Types of Engineering Contracts - Marketing Innovations

Types of engineering contracts

Modern researchers in the field of engineering distinguish two groups of contracts: simple and complex.

Simple contracts involve a direct, direct level of relationship between the customer and the contractor, complex - the presence of several levels between the customer and the final contractor (from the general contractor to subcontractors of several levels).

Consider the types of contracts in more detail.

Engineering in an economical way. A form of work organization in which the work is done by the customer or the developer himself, without involving third-party contractors. The investor himself acts as a customer, and as a financial operator and project manager. At the same time, he certainly has the right to conclude small subcontract agreements for the performance of design or special works and the provision of non-core services necessary for the implementation of the project, but all the risks and the main burden for organizing and securing the project are borne by himself.

General contract. The customer concludes a general contract with the developer and designer (by agreement or in the case of a large and technically complex project through a tender), then places a general contract for construction (through bidding or by agreement) when the design work is completed. With specialized firms, contracts are concluded by the general contractor and bear full responsibility to the customer.

EPC contract Construction contract turnkey with a fixed (lump sum) price (lump sum), in which the main stages are engineering, supply, construction. The executing party is the general contractor who, for a fixed price, carries out the bulk of the project and assumes all risks from the design and until the transfer of the finished object to the customer (including fulfillment of the guarantee obligations) for which he is financially responsible to the customer. EPC-contract is used, as a rule, in those projects where an experienced contractor can estimate the amount of his expenses with a sufficient degree of accuracy, as well as the degree of risks. The EPC contract assumes that the EPC contractor performs the bulk of the work on its own, therefore, there is no special remuneration for organizing and managing the work of the attracted counterparties of the lower level.

EPCM contract (contract type "project management"). The customer is attracted to carry out project management functions, including the design stage and all other stages, a consulting firm specializing in the provision of management services. EPCM-contractor is the general contractor, fully fulfilling the investment project and assuming the risks of project management from the moment of design and until the transfer of the finished object to the customer (including fulfillment of guarantee obligations). The EPMS-contract provides for the total cost of the project taking into account the remuneration of the EPCM contractor, and a fixed deadline for commissioning the facility, achieving the basic technical parameters of the facility. The way (approach) EPCM allows you to manage the project, rather than specific works. The task of EPCM is to assess the necessary characteristics of the selected contractors (suppliers), distribute correctly the work and responsibilities between them. Next - coordinate their actions, resolve disputes, plan a general scheme of the project, change plans in case of critical changes with minimal consequences and then with all stops.

Group of developer contracts. Just note that development - is a qualitative transformation of a property that ensures its transformation into another, a new object with a greater market value than the cost of the original object. With reference to development in engineering we will understand only industrial and infrastructure objects or their parts.

Contract with a fi-developer. In the case of such a contract, the developer does not incur financial risks and works on a fee. The investor hires a developer, so that the latter executes the project "turnkey and rented it or sold it. The choice of the developer is through the holding of a tender or competition. In such a project, the developer, as a rule, does not participate with his money. Designing, selection of high-tech equipment, construction, etc., he spends on the customer's money. He attracts specialists (architects, contractors, engineering firms, etc.) to perform all necessary works and services, but the developer is responsible for the entire project. For the functions of project management, the developer receives a reward that can reach 10% of the project cost. The concessionary development is based on a typical concession agreement, under which one party (the developer-concessionaire) undertakes to create and (or) reconstruct at its own expense The engineering object, the ownership right to which belongs or will belong to the other party (the concedent), to carry out the operation of the object of the concession development, and the grantor undertakes to provide the developer with the right to own and use the created object for the implementation of this activity for the period established by this agreement.

There are several concession development schemes, the most accepted of which are BOT ( build - operate - transfer), i.e. "Build - Operate - Pass and the WTO (build - transfer - operate), i.e. build - transfer - exploit and similar to them. In accordance with the schemes of the WTO and WTO, the developer builds, puts into operation and operates the engineering object in order to return investments and receive profits within the period specified in the contract.

Speculative development. The developer himself designs and implements the project for the future sale of the engineering object, while acting as the sole organizer of the project. Not only does it perform the same functions as fi-devslops, but it also builds a financial scheme for the project. It invests its own funds, which form the core of the future financial scheme.

Features of industrial development are related to the choice of the target market segment (ie, to whom the created object is designed), the implementation of marketing activities, the choice of project solutions, the structure of project financing, the management of the finished object, legal registration of intellectual property rights.

In Table. 9.9 provides a comparative analysis of contracts for engineering.

Table 9.9

Comparative analysis of contracts for engineering services

Contract type


Pros for Customer

Cons for the customer

Pros for an engineering company

Cons for engineering company

Engineering in an economical way

Engineering functions by the customer's own forces

The cheapest option for a customer

Customer Risks

The project is implemented for itself

Lack of necessary competencies

General contract

Engineering functions are performed by a general contractor

The customer receives the turnkey object

Expensive option

The engineering firm can control the whole project

All risks are assigned to the engineering company


Contract turnkey with a fixed price

The customer receives the turnkey at a fixed price

In case of economy, the price is not subject to change

In case of economy, the engineering company will get a big profit

The fixed price and risks on the engineering company


Contract turnkey plus project management

The customer receives the turnkey object

Expensive option

The financial responsibility of the EPMC contractor is limited to the amount of its remuneration (or part thereof)

Risks on an engineering company, with an increase in the value of a contract, an engineering company receives a smaller reward

Contract with a fi-developer

The investor hires an engineering firm to develop the most profitable option for something

The engineering company pays only a fixed fee to the customer

All financial risks lie with the investor

There are no financial risks for the developer

Full responsibility for project implementation

Contract with a concession developer

One party undertakes at its own expense to create an engineering object, the ownership of which belongs to the other party

Most stages are performed by the developer and bear the risks for it

The developer receives a part of the profit from the operation of the object

The ability to operate the facility and receive additional profits from its operation

High risks

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