Design lead EPC project
In recent years, the state has vigorously promoted the reform of the organizational model of engineering construction, and issued a series of policy documents to promote the implementation of EPC contracting. Compared with the traditional contracting model, the EPC model has a longer duration and more diverse project risks, and the design-led EPC project has more complex factors. The project risk cycle is the whole life cycle from the beginning of the bidding to the end of the project, and the risk ** includes the organization, personnel and various management activities of the participating parties, and the project risk control requires higher risk analysis capabilities and management experience. By analyzing the main causes of the risks of the design-led EPC project, and using specific methods such as case collection, process analysis, compliance analysis, traceability analysis, and expert interviews, this paper summarizes that the risks of EPC projects mainly include natural and social risks, related party management risks, project technical risks, project business risks, project bidding risks, project design risks, project procurement risks, and project construction risks. The following is analyzed from three dimensions: the main causes of risks, the main methods of risk identification, and the main manifestations of risks, in order to provide reference and reference for survey and design enterprises to do a good job in EPC project general contracting.
The main drivers of risk
The main causes of risk development process are composed of risk factors, events, goals, losses, results, etc.
First, there is a big gap between the research and practical application of risk theory. For a long time, the research on risk management of construction projects has mainly focused on the risk management research led by the construction party, and there are few studies on the risk management of design-led general contracting projects. In terms of applied research on risk management, it is common to adopt independent and passive risk management countermeasures for the risk of a certain problem, and there is a lack of systematic and strategic research, and there is no specific technical means and methods that can be applied in practice for the whole process of dynamic risk management of the design and lead general contracting project. In the field of practice, it is mainly based on expert experience to conduct individual and qualitative analysis, and there is no systematic risk identification and management measures at the practical application level.
Second, it is difficult to design and lead the contract management of EPC projects. For the project owner, the EPC model has a simple contract structure, and the owner's organization and coordination tasks are small, and the general contractor is responsible for it. The general contractor must have strong technical and management comprehensive capabilities to coordinate the relationship between itself and subcontractors, so the EPC model is more difficult for contractors to manage the contract. At the same time, since the design lead EPC project designer is not only responsible for engineering design, but also needs to be responsible for engineering construction management and project lead coordination, the design lead party often participates in project bidding in the early stage of the project in order to successfully undertake the EPC task, so as to obtain the front-end market competitive advantage. However, at this time, the preliminary work of the employer is immature, the contract terms between the contractor and the contractor are not easy to accurately determine, and it is easy to cause more contract disputes with the construction consortium. As a result, it is further difficult to manage the contract for design-led EPC projects.
Third, risks run through the whole process of the project and are complex and diverse. The risk of design-led EPC projects varies with different types of majors, and there are water treatment EPC projects with high process requirements, which have greater design risksThere are large-scale and complex EPC projects with high safety requirements, and their construction risks are relatively large;There are transportation infrastructure EPC projects that have a greater impact on society, and their social risks are greater. Therefore, the focus of risk identification, analysis and control is different for different EPC projects. There are many interfaces in EPC projects, many organizations and personnel involved, and complex unstable factors, and high uncertainty in the probability and impact of risks. The work content of the general contractor runs through the whole process of design, procurement, construction and commissioning of the whole project, and its risk management work must also be included in the whole life cycle. The risks of each stage do not exist independently, but have a certain correlation and coupling with each other. All of these factors contribute to the complexity and complexity of risks throughout the project.
Fourth, the risk management of design-led EPC projects is weak. In design-led EPC projects, the designer has the advantage of breaking through the interface barriers between design and construction, which greatly enhances the interactive relationship between design and construction. In the design stage, construction experts can intervene to form the characteristics of design and construction, which is conducive to the integration of expert knowledge and shortens the construction periodThe control of project investment from the design source plays a decisive role in reducing contractor costs and increasing profits. However, the design unit has always been operating with light assets, and it is difficult to bear greater financial risksThe project management ability is weak, and it is easy to be dragged into joint and several liability due to poor management;The company lacks compound management talents, and there is great room for improvement in external communication and coordinationThe organizational structure and institutional system are not perfect, and there are deficiencies in the emergency response system. These factors lead to the lack of solid and weak capacity for the risk management of design-led EPC projects.
Methods of identifying risks
Commonly used risk identification methods, such as based on past cases, project management processes, legal norm requirements, traceability analysis, expert experience, etc., can discover and list the risks existing in the project, and build a project risk identification framework that meets its own business management needs and project management requirements. Table 1 lists the main methods of risk identification.
