EPC – Procurement

Procurement Workflow in EPC Projects

The procurement workflow in an EPC project is a critical and complex process that typically integrates with the engineering and construction phases. It generally involves the following steps:

  1. Requirement Definition (from Engineering):
    • Based on the detailed engineering designs, a clear definition of all required materials, equipment, and services (including specialized labor) is established. This includes technical specifications, quantities, and delivery timelines.
  2. Procurement Planning:
    • Developing a procurement strategy, including make-or-buy decisions, identifying potential suppliers, defining contracting methods (e.g., competitive bidding, direct negotiation), and establishing a procurement schedule.
    • Creating a detailed procurement plan that outlines the sourcing strategy, risk management, and quality requirements.
  3. Supplier Identification and Prequalification:
    • Identifying potential suppliers and vendors who can meet the project’s technical, quality, and delivery requirements.
    • Prequalifying suppliers based on their financial stability, technical capabilities, past performance, and quality management systems.
  4. Tendering/Request for Quotation (RFQ)/Request for Proposal (RFP):
    • Issuing tender documents or RFQs/RFPs to prequalified suppliers, detailing the scope of supply/work, technical specifications, commercial terms, delivery schedules, and evaluation criteria.
  5. Bid Submission and Evaluation:
    • Suppliers submit their technical and commercial bids.
    • The EPC procurement team, often with input from engineering, evaluates bids based on technical compliance, price, delivery time, quality, and other criteria. A bid evaluation matrix is often used for objective assessment.
  6. Negotiation and Award:
    • Negotiating with the preferred bidder(s) to finalize terms, conditions, and pricing.
    • Awarding the contract(s) (Purchase Orders or Subcontracts) to the selected supplier(s).
  7. Order Management and Expediting:
    • Placing official orders and managing the execution of contracts.
    • Expediting activities to ensure timely delivery of materials and equipment, closely monitoring production schedules, quality control at supplier facilities, and logistics.
  8. Logistics and Transportation:
    • Managing the transportation of procured items from suppliers to the construction site, including customs clearance, freight forwarding, and warehousing.
  9. Receipt and Inspection:
    • Receiving materials and equipment at the site and conducting thorough inspections to ensure they match specifications and are free from damage.
  10. Invoice Processing and Payment:
    • Processing supplier invoices and ensuring timely payments as per contract terms.

Procurement Process Steps (more granular)

The procurement process within an EPC framework can be broken down into more detailed steps:

  1. Initiation: Project requirements are identified, and the need for procurement is triggered by the engineering design.
  2. Planning: Development of a comprehensive procurement plan, including risk assessment, budget allocation, and vendor strategy.
  3. Sourcing:
    • Market research to identify potential suppliers.
    • Issuance of Expression of Interest (EOI) or Request for Information (RFI) to gauge market capabilities.
    • Prequalification of suppliers.
  4. Bidding/Tendering:
    • Preparation of detailed Tender Documents (including Scope of Work, Technical Specifications, Commercial Terms, Drawings, etc.).
    • Issuance of Invitation to Bid (ITB) or Request for Proposal (RFP).
    • Pre-bid meetings and clarifications with potential bidders.
    • Receipt of bids.
  5. Evaluation and Selection:
    • Technical evaluation of bids (compliance with specifications, proposed methodology, experience).
    • Commercial evaluation of bids (price, payment terms, financial viability).
    • Negotiations with selected bidders.
    • Preparation of Tender Evaluation Report and recommendation for award.
  6. Contract Award:
    • Issuance of Letter of Intent (LOI) or Letter of Award (LOA).
    • Finalization and signing of contracts (Purchase Orders, Subcontracts, Service Agreements).
  7. Contract Administration:
    • Monitoring contract performance, including schedule, quality, and cost.
    • Managing change orders and claims.
    • Conducting inspections and quality checks.
    • Tracking deliveries and expediting.
    • Payment administration.
  8. Contract Close-out:
    • Verification of completion of scope.
    • Final payments.
    • Collection of warranties and guarantees.
    • Lessons learned documentation.

Procurement Documents

A wide range of documents are generated and used throughout the EPC procurement process. These include:

Pre-Tender/Planning Phase:

  • Feasibility Study Report: Assesses project viability.
  • Project Proposal: Outlines the project scope and objectives.
  • Front-End Engineering Design (FEED) Documents: Preliminary designs, process flow diagrams, equipment lists, and basic specifications. These form the basis for detailed engineering and procurement.
  • Procurement Plan: Outlines the strategy for acquiring goods and services.
  • Approved Vendors List (AVL): A list of pre-qualified or approved suppliers.
  • Risk Management Plan: Identifies and outlines strategies for mitigating procurement risks.

Tendering Phase:

  • Request for Information (RFI): Used for initial market research and gathering information from potential suppliers.
  • Request for Qualification (RFQ): Used to pre-qualify potential bidders based on their capabilities and experience.
  • Invitation to Bid (ITB) / Request for Proposal (RFP) / Tender Document:
    • Instructions to Bidders (ITB): Guidelines for submitting bids.
    • General Conditions of Contract (GCC): Standard contractual terms applicable to all contracts.
    • Special Conditions of Contract (SCC): Project-specific contractual terms.
    • Scope of Work (SOW): Detailed description of the work or supply required.
    • Technical Specifications: Detailed technical requirements for materials, equipment, and services.
    • Drawings and Schematics: Engineering drawings for visualization and understanding of requirements.
    • Bill of Quantities (BOQ) / Price Schedule: Itemized list of materials/services with corresponding quantities for pricing.
    • Delivery Schedule/Project Schedule: Required timelines for delivery or completion.
    • Bid Forms: Templates for bidders to submit their commercial offers.
    • Bid Bond/Tender Security: A guarantee from the bidder to enter into a contract if awarded.

Evaluation & Award Phase:

  • Technical Bid Evaluation Report: Assessment of technical compliance of bids.
  • Commercial Bid Evaluation Report (Bid Tabulation): Comparison of commercial offers.
  • Negotiation Minutes: Record of negotiations with bidders.
  • Letter of Intent (LOI) / Letter of Award (LOA): Formal notification to the successful bidder.
  • Purchase Order (PO): Contractual document for the purchase of goods.
  • Subcontract Agreement: Contractual document for engaging subcontractors for specific works or services.

Contract Administration Phase:

  • Inspection and Test Plans (ITP): Documents outlining quality control procedures and inspections.
  • Material Requisitions (MR): Internal documents requesting the procurement of specific materials.
  • Progress Reports (from suppliers/subcontractors): Updates on the status of manufacturing/work.
  • Expediting Reports: Documents tracking the progress of orders and highlighting potential delays.
  • Change Orders/Variations: Documents formalizing changes to the scope of work or contract terms.
  • Invoice and Payment Certificates: Documents for billing and payment processing.
  • Delivery Notes/Goods Receipt Notes (GRN): Documents confirming the receipt of materials.
  • Quality Control Reports: Documentation of quality inspections and tests.

Close-out Phase:

  • Completion Certificates: Formal acknowledgement of completion of work/supply.
  • As-Built Drawings: Updated drawings reflecting the actual construction.
  • Operation and Maintenance Manuals: Guides for operating and maintaining the facility.
  • Warranties and Guarantees: Documents covering performance and defects.
  • Final Payment Certificate: Authorizing the final payment to the supplier/subcontractor.
  • Lessons Learned Report: Documenting insights from the project for future improvements.

EPC procurement is a highly structured and integrated process, where effective coordination between engineering, procurement, and construction teams is paramount for successful project delivery.