Bidding for EPC projects in Finland
September 2022

Bidding for EPC projects in Finland

Plant construction projects in the field of sophisticated infrastructure are being increasingly contracted out as EPC general contracts in Finland. Foreign providers are welcome - but are they well-positioned enough to actually land the contract?

By awarding the complete contract to a contractor as a package, from the detailed engineering stage to turn-key handover, the project owner cuts out many interfaces. Conversely, for contractors taking on a general contract involves increased risks.

Generally, the contractor has to accept full responsibility for making sure the plant is completed and fit for the purpose agreed upon. They can only plead uncertainties and obstacles in extremely limited and exceptional situations.

Risk management with experience

From a technical perspective, the risk for an experienced contractor can be calculated, and insured if necessary. The legal and administrative framework, however, poses problems for foreign providers if they haven’t had solid experience of their own in Finland yet.

For one thing, there are regulatory aspects that have a direct impact on the costs of providing works and services: employment law and safety regulations first and foremost, but also restrictions on importing and transport, and of course taxes and duties.

The question of what is even going to be delivered has even greater bearing on calculations and risk assessment. Here’s where the peculiarity of the EPC contract comes into play: The owner generally only specifies a rough specification (FEED - Front End Engineering Design) from which the functional objectives of the plant construction project are derived. It remains the responsibility of the general contractor to meet the objectives while keeping in line with the requirements set forth by laws, standards, and authorities.

If the provider moves outside their geographical home area, they’ll lack a foundation for assessing the risks specific to the country. Will the authorities have unanticipated safety requirements or demand extensive documentation? Do the legislators tend to make spontaneous changes to the working environment? Will my usual delivery channels be obstructed by import barriers? Will there be outlandish taxes levied?

Be well-prepared, make successful offers

In practice, it can often be observed that foreign bidders create an insurmountable disadvantage for themselves when competing for an EPC contract in that, due to the risk factors named above, they either calculate an inflated risk premium in addition to the price (causing them to quickly be eliminated from the running, saving transaction costs), or put up too much resistance against accepting the business risks typical of an EPC contract during contractual negotiations (leading to later and more expensive failure).

For prospective contractors to be successful in Finnish EPC projects, it is in fact necessary to be in a position where they can realistically assess and calculate project risks. In this way, they can also convince Finnish clients that they can be relied on to handle a complex project in the Finnish environment.

There are different ways to achieve this in concrete terms. When entering the Finnish market on a long-term basis, consideration can be given to establishing a separate, local staff with the relevant skills. Bringing in external expertise in the form of technical and legal consultants will also be required in most cases.