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EPC turnkey projects: Difference between EPC & turnkey projects

EPC turnkey projects: Difference between EPC & turnkey projects


What is EPC turnkey project?

EPC is an acronym that stands for Engineering, Procurement and Construction and is widely used in the manufacturing industry.

EPC & Turnkey as terms are often used interchangeably to define a form of contracting arrangement that the clients, vendors and contractors undertake. 


Under an EPC contract, a vendor must deliver complete facilities to a client who would only need to "turn a key" to start operating the facility; Hence EPC projects are sometimes (interchangeably) called turnkey projects.


What is a Turnkey Project?

Turnkey project is a mode of executing manufacturing projects, where the solutions or (parts of projects) are built ‘ready for operation’. In case of turnkey projects, vendors work with the clients or project owners under an agreement to complete stages of the project.


Is there a difference between EPC and Turnkey Projects?

Most forums will tell you that there are differences between EPC & turnkey projects, but do not detail the exact nature of the differences. 


By definition, both EPC & Turnkey projects appear to be the same but there are significant differences as we will detail below: 


First & foremost, a major difference is that a turnkey project only calls for “ready to operate” solutions. This may or may not include the design & engineering part to be undertaken by the vendor or contractor to complete the project. 


A simple example would be (as we mentioned in our previous blog) real estate projects: 


Let us consider the construction of houses within this example: 

  • If you gave a contractor the plans for the house and they build you a house, using those plans, that would be considered a turnkey project. But 
  • If you gave the contractor just the dimensions of the house that you want to build, then they engineer, design and construct for you before handing it over, that would be an EPC project which included stages of Engineering, Procurement & Construction. 


Let us break it down further: 


Risks:


Turnkey: A client can undertake engineering & procurement (full or partial) and then appoint a vendor to execute the work on a turnkey basis. Here, the client is deciding to undertake the risk of engineering and procurement by themselves. 


EPC: Within EPC the client does not undertake the risk of engineering and procurement and maintains all three components within the scope of a single contractor/vendor. Any failure due to engineering, procurement or construction would thus be borne by the contractor. Also, variations to a contract will be minimum for an EPC contract.


Execution: 


Turnkey: Preferred where several activities are involved. A single party reduces the coordination efforts with many contractors that would otherwise be required during projects. 


EPC: Preferred where complex engineering or proprietary technology is involved like oil & gas, process plants etc. 


Overall, while EPC & Turnkey projects can go hand in hand there are significant differences between them, specifically in terms of roles and responsibilities, risks involved, contractual agreements and execution.


To understand turnkey projects better you can read our previous blog.

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