For many years, EPC and EPCm have been the dominant contracting models in the CAPEX market. Full lump-sum EPC contracts were widely regarded as the optimal way to transfer risk and secure cost and schedule certainty. Today, that assumption no longer holds. The contracting landscape is shifting rapidly, and many organizations are discovering that traditional lump-sum EPC is no longer readily available or commercially viable.
Why lump-sum EPC is losing ground
Contractors are increasingly reluctant to offer full lump-sum EPC contracts. Where they do, the associated risk premium is often disproportionate. Cost uncertainty, construction risk, supply chain volatility, labour shortages and increasing technical and regulatory complexity have fundamentally changed contractors’ appetite for risk. As a result, classic lump-sum EPC has, for many projects, become either prohibitively expensive or simply unavailable.
The rise of hybrid procurement models
In response, the market is moving towards more flexible and segmented procurement strategies. Contractors are structuring their offers more creatively in an effort to balance risk exposure with client expectations. This has led to a broad spectrum of hybrid contracting models, positioned between traditional EPC, EPCm and fully multi-lot approaches.
In practice, this means clients are increasingly confronted with a menu of alternatives rather than a single standard solution, including:
- EPC lump-sum contracts limited to highly defined and predictable scopes, typically priced at a significant premium;
- Phased EPC models that start on an open-book or reimbursable basis and convert to lump sum once key uncertainties are reduced;
- Split EPC arrangements, where engineering and procurement are lump sum while construction is reimbursable;
- EP or EPm structures, with construction contracted and sometimes managed directly by the client; and
- EPCm services, offered on either lump-sum or reimbursable terms, with procurement and construction fully on the client’s paper.
From contract choice to strategic risk allocation
For clients, this shift has significant implications. The discussion is no longer about choosing between EPC or EPCm as a default model, but about designing the right combination of contract structures, scope splits and risk allocation for each individual project.
While multi-lot or hybrid procurement strategies can unlock flexibility and competition, they also place higher demands on governance, project team capability and interface management. CAPEX procurement has therefore become a strategic discipline in its own right. Success depends on early market engagement, a clear understanding of contractor appetite and a contracting strategy that balances risk realistically.
How Argon & Co can help
At Argon&Co, we help our clients navigate this challenging landscape. We support them in preparing robust procurement strategies, assessing realistic contract models and making informed strategic choices that reflect how the market actually operates today. By aligning contracting strategy with project ambition and market reality, we help our clients deliver CAPEX projects with greater control, credibility and value.
Share:
