When considering this, we have looked at Energy from Waste (EfW) projects as an example where we have seen both successes and failures.

Procurement of contractors can follow a number of pathways, from individual purchase orders to full PFI EPC Wrap Contracts. The approach taken depends on the overall perception of risk and the apportionment of that risk.

Large scale Energy from Waste (EfW) plants and the EPC Wrap approach

Traditional [large-scale] Energy from Waste plants have adopted a full EPC Wrap approach.

This involves a single construction contract with generally the main process contractor, and then a series of subcontracts between the main contractor and the package contractors.

The principal is that the main interface risk is with one single entity and therefore the perception of liability is with one single contractor. This has not always proven to be a successful approach but is seen as standard.

However, this route of procurement has a number of disadvantages:

1. This increases Capital Construction costs on average between 20% and 30%. Often this will make smaller projects unviable.

2. The risk is not carried by the contractor best able to understand and manage the risk. Process Engineering companies are very different to Civil and Building Contractors and therefore the two often struggle to understand and manage the interface / objectives of the other.

3. Fewer contractors are providing full EPC Wrap options. Many of the traditional contractors are moving away from this approach because they just cannot manage these contracts and others are not comfortable in this type of relationship.

That said, the interface risk and wrap approach has some benefits, particularly when, say, the building is an integral part of the process.

For example, large-scale EfW plants will have deep storage bunkers and a main wall into which the process has to be installed. The complexity and therefore the risk is best pushed towards the single entity to manage.

However, where the projects are not complex, the procurement strategy can simplify this process and move away from the single EPC approach. The packages are easy to manage, and the interface is clearly defined within the contract specifications.

The procurement objective should be to move away from the single contractor EPC Wrap and to source the work in the varying packages such as Building and Civil works in one package and process equipment in another.

The principal behind this is to ensure that the risk is directly apportioned to the contractor best able to manage that risk.

Therefore, as an example:

1. Building and civil engineering works – Utilising a standard form of contract that is known to the contractor, and a specification and process of pricing that is familiar to that organisation.

2. Process Supply and installation – Again, a standard form of contract such as an IChemE Red Book that is familiar to the contractor.

Lump sum contracts and inflationary costs in construction materials

In all instances the objective is to establish a lump sum price for the design, installation and commissioning of the supplied items. The contracts would also incorporate appropriate warranties and guarantees.

This is particularly relevant in today’s market where we see large inflationary costs in construction materials.

The communication with the contractor best able to manage and understand those costs is vital when reaching a meaningful lump sum contract. These risks are not managed well in an EPC Wrap.

Understanding the EPC Meaning in Modern Construction

To evaluate the right contracting strategy for complex infrastructure and energy-from-waste (EfW) developments, it helps to first unpack the core EPC meaning: Engineering, Procurement, and Construction.

Under a traditional full EPC model (often structured as an "EPC Wrap"), a single main contractor takes absolute responsibility for the entire delivery lifecycle - from detailed engineering design and equipment procurement right through to physical construction and commissioning.

The foundational appeal of this approach is single-point accountability: the developer relies on one entity to manage interface risks, absorb liability, and deliver a turnkey asset.

However, relying strictly on the traditional EPC model presents major commercial hurdles in today’s market:

Inflated Capital Costs: Main contractors pricing in the entirety of project risk typically drive capital construction costs up by an additional 20% to 30%, frequently making smaller or mid-scale projects unviable.

Misaligned Core Competencies: Process engineering companies and civil construction contractors operate very differently, often struggling to manage the complex boundaries and technical objectives between them under a single wrap.

Shrinking Market Appetite: A growing number of tier-1 contractors are moving away from full EPC wrap structures because the risk profiles have become unsustainable.

Shifting Toward a Smarter Procurement Strategy

Because the traditional EPC meaning and its associated wrap contracts can create severe financial and operational bottlenecks, forward-thinking developers are shifting toward multi-package procurement strategies.

By separating civil engineering packages from specialist process equipment supply and aligning them with familiar standard forms of contract (such as IChemE or JCT), projects can directly apportion risk to the contractors best equipped to handle it, protecting your capital without sacrificing control.

Navigating EPC Contracts: Risk Allocation and the Single Wrap Reality

Once the core EPC meaning is established, the critical challenge shifts to how these contracts are structured, negotiated, and executed in the real world. In major industrial, energy-from-waste (EfW), and complex infrastructure developments, the EPC contract is the legal backbone that defines liability, cost ceilings, and milestone delivery.

Traditionally, developers strive to lock down a fixed-price, turnkey EPC contract to provide absolute budgetary certainty to investors and boards before Financial Investment Decision (FID). However, navigating these agreements requires a clear-eyed look at how risk is actually distributed:

The Illusion of Complete Risk Transfer: While a turnkey contract attempts to shift 100% of construction and performance risk onto the main contractor, it rarely comes cheap. Contractors heavily price the unknown, resulting in steep contingency premiums built directly into the contract value.

The Danger of Late-Stage Variation Claims: If a contract's technical scope boundaries, interface definitions, or feedstock parameters are vaguely defined during early-stage planning, the EPC framework breaks down. Contractors will aggressively utilize ambiguity to submit costly variation claims, turning fixed-price agreements into rolling financial disputes.

Contractor Appetite and Market Shifts: Finding tier-1 contractors willing to accept an unyielding, full-wrap EPC contract for complex, first-of-a-kind (FOAK) green tech or industrial retrofits has become exceptionally difficult. Many are pulling back from high-liability wraps, forcing developers to rethink how they package work.

Striking the Right Balance

Managing EPC contracts successfully requires bridging the gap between legal paperwork and physical execution. By maintaining rigorous, cradle-to-grave technical due diligence and clear boundary ownership from the outset, developers can ensure that contract terms accurately reflect ground-level realities—defending against scope creep and protecting capital long after the ink has dried.