A confusion often arises between the scope covered by a contract and the associated commercial approach. Specifically, EPC (Engineering – Procurement – Construction) contracts are not always lump sum! In our new White Paper 2021-09 ‘Why It is Important to Distinguish Contracting Strategy and Commercial Approaches’, we aim to clarify that issue as overcoming this preconception often opens the field of possibilities in terms of contractual strategy.

It is important to realize that both dimensions of contract scope and commercial approach are quite independent. Therefore, in particular, an EPC contract is not necessarily lump sum (which is often presupposed when using the “EPC turn-key” terminology).

It is quite interesting to explore the possibilities offered by this dimensional space and examine when combinations of scope of commercial approach are relevant. This is of course a simplified vision as a single contract can contain several commercial approaches for different sub-scopes. In the following analysis it should also be reminded that the choice on the scope dimension will generally be very dependent on the actual track record and capability of the contractor, and not only on the scope to be performed in an ideal approach.

Thus, the recognition of the two dimensions of scope and commercial approach opens the field of possibilities particularly for situations that include innovative technologies, or for contractors that have to work closely together because of a significant amount of interfaces and interference (for example, for projects involving very dense and compact spaces such as nuclear, submarines etc.).

Scope and commercial approach should always be considered to be different dimensions that can be combined to suit the particular situation of the project. In a single contract, different sub-scopes can also be subject to different commercial approaches. This realization opens the door to contracting strategies that are better suited to the specific challenges of the project. Read our new White Paper 2021-09 ‘Why It is Important to Distinguish Contracting Strategy and Commercial Approaches’.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2021-09_contracting_strategy_not_commercial_strategy_v1.pdf