EPC vs Turnkey Projects: Understanding the Differences
VeloSolar • Updated on March 13, 2023 • [rt_reading_time postfix=”minute”] read
EPC vs. PMC Contracts: Understanding the Differences
In the solar world, Engineering Procurement and Construction (EPC) contractors typically provide a turnkey service. They deliver a ready-to-use solar system; when they’re done working, all you have to do is turn the proverbial key and you’re generating your own clean, renewable energy.
But this mindset is different from what you might find in other segments of the construction industry. For example, if you’re building a new factory, you can hire one contractor to handle the mechanical, electrical, and plumbing (MEP) aspects of your project, another to handle the civil engineering, and yet another to manage the commissioning. Plus, you’ll need a third party to handle the overall project management. You’ll sign contracts with each contractor.
As you can see, in the general construction world, working with a single contractor doesn’t necessarily mean your project will be delivered in a turnkey fashion – and it’s critical that you understand what type of provider you’re working with before you sign on the dotted line.
This is why we thought it would be worthwhile to take a few minutes to explain how turnkey projects work.
Table of Contents
The Hallmarks of a Turnkey Project
With a turnkey contract, one entity is responsible for the complete scope of work related to your project, from the development, design, and construction to the ultimate deployment or commissioning of the end product. That means they provide all the necessary personnel, materials, expertise, and resources to complete the entire project from start to finish.
Typically contracts for complex large-scale turnkey projects require the project manager to follow very specific technical specifications. Because of this, turnkey contractors assume most of the risks and responsibilities associated with the project, not the client.
Cost and Time Efficient
One of the biggest advantages of a turnkey approach is that a single party coordinates all the activities and efforts involved across the entire construction process, which inherently improves efficiencies.
It also makes the customer’s life easier because you’ll have one point of contact should you have any questions or concerns. You won’t have to chase down five different vendors to get a project update, simply place one call or send one email, and the project manager will get you the answers you need.
EPC Turnkey Solar Contracts
Due to the complex nature of solar projects, the vast majority of EPC contractors in the commercial solar industry provide turnkey services; in fact, this approach has been the prevailing business model over the last decade.
When you sign an EPC contract with a solar provider, that company alone is responsible for developing and installing your entire solar system, from the design to final construction. They procure all the equipment and materials necessary to build your solar installation. They also serve as a single point of contact for you, the customer.
Perhaps most importantly, the EPC contractor assumes most of the risk for things that might come up during the process including necessary redesigns, interconnection issues, project delays, subcontractor issues, and the like.
With an EPC project you don’t just get the contractor, you get an entire engineering procurement and construction methodology that uses production efficiencies to deliver a turnkey project. Here’s how it works:
Solar EPC contract: Efficient, but not flexible
The scope of work for your solar project is laid out in the initial EPC contract, as is the lump sum cost of the project. The contract price includes everything that’s needed to design, build, and install your turnkey system.
To aid in their ability to deliver turnkey projects, solar EPC contractors usually offer every customer a very similar set of services. Most contracts include a simple solar system design and basic engineering services, as well as the materials and labor required to install and commission that system.
The key thing to note is that with a turnkey EPC contract, you can’t get just a piece of the package. For example, if you just want to dip your toe into solar to see if it would be a good fit for your business, an EPC contract won’t allow you to just purchase an energy assessment or a site survey – you have to buy the entire solar package.
This rigidity can be challenging to some business owners because it forces them to move faster than they want.
On the positive side, this approach can fast-track your solar project, so if you’re ready to go all in with solar, an EPC contractor might fit your needs.
EPC projects: Hands-off for the customer
Solar EPC projects require very little hands-on time from the project owner, as the contractor manages all the details as a part of their turnkey service. But, that lack of involvement means that there’s a risk that the EPC contractor could misinterpret your needs and deliver a system that’s not quite what you were looking for.
EPC 2.0 – Turnkey and Flexible
There is another approach to turnkey project management that’s gaining popularity in the solar industry and it’s called design-build, or EPC 2.0. Like the EPC approach described above, EPC 2.0 is turnkey and offers a single point of contact for the solar customer; you hire a single contractor that’s in charge of all aspects of your solar project, from designing and engineering to the procurement and installation of the system.
Like the previous EPC iteration, you’ll always know exactly who to call with your questions or concerns.
But, EPC 2.0 is significantly more flexible than the traditional EPC approach because you’re not required buy an entire package of services at once – you select which services you want to buy and when you want to buy them.
If you decide to break the solar process into stages, your EPC 2.0 solar provider can meet you where you are with the services you need – and you’ll have just one contract to manage and one company to pay.
Collaboration is key
In addition to being more flexible, another key difference between the traditional EPC approach and EPC 2.0 is that the latter is a much more collaborative process. When you hire a EPC 2.0 firm, like Velo Solar, you’re getting an entire team of solar experts, including a project management team and engineering, design, construction, software, energy storage and solar system optimization professionals.
An EPC 2.0 firm acts like a project management consultancy. The in-house team will conduct thorough interviews with you to learn about your energy needs and your goals for the project; then they’ll partner with you through the design, construction, and commissioning processes, ultimately delivering a turnkey project that’s ready to generate clean, renewable energy. All you have to do is flip the switch.
As such, EPC 2.0 turnkey projects do require more time investment from you than the traditional method does, but the collaboration and communication ultimately save you time and helps with cost management.
Design-Bid-Build: The Opposite of Turnkey
There is another project delivery method commonly used in the construction industry that’s called design-bid-build. This process is pretty much the opposite of what you’ll find with a turnkey project.
Design-bid-build has been used by the construction industry for hundreds, if not thousands of years. With this type of project management, the project owner acts as the general contractor. That means:
- You hire a company to map out the project and create the detailed engineering design.
- You bid out the project and hire all the necessary contractors to turn the designer’s vision into a reality: electricians, the construction company, equipment suppliers, etc.
- You manage the actual construction process.
- You hire the company that will commission the end product.
Proceed with caution
There are pros and cons to using this non-turnkey project delivery method on solar installations.
On the upside, with design-bid-build you have complete control over the entire construction process – by the time your project is complete, you’ll have had a hand in every aspect of its design and construction. Of course, the downside is that you’ll bear all of the risk in terms of cost overruns, delays, design issues, or any of the other issues you might encounter along your journey.
You’ll have to invest a significant amount of time in the project – time you likely don’t have.
Will My EPC Contractor Provide a Turnkey Solution?
If you’re wondering if a solar EPC firm will deliver a turnkey project, the answer is likely yes, but it’s a question worth asking as you’re doing your due diligence.
Velo Solar prides itself on providing every customer with a complete solar system that’s been tailored to meet their needs now and grow with them into the future. Plus, they’ll be there after the sale to support you through annual operations and maintenance services that ensure your solar system continues to run smoothly for decades to come.
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