I. Introduction

 

The "Administrative Measures for the Engineering, Procurement, and Construction (EPC) of Housing Construction and Municipal Infrastructure Projects" (hereinafter referred to as the "Housing EPC Management Measures" or the "New EPC Policy") was promulgated on December 23, 2019, and officially implemented on March 1, 2020. Some people eagerly anticipated and cheered, while others lamented and beat their chests. The implementation of the new policy is like the release of college entrance examination results, which inevitably brings joy to some and sorrow to others. As a participant in engineering project construction, you may be most concerned about whether the overall EPC market is bullish or bearish, and how much "role" you have in it. Today, I will take you back to the ups and downs of the state's enthusiasm for promoting the EPC policy over the past 17 years.

 

II. The State's Promotion Efforts and Attitudes from the Perspective of Policy Changes

 

1、 As early as 2003, the Ministry of Construction stated in the "Guiding Opinions on Cultivating and Developing EPC and Engineering Project Management Enterprises" (Jian Shi [2003] No. 30): "Encourage large design, construction, and supervision enterprises to form international engineering companies or project management companies with large international engineering companies in the form of joint ventures or cooperation to participate in international competition. It is advocated that construction projects with conditions should adopt EPC and engineering project management methods for construction." "Encouragement" and "advocacy" were the keynote attitudes of this period.

 

2、 Eleven years later, in 2014, the Ministry of Housing and Urban-Rural Development stated in the "Several Opinions on Promoting the Development and Reform of the Construction Industry" (Jian Shi [2014] No. 92): "Increase the promotion of EPC. Advocate the use of the EPC model for engineering construction projects, and encourage qualified engineering design and construction enterprises to carry out EPC business." "Increase the promotion" became the keyword of this period.

 

3、 In 2016, the Ministry of Housing and Urban-Rural Development began to emphasize the need to "vigorously promote EPC" in the "Several Opinions of the Ministry of Housing and Urban-Rural Development on Further Promoting the Development of EPC" (Jian Shi [2016] No. 93), namely "(3) Give priority to the EPC model. The construction unit shall, when selecting the organization and implementation method of the construction project, give priority to the EPC model based on the principle of reliable quality and priority of efficiency. Government investment projects and prefabricated buildings shall actively adopt the EPC model." From the wording such as "vigorously promote", "priority", and "shall", it can be seen that the national housing and construction department at this time hoped to fully stimulate the market confidence in the EPC model, and directly used government projects and prefabricated buildings that should actively adopt the model to send signals to the market and enhance confidence.

 

4、 In 2017, the General Office of the State Council continued to emphasize in the "Opinions on Promoting the Sustainable and Healthy Development of the Construction Industry" (Guo Ban Fa [2017] No. 19) "(3) Accelerate the promotion of EPC. Prefabricated buildings shall, in principle, adopt the EPC model. Government investment projects should improve the construction management model and take the lead in promoting EPC." Obviously, at this time, the national level hoped to fully ignite the enthusiasm of the EPC market, further clarifying that prefabricated buildings "should in principle adopt" the model, and government investment projects should "take the lead in promoting" it.

Objectively speaking, these two documents issued in 2016 and 2017 seemed to fully ignite the enthusiasm of the whole people to talk about "EPC". Government projects should take the lead in promoting it, which means that many projects with guaranteed financial funds that are sought after by the market will adopt the EPC model. The blue ocean of the EPC market is about to appear, and policy dividends will boost a new round of opportunities. People in the construction industry are talking about how to stand on the cusp and be blown into the sky.

 

5、 While the state's enthusiasm for promoting EPC was high in 2017, the Ministry of Housing and Urban-Rural Development released the first draft of the "Administrative Measures for the EPC of Housing Construction and Municipal Infrastructure Projects (Draft for Comment)", in which Article 6 stipulates: "The construction unit shall reasonably select the organization and implementation method of the construction project according to the scale and complexity of the project. Government investment projects and projects with state-owned funds holding or dominating the shares shall give priority to the EPC method, projects using building information model technology shall actively adopt the EPC method, and prefabricated buildings shall in principle adopt the EPC method. Projects with unclear construction scope, construction scale, construction standards, and functional requirements are not suitable for the EPC method."

