The problem of model selection of the capital projects implementation

Mitenkova Alla Evgen'evna¹, Mitenkova Elena Nikolaevna²

¹ Kolomna Institute of Moscow State Technical University «MAMI», Kolomna, Russia

² Lomonosov Moscow State University, Moscow, Russia

Abstract:

Nowadays many companies which plan to expand their business by construction of new facilities, face with the need in capital projects implementation and the choice of a contracting model. The author considers common used contracting models of capital projects: an EPC-contracts and an EPCM-contracts. In the article the authors give the definition of these two types of contracts. To a great extent the success of a capital project depends on the management of capital projects, including the process of capital project’s contracting. That is why, the author examines the advantages and disadvantages of each contracting models. Also the authors compare EPC-contracts and EPCM-contracts of capital project’s contracting in terms of sharing of risks between the participants of a capital project: a company-sponsor and a contractor, which is responsible for implementation a capital project. The authors consider such risks associated with the implementation of a capital project as a risk of non-completion a project on time, a risk of increasing a lump sum fixed price of a capital project, a risk of poor implementation of a capital project and a risk of financial responsibility in the case of debt. Comparative analysis of EPC-contracts and EPCM-contracts for capital projects showed that EPCM-contracts have more advantages, because they provide more freedom to a company-sponsor to monitor the implementation of capital projects, and allow to significantly reduce costs and increase return on equity, especially if a company-sponsor has a wide experience in implementation of capital projects.

Keywords:

EPC-contracts, EPCM-contracts, capital projects, risk.