OPEN-MINDEDNESS / KNOWLEDGE / WELL-BEING 

Mannvit hf. 

Grensásvegi 1 

108 Reykjavík 

Iceland 

@: mannvit@mannvit.is 

w: www.mannvit.com 

t: +354 422 3000 

f: +354 422 3001 

December 2011

The EPCM Approach - Mannvit

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