Engineering and construction firms adapt to a changing market.
Like all things in this world, the market for engineering and construction services goes through cycles. When the electric power industry enters a build-out phase, then terms and conditions in engineering, procurement, and construction (EPC) contracts become less advantageous for project owners. In that type of seller’s market, contractors call the tune. They’re less inclined to accept risks or provide services beyond their central core business—i.e., building power plants.
Today, however, it’s a buyer’s market. Utilities and independent developers are asking more of their engineers and constructors. Turnkey contracts—in which an EPC contractor builds a plant according to the owner’s specifications, and turns over the keys when it’s done—are including more demanding guarantee provisions than at any time in recent memory.
“It’s no longer about risk management,” says Dean Oskvig, president and CEO of Black & Veatch’s global energy business group. “Now it’s risk-offloading. As an EPC contractor, you have to take risk or you’re irrelevant. But you shouldn’t accept risk that you can’t reasonably manage, and that’s what’s been making its way into terms and conditions.”