Table 1 Main methods of risk identification
The case database method is to discover the existing risks by collecting and sorting out the cases that occur in the industry. This approach is broad and inspiring, but it may not be very targeted.
The process analysis method is to find out the possible risks by sorting out and summarizing the main processes of project management. This method is in line with the actual situation of the enterprise and is conducive to management improvement, but it will be limited by the experience and ability of analysts.
The compliance obligation identification method is to identify the possible risks of the project by summarizing and sorting out the relevant laws, management regulations or industry norms. This method can maintain the bottom line of compliance and ensure compliance management, but it is usually basic and macro, and it is difficult to cover the complex and diverse situations in actual projects.
Traceability analysis is to identify possible risks by identifying the causes of problem events. This method can go deep into the essence of the problem from the phenomenon, which is conducive to grasping the source of risk, but it is usually a post-event analysis, which has a certain lag in forming risk response measures.
The expert assessment method is to assess, judge and supplement the risks found through in-depth interviews and symposiums with experts in the industry. This method can use expert experience to carry out risk assessment and supplementation, but it is easy to be limited by the empirical ability and subjective judgment of experts.
Schematic diagram of the process from risk factors to risk generation.
In practice, collecting information about risk events is the first step in risk identification. For specific projects, the relevant data of similar projects that have been built, the data of the proposed project and the engineering design and construction documents should be collected, the various possibilities and risks of project development and change should be comprehensively analyzed, and the initial risk factor list should be established in combination with the characteristics of design-led EPC project management. The list should clearly list the objective and potential risk factors, and should include various factors that affect the smooth completion of the project and reasonable economic benefits. Through the above methods, 24 risk manifestations in eight categories of design-led EPC projects were sorted out and summarized.
Manifestations of risk
There are 24 main forms of risk manifestations of the risk of the design lead EPC project, including natural and social risk, related party management risk, project technical risk, project business risk, project bidding risk, project design risk, project procurement risk, and project construction risk.
The main manifestations of risk.
Natural and social risks
One is the impact of natural disasters. **The impact of plague, heavy rain, flood, mudslide, collapse, severe cold, scorching heat, rain, etc., on the construction, resulting in economic losses of the project.
Second, the construction conditions are insufficient. The employer did not provide sufficient geological details or incomplete meteorological data during the bidding stage, and found that there were large discrepancies in the design and construction, resulting in an increase in the amount of work and a cost exceeding expectations. Due to the failure to provide a social stability assessment report at the contract awarding stage, or the report is a mere formality and there are obvious loopholes, the implementation of the project leads to social risks.
The third is the impact of policy changes. Political turmoil, changes in fiscal and financial policies, adjustments in national and industry EPC construction policies, and changes in design and construction technical specifications will directly or indirectly affect the normal progress of the project.
Parties manage risk
The first is the risk of management of the employer. The design leader directly connected with the employer on behalf of the consortium, but the management ability of the employer was weak, and there was a lack of countermeasures to the employer's insufficient preliminary work, unreasonable compression of the construction period, improvement of construction standards, lack of funds, untimely payment of project funds, and insufficient management ability of the owner, resulting in the delay of the construction period of the general contracting project, the increase in costs, and the difficulty in confirming the part of the target control cost of the employer. Due to the imperfection of the employer's preliminary work, the land acquisition and demolition and pipeline relocation and reconstruction work cannot be completed in a timely manner after the project is bidd, which affects the normal implementation of the project and increases the risk and cost of project performance.
The second is the risk of management of the consortium party. The failure of the design leader to effectively select the consortium, the unclear division of the consortium's risk responsibilities, the lack of credibility and capabilities, and the insufficient integration of the two parties have caused the consortium's weak ability and affected the smooth implementation of the project. Insufficient control over the key capabilities of the consortium parties, including similar performance and technical level, quality and ability of staff, willingness and commitment to cooperate, cooperation guarantee and guarantee, financial strength, local resources, risk emergency plan, main conditions for cooperation, etc., resulting in disputes between the consortium in the implementation of the project.
The third is the risk of subcontractor management. The design leader lacks effective management of the subcontractors of the consortium, and in practice, there are often subcontractors that have not been jointly confirmed by the consortium. Individual subcontractors have weak technical level, low management level, poor integrity level, and difficulty in undertaking the entrusted work, and the entire project progress is delayed due to the subcontractor's breach of contract and other subcontractor claims. Due to the failure of some ** contractors to meet the requirements of the contract, delivery delays, damage to equipment and materials in transportation, suppliers do not meet the requirements of the project cycle, and the deepening of the design caused by the improvement of additional equipment and material standards, resulting in an increase in the cost of the general contracting project.
