EPC Procurement Model in China to Reduce the Project Direct Cost

Lan Zhang; Hao Hu; Jian Chen; Aiguo Huang

doi:doi:10.11648/j.sd.20221005.15

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EPC Procurement Model in China to Reduce the Project Direct Cost

Lan Zhang, Hao Hu, Jian Chen, Aiguo Huang

Published in Science Discovery (Volume 10, Issue 5)

Received: 7 September 2022 Accepted: 29 September 2022 Published: 11 October 2022

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Abstract

Low profit margin is a common issue for construction companies globally, especially for Chinese contractors. In this study, we aim to reduce the project direct cost using the procurement model to enable the contractors to increase their profit at the project level in China. The traditional procurement method used by Chinese contractors is to divide the project direct cost into several big packages, such as civil, structure, structural steel, curtain wall, mechanical, electrical, and plumbing, thus giving away the profit to the subcontractors. However, in North America, contractors use the trade packages and purchase major materials and facility equipment directly as per the specifications, and thus have more control over the project and markup of materials and equipment. In this study, we start with the supply chain model, analyze the western procurement practice, and propose an EPC procurement mode. The proposed model categorizes packages into five groups according to the different characteristics of the procured content, provides different contract templates, utilizes the appropriate contract, provides opportunity for negotiating with suppliers, and manages the interface carefully to reduce the project direct cost, thereby enabling the contractor to increase the profit margin to make the contractor more competitive in the market. The model was further presented and verified using a case study for Chinese contractors by utilizing the procurement model, so that the contractor can reduce the direct cost.

Published in	Science Discovery (Volume 10, Issue 5)
DOI	10.11648/j.sd.20221005.15
Page(s)	306-313
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Traditional Subcontractor Strategy, Trade Packages, Contract Template, Negotiation

References

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[4]	周静瑜等. 主题乐园设计实务[M]. 同济大学出版社, 2019.
[5]	R Cigolini, et al. “Supply claim management in construction and engineer – to - order industries”. October 2020. Production Planning and Control. DOI: 10.1080/09537287.2020.1837981.
[6]	Anand Nair, etal. “Strategic purchasing participation, supplier selection, supplier evaluation and purchasing performance”, 2015, International Journal of Production Research. http://doi.org/10.1080/00207543.2015.1049783.
[7]	Lan Zhang; Hao Hu and Aiguo Huang. “A Cost Control Model for a Medical Facility in China” AACE INTERNATIONAL TECHNICAL PAPER, 2021, CSC-3683.
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[15]	集成电路封装测试厂设计规范 GB51122-2015.

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APA Style

Lan Zhang, Hao Hu, Jian Chen, Aiguo Huang. (2022). EPC Procurement Model in China to Reduce the Project Direct Cost. Science Discovery, 10(5), 306-313. https://doi.org/10.11648/j.sd.20221005.15

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ACS Style

Lan Zhang; Hao Hu; Jian Chen; Aiguo Huang. EPC Procurement Model in China to Reduce the Project Direct Cost. Sci. Discov. 2022, 10(5), 306-313. doi: 10.11648/j.sd.20221005.15

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AMA Style

Lan Zhang, Hao Hu, Jian Chen, Aiguo Huang. EPC Procurement Model in China to Reduce the Project Direct Cost. Sci Discov. 2022;10(5):306-313. doi: 10.11648/j.sd.20221005.15

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@article{10.11648/j.sd.20221005.15,
  author = {Lan Zhang and Hao Hu and Jian Chen and Aiguo Huang},
  title = {EPC Procurement Model in China to Reduce the Project Direct Cost},
  journal = {Science Discovery},
  volume = {10},
  number = {5},
  pages = {306-313},
  doi = {10.11648/j.sd.20221005.15},
  url = {https://doi.org/10.11648/j.sd.20221005.15},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.sd.20221005.15},
  abstract = {Low profit margin is a common issue for construction companies globally, especially for Chinese contractors. In this study, we aim to reduce the project direct cost using the procurement model to enable the contractors to increase their profit at the project level in China. The traditional procurement method used by Chinese contractors is to divide the project direct cost into several big packages, such as civil, structure, structural steel, curtain wall, mechanical, electrical, and plumbing, thus giving away the profit to the subcontractors. However, in North America, contractors use the trade packages and purchase major materials and facility equipment directly as per the specifications, and thus have more control over the project and markup of materials and equipment. In this study, we start with the supply chain model, analyze the western procurement practice, and propose an EPC procurement mode. The proposed model categorizes packages into five groups according to the different characteristics of the procured content, provides different contract templates, utilizes the appropriate contract, provides opportunity for negotiating with suppliers, and manages the interface carefully to reduce the project direct cost, thereby enabling the contractor to increase the profit margin to make the contractor more competitive in the market. The model was further presented and verified using a case study for Chinese contractors by utilizing the procurement model, so that the contractor can reduce the direct cost.},
 year = {2022}
}

