Industry moving towards 'open book' model in EPC contracts: Tata Projects

Intense weather changes are also impacting the number of days available to execute projects. To factors in such new risks, some clients and contractors are entering into "open book" modelled contracts

Newer engineering, procurement and construction (EPC) contracts are now being entered under an “open book” model, to factor in new-age risks like weather changes, executives from Tata Projects said.

 

Vinayak Pai, managing director and chief executive officer of Tata Projects in an interaction with the media in Mumbai on Thursday said that intense weather changes are also impacting the number of days available to execute projects.

 

Pai said that in a bid to factor in such new risks, some clients and contractors are entering into “open book” modelled contracts in the EPC space.

 

Elaborating on the new model, Pai said, at the start of the project, margins are fixed, while, “the cost of the project as an absolute value is discovered along the way during the execution of it.” The model, Pai said, helps factor for various risks, including weather related disruptions.

 

The company has an order book in the upwards of ~40,000 crore, majority of which is based out of India. Pai said the company has stayed away from other international markets such as West Asia, referring to it as ‘lumpsum EPC.’

 

About 12 per cent of Tata Projects’ order book generates from within the Tata Group, which Pai expects to rise as a share, including projects from the electronics segment.

 

Adding further on the “open book” model, Pai said, he sees clients from segments such as electronics and semiconductors opting more for the “open book” model orders.

 

The latest trend in contract formalisation, comes in close on the heels of lessons learnt during the pandemic. The pandemic-led commodity price volatility impacted margins for EPC companies, prompting them to shift towards a commodity price adjustment clause in future contracts.

 

For Tata Projects, Pai added the company will stay focused on domestic orders, which is currently an equal mix of government and private sector. Pai added, the company will look to bid for airport and metro related EPC contracts in the public sector segment.