EPC contract (engineering, procurement and construction)

What does EPC contract (engineering, procurement and construction) mean?

Under an EPC contract, one contractor takes responsibility for engineering (design), procurement (buying equipment and materials) and construction, and hands over a finished project, often called turnkey, usually for a fixed price by a fixed date, with penalties for delay. It is common for power plants, refineries and large infrastructure; FIDIC, the international federation of consulting engineers, publishes widely used standard forms. The owner gets price certainty, and the contractor takes the risk of overruns. Example: on a 1 billion fixed-price EPC contract with an expected margin of 8 percent (80 million), a 10 percent cost overrun (100 million) turns that into a loss of 20 million.