Engineering, Procurement, and Construction Market Procurement Intelligence Day One Analysis Report, 2020 – 2025
Procurement Outlook
EPC is an abbreviation for engineering, procurement, and construction contracts. It is a form of building contract used for a large or complex project. Here, the builder has to deliver a completed project on a turnkey basis. Here, the time frame for completion and the budget are pre-decided no matter the uncertainties, unexpected bottlenecks, or natural and artificial disruptions. Projects can be from the private sector as well as the public sector.
Demand Outlook
North America is the largest regional EPC market globally and is valued at USD 2,027.3 billion in 2020. It is expected to grow at a modest CAGR of 1.8% from 2020 to 2025. One of the major reasons for this slow growth is the COVID pandemic. While over 50% of the EPC projects in North America have a contract duration of 5–10 year timeframe, the pandemic has made significant supply chain disruptions and monetary constraints. This will make it challenging for the EPC contractors to deliver the turnkey projects within the specified timeframe.
Chemical, power and industrial EPC projects are the three of the most sought-after EPC contracts in the market. Approximately, 60% of all EPC contracts fall under these three categories. Also, over 50% of such contracts have a time frame of 5–10 years.
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Cost Drivers
There has been a massive shift from non-renewable sources of energy to renewable sources of energy which is leading to the construction of hubs that can generate power from renewable sources like wind, thermal, solar, tidal, etc. Such EPC projects employ new technologies for construction and are usually high-value projects. Therefore, the trend towards renewable sources of energy consumption will aid EPC contractors to generate high returns projects with the same time period compared to the traditional non-renewable energy generation projects.
Additionally, several nations have made pledges to reduce their carbon footprints which have made factories and manufacturing hubs rethink their process and reduce carbon emission. For example, the establishment of Carbon Tax on thermal power plants in the United Kingdom would determine tax based on the carbon emission of a power plant. Steps like these make are prompting thermal power plants to redesign their systems. These have provided significant opportunities to EPC contractors.
Constraints
The COVID pandemic caused significant supply chain disruptions and monetary constraints leading to the pause or cancellation of several EPC contracts globally. For ones that did not halt operations, procurement during the pandemic proved particularly challenging. Additionally, maintaining social distancing norms and safety protocols of workers required extra cost.
These proved particularly challenging for EPC contractors particularly because the budget of such projects is pre-determined. While exceptions were made due to the unprecedented nature of the pandemic, there were still impacts on the cost of operation and timelines for completion. All this essentially impacts the profit margins from the EPC contracts.
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A smart and effective supply chain is essential for growth in any organization. Pipeline division at Grand View Research provides detailed insights on every aspect of the supply chain which helps in efficient procurement decisions.
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