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TY  - JOUR
T1  - EPC Procurement Model in China to Reduce the Project Direct Cost
AU  - Lan Zhang
AU  - Hao Hu
AU  - Jian Chen
AU  - Aiguo Huang
Y1  - 2022/10/11
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PB  - Science Publishing Group
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AB  - Low profit margin is a common issue for construction companies globally, especially for Chinese contractors. In this study, we aim to reduce the project direct cost using the procurement model to enable the contractors to increase their profit at the project level in China. The traditional procurement method used by Chinese contractors is to divide the project direct cost into several big packages, such as civil, structure, structural steel, curtain wall, mechanical, electrical, and plumbing, thus giving away the profit to the subcontractors. However, in North America, contractors use the trade packages and purchase major materials and facility equipment directly as per the specifications, and thus have more control over the project and markup of materials and equipment. In this study, we start with the supply chain model, analyze the western procurement practice, and propose an EPC procurement mode. The proposed model categorizes packages into five groups according to the different characteristics of the procured content, provides different contract templates, utilizes the appropriate contract, provides opportunity for negotiating with suppliers, and manages the interface carefully to reduce the project direct cost, thereby enabling the contractor to increase the profit margin to make the contractor more competitive in the market. The model was further presented and verified using a case study for Chinese contractors by utilizing the procurement model, so that the contractor can reduce the direct cost.
VL  - 10
IS  - 5
ER  -

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Author Information

Lan Zhang

Century 3 (Shanghai) Inc., Shanghai, China
Hao Hu

School of Naval Architecture, Ocean and Civil Engineering,Shanghai Jiao Tong University, Shanghai, China
Jian Chen

Century 3 (Shanghai) Inc., Shanghai, China
Aiguo Huang

Century 3 (Shanghai) Construction Co. Ltd., Shanghai, China

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Plain Text BibTeX RIS

APA Style

Lan Zhang, Hao Hu, Jian Chen, Aiguo Huang. (2022). EPC Procurement Model in China to Reduce the Project Direct Cost. Science Discovery, 10(5), 306-313. https://doi.org/10.11648/j.sd.20221005.15

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ACS Style

Lan Zhang; Hao Hu; Jian Chen; Aiguo Huang. EPC Procurement Model in China to Reduce the Project Direct Cost. Sci. Discov. 2022, 10(5), 306-313. doi: 10.11648/j.sd.20221005.15

Copy | Download

AMA Style

Lan Zhang, Hao Hu, Jian Chen, Aiguo Huang. EPC Procurement Model in China to Reduce the Project Direct Cost. Sci Discov. 2022;10(5):306-313. doi: 10.11648/j.sd.20221005.15

Copy | Download

@article{10.11648/j.sd.20221005.15,
  author = {Lan Zhang and Hao Hu and Jian Chen and Aiguo Huang},
  title = {EPC Procurement Model in China to Reduce the Project Direct Cost},
  journal = {Science Discovery},
  volume = {10},
  number = {5},
  pages = {306-313},
  doi = {10.11648/j.sd.20221005.15},
  url = {https://doi.org/10.11648/j.sd.20221005.15},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.sd.20221005.15},
  abstract = {Low profit margin is a common issue for construction companies globally, especially for Chinese contractors. In this study, we aim to reduce the project direct cost using the procurement model to enable the contractors to increase their profit at the project level in China. The traditional procurement method used by Chinese contractors is to divide the project direct cost into several big packages, such as civil, structure, structural steel, curtain wall, mechanical, electrical, and plumbing, thus giving away the profit to the subcontractors. However, in North America, contractors use the trade packages and purchase major materials and facility equipment directly as per the specifications, and thus have more control over the project and markup of materials and equipment. In this study, we start with the supply chain model, analyze the western procurement practice, and propose an EPC procurement mode. The proposed model categorizes packages into five groups according to the different characteristics of the procured content, provides different contract templates, utilizes the appropriate contract, provides opportunity for negotiating with suppliers, and manages the interface carefully to reduce the project direct cost, thereby enabling the contractor to increase the profit margin to make the contractor more competitive in the market. The model was further presented and verified using a case study for Chinese contractors by utilizing the procurement model, so that the contractor can reduce the direct cost.},
 year = {2022}
}

Copy | Download

TY  - JOUR
T1  - EPC Procurement Model in China to Reduce the Project Direct Cost
AU  - Lan Zhang
AU  - Hao Hu
AU  - Jian Chen
AU  - Aiguo Huang
Y1  - 2022/10/11
PY  - 2022
N1  - https://doi.org/10.11648/j.sd.20221005.15
DO  - 10.11648/j.sd.20221005.15
T2  - Science Discovery
JF  - Science Discovery
JO  - Science Discovery
SP  - 306
EP  - 313
PB  - Science Publishing Group
SN  - 2331-0650
UR  - https://doi.org/10.11648/j.sd.20221005.15
AB  - Low profit margin is a common issue for construction companies globally, especially for Chinese contractors. In this study, we aim to reduce the project direct cost using the procurement model to enable the contractors to increase their profit at the project level in China. The traditional procurement method used by Chinese contractors is to divide the project direct cost into several big packages, such as civil, structure, structural steel, curtain wall, mechanical, electrical, and plumbing, thus giving away the profit to the subcontractors. However, in North America, contractors use the trade packages and purchase major materials and facility equipment directly as per the specifications, and thus have more control over the project and markup of materials and equipment. In this study, we start with the supply chain model, analyze the western procurement practice, and propose an EPC procurement mode. The proposed model categorizes packages into five groups according to the different characteristics of the procured content, provides different contract templates, utilizes the appropriate contract, provides opportunity for negotiating with suppliers, and manages the interface carefully to reduce the project direct cost, thereby enabling the contractor to increase the profit margin to make the contractor more competitive in the market. The model was further presented and verified using a case study for Chinese contractors by utilizing the procurement model, so that the contractor can reduce the direct cost.
VL  - 10
IS  - 5
ER  -

Copy | Download