Project technical risks
First, improper technical management. The design leader has insufficient assessment of the technical difficulty of the project, the selected standards and specifications are not applicable, the design drawings and technical descriptions are not clear, and the application of new technologies has made mistakes in technology development, technology protection, technology use, technology acquisition and transfer, resulting in technical management problems in project implementation.
The second is technical errors and omissions. The design leader has caused frequent design changes during construction, resulting in delays in the construction period and increased costs of the general contracting project due to incomplete design content or errors and omissions, improper application of specifications, failure to consider constructability, failure to consider geological conditions, and incomplete consideration of complex factors.
Third, the technology is backward. The design leader did not review and control the construction process, and used backward construction technology, unreasonable construction technology and scheme, improper construction safety measures, mistakes in the application of new technologies and new solutions, and poor technical operation ability of the construction team, resulting in the delay of the construction period and the increase in cost of the general contracting project.
Project business risks
First, contract management is insufficient. The design leader is not familiar with the EPC contract, has insufficient experience in contract management, is in a weak position during the negotiation of contract terms, and has loopholes in the key content of important contract terms such as construction period clauses, quality clauses, change clauses, claim clauses, ** adjustment clauses, project payment and settlement clauses, project guarantee and insurance clauses, breach of contract liability clauses, service information and dispute resolution clauses, resulting in performance risks in the process of project implementation.
Second, cost management is out of control. The design institute is not good at cost control, and often pins its hopes on the construction consortium party, resulting in the design leader essentially losing control of the project cost management. In the process of project implementation, there is a lack of full understanding of the market of production resources such as materials, equipment, machinery, and labor services, resulting in an increase in project procurement costs, construction costs exceeding the average level of the same industry, and the loss of reasonable benefits of the project. The ability of the preparation and negotiation personnel of the project claim and change compensation is insufficient, and the measures taken are not scientific, resulting in the failure of the project claim and change compensation and the loss of reasonable benefits of the project.
Third, there is no basis for fiscal and tax treatment. The mode of direct payment by the employer to the construction consortium weakens the overall management power of the design leader to a certain extent, which is not conducive to the implementation of the design lead EPC project. However, the employer's model of only connecting all settlement payments and invoice acquisition with the design lead party leads to the tax risk of "four streams of inconsistency" (mainly invoice flow and capital flow) for the design lead. In terms of accounting revenue recognition, the revenue is recognized by the "net method", and the other collection parts are treated as "collection and payment" payments, which requires the relevant departments to issue an announcement on the interpretation of accounting standards for the revenue recognition of consortium EPC projects as soon as possible to standardize and standardize them.
Project Bidding Risk
First, the bidding organization is not effective. The design leader does not have enough depth of the bidding work, does not grasp the credit of the employer, does not carry out on-site research, is inconsistent with the bidding strategy of the consortium construction party, underestimates the strength of competitors, and does not fully grasp the competitive conditions, resulting in errors in bidding judgment, difficult decision-making in bidding, and potential losses in bidding, which buries hidden dangers for the implementation of the project.
Second, the bidding is improper. The design leader lacks overall planning for the bidding, the cost calculation deviation, the bidding documents and list drawings are not sufficiently studied, and the consortium construction party fails to form a joint force.
The third is the issue of bidding compliance. Affected by the market environment, the project bidding contains content that restricts or excludes potential bidders, there are conflicts of interest of the bidder such as parent and subsidiary companies or equity associations, there is an affiliated relationship between consortium members and other bidders, there are high-risk signs such as cross-tenure, mixed use of personnel or kinship, and frequent "group" bidding among senior managers, resulting in compliance risks that conflict with the bidding law of the project.
Project design risk
One is the lack of design management. The design leader did not give full play to the design advantages, the design scope and content were not clear, the design basis and the responsibility for providing the basis were not clear, the design schedule did not match the construction requirements, the design quality and depth were not high enough, the design site guidance for the project was not rigorous, the design change and claim process was not rigorous, the design subcontract responsibility agreement was not clear, and the construction drawings were not clear, resulting in unsmooth internal cooperation within the consortium and affecting the project implementation.
