EPC contracting

Under a Clean Energy Japan (CEJ) Solar and Renewables EPC contract, CEJ, as the contractor in Japan, we can design the installation, acquire the necessary Japanese real estate and then procure the required certifications for the site in question, and any hard ware- either to the owners specification or in line with recommended materials by CEJ and then proceed and build the renewable project, either directly in house or by subcontracting part of the work.

In some cases, the CEJ will carry the project risk for schedule as well as budget in return for a pre determined fixed price, depending on the agreed scope of work.

When the scope is restricted to engineering and procurement, this is referred to as an EP, E or E+P contract. This is often done in situations where the construction risk is too great due to size or investment capital exceeds risk allocation for CEJ or when the owner does the construction in Japan.

The ‘keys’ to the commissioned renewables plant are then handed to the owner for an agreed amount usually involving a share transfer of the project company used to construct or install the project, just as a builder hands the keys of a flat to the purchaser.

EPC is gaining importance worldwide. It requires in depth industry knowledge and understanding by the EPC Company, (which is CEJ`s core business, for which it is a market leader in Japan) for the region it is operating into return a profit.
An owner decides to commission an EPC contract for reasons that include:

  • Reduced stress for owner
  • Single point of contact for owner simplifies communications
  • Ready availability of post-commissioning services
  • Ensures quality and reduces practical issues faced in other ways
  • Owner protected against changing prices for materials, labor, etc.
  • Cost is known at the start of the project
In an EPC contract the owner defines:

  • Scope and the specifications of the install
  • Quality
  • Project duration; ground breaking and handover dates
  • Cost

The cost (the price to be paid to the EPC Company) is negotiated and finalised and paid in mutually agreed milestone installments.

CEJ and Owner Responsibilites

Once an EPC contract is signed, CEJ becomes liable for completing the project according to the tender conditions. CEJ, in turn, may hire sub-contractors or sub-vendors to complete different portions. Payment commensurate with the work completed (in addition to an advance milestone triggered mutually agreed payment schedule ) is normally preferred by CEJ.

Projects are more likely to succeed when the owner:

  • Defines guarantees well
  • Defines scope and quality very carefully
  • Defines milestones meticulously
  • Defines LD/penalty clauses
  • Makes payment terms very specific
CEJ also has ways to improve project success:

  • Adopts similar terms and conditions as owner regarding quality, guarantee etc., for subcontracts/vendors
  • Do not keep terms open-ended
  • Coordinate vigilantly to reduce chances of errors at site

An EPC contract is a complex agreement. In a global context, EPC management is more complex. The EPC company must have data and a wide range of expertise in all the required fields to successfully complete the project, which CEJ`s track record proves; some things to consider:

  • Japanese local market conditions for materials and labour availability and capabilities
  • Local code, certification, statutory and regulatory etc., requirements, and the infamous Japanese ‘red tape’
  • Availability of local supervisory personnel
  • Availability of local engineering services
  • Local subcontractor experience and performance networks and relationships required for success take decades to build
Cost Certainty

One main reason an owner may prefer an EPC arrangement with CEJ is “certainty of cost”. An EPC contract effectively binds CEJ, the contractor and or its sub contractors to deliver the project at a firm, predetermined price regardless of any increase in costs that may incur to CEJ after the contract is signed. However, changes to specifications initiated by the owner (better panels or turbines for example) may be incorporated through a “variation order”. Here, the owner and the Contractor negotiate the price to make the changes and these changes/prices are recorded in the variation order document.

Owner Responsibility

To ensure quality, the owner must select an experienced EPC contractor. A third-party or in-house consultant can verify the design of major structures and inspect the main equipment installations.
Changes in scope of work can affect project schedule, cost and risk. Such changes are the responsibility of the owner.

Company and Tax effective Structures

CEJ having more than 4 decades of collective experience in EPC contracting and Project Management in various industries and as such have valuable experience not only dealing with various off shore structures but access to the professionals required to facilitate and manage these more complex structures for the duration on any projects we partner in.