At this time, rising from general policy documents to the legislative level, the wording of "reasonable selection" and "not suitable" for some projects appeared for the first time, but the expression of "should give priority to" was still applied to government investment projects and state-owned fund projects, and the expression of "should actively" was applied to "projects using building information model technology", and the attitude of "in principle adopt" was used for "prefabricated buildings". These words are enough to ignite the enthusiasm of the EPC market. Many EPC contractors are eager to try, thinking that taking the fast train of EPC will float in the blue sky.

 

6、 But when time came to May 2019, the Ministry of Housing and Urban-Rural Development and the National Development and Reform Commission jointly released the second draft of the "Administrative Measures for the EPC of Housing Construction and Municipal Infrastructure Projects (Draft for Comment)". Also Article 6, the tone of the conversation began to change, "The construction unit shall reasonably select the organization and implementation method of the construction project according to the project situation and its own management capabilities. Prefabricated buildings shall in principle adopt the EPC method. Government investment projects are encouraged to adopt the EPC method." The second version of the draft for comment continued to emphasize "reasonable selection", but the expression for prefabricated buildings adopted "in principle" and removed "should", changed "government investment projects" from "should in principle" to "encouraged", and directly removed "state-owned fund projects" and "projects using building information model technology" from the previous draft's "should in principle", no longer making any requirements. The gap between these two drafts for comment is a bit large. Is it a decline in the state's enthusiasm for promotion, or is it based on the needs of legislative rationality? Market players have begun to think about the taste.

 

7、 By December 2019, the final expression of Article 6 of the officially promulgated "Administrative Measures for the EPC of Housing Construction and Municipal Infrastructure Projects" was "The construction unit shall reasonably select the organization and implementation method of the construction project according to the project situation and its own management capabilities. Projects with clear construction content and mature technical solutions are suitable for the EPC method." The official draft that came out after much anticipation appeared in the public eye with such a low-key attitude. The mood of the people who were expecting it seems to match the season when this official document was issued. In addition to continuing to retain the rational wording of "reasonable selection", government investment projects that were encouraged to adopt the EPC model and prefabricated building projects that were in principle adopting the EPC model in the second draft management measures have also completely disappeared.

 

III. Reason Analysis

 

The market enthusiasm that was ignited by national policies a few years ago seems to be freezing with this winter. The EPC policy dividends that many market players expected, without the active participation of government investment projects and state-owned fund projects, means that there is no guarantee of financial strength; and for prefabricated buildings, the use of building information model technology and other technically mature projects that are most suitable for the EPC model, the national legal level no longer makes mandatory regulations, so the market share may be greatly reduced, and the enthusiasm of market players to participate is difficult to be high.

In my opinion, the reasons are as follows:

1. Legislative documents require more rational thinking and legal basis than policy red-letter documents. Formal legislation requires a higher-level legal basis. Without a higher-level legal basis, it is obviously not possible to arbitrarily restrict the construction unit's choice of contracting model as a market economy entity; and the method of government project investment should also be linked with laws and regulations such as the "Government Investment Regulations", and it is even more impossible to restrict it with departmental regulations.

2. The general contracting model is still in the exploratory stage. The immaturity of the market itself and the many defects found in the trial implementation stage are not suitable for hard promotion by national departmental regulations. This is also the reason why national policies tend to be rational.

3. Under the general background of the country's "delegating power, strengthening regulation, and improving services", it is the country's attitude to hand over the choice of the market to the market itself. Based on the grand strategy of going global, the country can advocate or appeal to cultivate the general contracting market to participate in the competition in the international market, but the healthy development of the general contracting market will ultimately have to withstand the test of the market, just like flowers cultivated in a greenhouse, which cannot withstand wind and rain.