The second is the design of exceeding the limit. The design leader is not strong in the implementation of the quota design in the EPC project, the method is not in place, and the quota design objectives are not specific, which makes it difficult to assign tasks to professionals and individuals, the design is too conservative, the scheme comparison and optimization is not sufficient, the rework and waste caused by repeated equipment selection, the breakthrough of operation and maintenance costs due to the failure to consider the economy of the whole life cycle, and the increasing use requirements and construction scope and standards in the project construction process, etc., resulting in subsequent design budget estimates. The budget cost of construction drawings and construction costs are out of control.
Third, it is not integrated with procurement and construction. The lack of detailed in-depth drawings for design guidance construction, the insufficient application of BIM technology for design deepening and collaborative management, the failure of design and procurement to carry out in-depth and extensive market research, and the lack of consistency in the design interface in the main technical parameters and scheme forms and the selection of main materials, resulting in the ineffective coordination of design and procurement, and the failure of full integration of design and construction, which is difficult to reflect the advantages of design-led EPC projects.
Project Procurement Risk
First, it is difficult to find high-quality resources. The design institute generally lacks market research on first-class businessmen, and lacks the ability to actively find high-quality, low-priced, and high-reputation first-class businessmen. Compared with construction projects, the number and volume of design-led EPC projects are small, which makes it difficult to produce scale effects on procurement. In the internal management of the design institute, the recommendation, inspection, selection, bid evaluation and calibration of the first business warehousing are often mere formalities. Due to the limitation of business resources, the design leader has insufficient control over the cost and quality of the project, and the ability to reduce costs and increase efficiency is insufficient.
Second, it is impossible to achieve design pre-mining. Failure to take advantage of the design lead, determine the material and equipment manufacturers in advance according to the contract, the inability to determine the equipment parameters in the design stage and incorporate them into the drawing, and the failure to realize the pre-procurement of decoration main materials and art installations under the condition of budget estimation locking, resulting in the inability to optimize the cost through the advantages of design-led management, and the loss of reasonable benefits of the project.
Third, the procurement management ability is not strong. The design leader's control over the subcontracting and procurement of the construction consortium party is not clear, the review points and decision-making authority of the design leader in the procurement process are not clear, the designer's contract management and procurement process control over its own procurement scope are relatively weak, and the material quality control and schedule control of the construction party's procurement scope are lacking, resulting in the designer's inability to substantially participate in the project procurement management and affect the designer's quality control.
Project construction risks
The first is the issue of construction compliance. The design leader lost control over the construction consortium party, and there were invalid agreements that deviated from the bidding documents, illegal subcontracting, illegal subcontracting, affiliated contracting, affiliated operation and internal contracting of the contractor, and the authorization of the signature and seal was invalid. The lack of awareness of legal risk prevention during the construction process leads to problems such as lack of on-site visa information, unfiled contract changes, violation of default terms of the contract by the construction consortium party, and violation of safe and civilized construction obligations.
Second, safety management is weakened. The design leader's enterprise safety management system is not sound, the enterprise emergency plan is not formulated, the safety management department does not review the safety-related plans of the construction consortium, does not make an approval form, does not stipulate the audit process and responsibilities, does not conduct targeted safety inspections, and fails to determine the safety control priorities and the control of major hazards at each stage, resulting in the risk of safety and quality accidents, economic disputes of industrial accidents, and joint and several liability risks of the consortium.
The third is the debugging and acceptance deviation. The design leader has insufficient control over the commissioning and acceptance of the project, and the debugging data and tools are incomplete, high temperature scalding, harmful gases, and the risk of power failure and leakage lead to deviations in commissioning. Incomplete completion acceptance data and reports, incomplete concealed acceptance data in the middle of construction, incomplete progress and quality of the project do not meet the requirements of the contract, incomplete construction drawings and as-built drawings of the project, incomplete settlement data of the project, etc., resulting in deviations in project acceptance.
Conclusion
By analyzing the main causes of the risks of the design-led EPC project and adopting appropriate risk identification methods, this paper sorts out and summarizes 24 risk manifestations in 8 categories of design-led EPC projects, including social and natural risks, related party management risks, project technical risks, project business risks, project bidding risks, project design risks, project procurement risks, project construction risks, etc., in order to help design enterprises achieve "risk prevention and control in advance, problem resolution during the event, and case promotion and management after the fact" in project management to effectively reduce the risk of design-led EPC projects and ensure the healthy and sustainable development of enterprises.