Hybrid EPC Contracting: An Innovative Approach to Completing Projects More Quickly with Less Risk
We know what you’re probably thinking – contracting? Snoozefest. We’ll admit it seems a little tedious at first glance, and the “legalese” of a contract is undoubtedly confusing to the average reader. However, the contracting method a client uses is vital to a project’s success. Here at Ross Group, we continue to use all the contracting methods prevalent in our industry while exploring new, pioneering strategies for completing projects faster, with fewer change orders, and within budget, all while reducing risk for both the client and project team.
Streamlined Project Delivery
While countless factors are involved in A/E/C contracting, one of the most important differentiators is the project delivery method. Ross Group has long been a proponent of design-build and construction manager at risk (CMAR) contracting, and we’ve seen first-hand how effective these alternative delivery methods can be in streamlining a project and making the building process more beneficial for all involved, from the client to the design team, contractor, and end users. Ross Group Industrial (RGI), our in-house energy and heavy industrial team, takes the concept behind these popular delivery methods one step further.
RGI is intentionally structured to deliver projects via integrated, in-house engineering, procurement, and construction (EPC) contracting. By providing comprehensive turnkey services, RGI has been able to make projects even more efficient, substantially decreasing project timelines in comparison to the traditional design-bid-build method.
“In 2020, RGI completed a multi-million liquids facility for a regional oil and natural gas company,” said Tommy Shara, vice president of operations for RGI and Ross Engineering. “This EPC project was completed approximately 50% faster than a traditional project because we could start construction months before the final design was stamped. We broke ground in January, while the last design package wasn’t issued until the end of March. With the project completed just a few months later in May 2020, you can see how much our integrated approach accelerated the project.”
This is just one of the many projects RGI has completed where EPC saved our client time and minimized constructability issues. Tommy estimates that, on average, RGI’s integrated EPC approach shaves approximately 30% of time off a typical project schedule.
“Because of the open communication between the design, procurement, construction management, and field teams, we fast track portions of each project to mitigate the effects of variables beyond our control, like changes in scope or unforeseen conditions,” Tommy said. “RGI also self-performs certain scopes – like mechanical pipe fabrication and structural steel installation – to help maintain the critical path schedule. All of this leads to streamlined project delivery and a symbiotic relationship between client and contractor.”
Tailored Project Pricing for Risk Mitigation
A second vital differentiator in contracting is the method used to price the project; the two most popular contract billing types in the industry are lump sum (fixed price) contracting and time and materials contracting. There are certainly pros and cons to both types, and Ross Group regularly completes projects via both methodologies. Nevertheless, RGI is also on the forefront of the industry in this area, working with clients to tailor a project’s billing procedures to evenly distribute the risks inherent in construction.
“Hybrid contracting is something I’ve been thinking about for – oh, 20 or 25 years,” said Mike Smith, COO of RGI and the mastermind behind RGI’s unique hybrid contracting methods. “With traditional lump sum or time and materials contracting, the perceived risk associated with the project cost is rarely allocated equally between the client and EPC contractor. While the specific stipulations we make in our hybrid contracts are proprietary, the general idea behind them is to spread the risk and craft a fair contract solution that offers incentives to the EPC contractor for keeping project costs down.”
In many ways, RGI’s hybrid contract billing parallels the advancements associated with EPC contracting. Instead of a strict divide between the design team and construction team, EPC contracts blend the two. This eliminates the cold handoff between a finished design and a newly engaged contractor, while decreasing the overall project timeline and increasing constructability from the earliest stages of project development. In the same spirit, our hybrid contracting methodologies blend traditional lump sum contracting for aspects of the project we can control in-house – such as fixed engineering fees – with aspects of time and materials contracting for things we can’t personally guarantee – for instance, the price of steel at the time of procurement.
“Honestly, that’s just the tip of the iceberg when it comes to hybrid contracting,” Mike said. “There are countless variations we’ve used that fit along a ‘hybrid contract continuum,’ and each project benefits from a different mix of costs, incentives, and penalties. However, the advantage of the methodology goes beyond the project’s bottom line – it allows us to foster a more open relationship with our clients, establishing honest communication from the outset of the project and eliminating many of the typical ‘your money/my money’ issues.”
RGI’s combination of integrated EPC delivery with hybrid contracting is proven, with countless happy customers across the nation. One of those is the owner of the aforementioned liquids facility constructed last year. In addition to being completed more quickly than a traditional design-bid-build project, RGI’s expertise and attention to detail were instrumental to the project’s success. The result is a world-class facility, constructed on time, within budget, and without any lost time safety accidents.
To learn more about how RGI can help you tailor your next industrial venture for optimal project delivery, reach out to us at 405.264.2245 or tommy.shara@withrossgroup.com.