EPC (Engineering, Procurement, and Construction) general contracting has gradually become a mainstream model of construction management in developed countries. In China, the adoption of EPC is also increasing annually, showing remarkable success particularly in the chemical and petrochemical sectors. However, EPC is less common in residential construction. The construction industry is on the brink of transformation, and EPC stands to gain significant advantages.
Recently, the Ministry of Housing and Urban-Rural Development issued a notice promoting the development of architectural engineering design firms. The “Engineering Design Qualification Standards” have been simplified by reducing the required number of registered personnel such as architects and eliminating assessments of technical equipment and standard systems. Now, a partnership enterprise can establish an architectural design firm with just one first-level registered architect.
This announcement stirred considerable discussion within the industry, eliciting both praise and concern. However, there is broad agreement that lowering qualification standards will likely lead to a surge of new architectural design firms, intensifying competition in the sector.
At first glance, these changes may seem unrelated to construction companies, but they are not. Over the past six months, the Ministry has issued a series of increasingly impactful policies. These moves reflect a broader plan to restructure the construction industry’s organizational framework.
Simplifying qualification standards for architectural design firms may pave the way for wider adoption of the engineering general contracting model.
Engineering General Contracting (EPC) Stands to Benefit
In August this year, the Ministry released the “13th Five-Year Plan Outline for Housing and Urban-Rural Construction,” which explicitly states the intention to “vigorously promote engineering general contracting and foster deep integration of design, procurement, and construction stages.” Following this, a series of supporting policies were introduced.
1. Simplified Qualification Standards for Construction Enterprises
In October, the Ministry issued a notice to simplify qualification standards for construction companies. Except for the minimum qualification level, requirements for registered constructors, personnel with intermediate or higher professional titles, certified on-site managers, and technical workers were eliminated.
This effectively lowers the bar for qualification. Whether this will prompt a wave of new applications or upgrades remains to be seen.
2. Simplified Qualification Standards for Design Firms
Starting March 1, 2017, the number of required registered personnel such as architects was reduced, age limits relaxed, and assessments of technical equipment and standard systems removed. Under these new rules, only one qualified first-level registered architect is needed to establish a partnership architectural design firm.
This is expected to trigger a surge of new design firm registrations.
3. Increased Industry Competition and Survival Challenges
The influx of new construction companies and design firms raises the critical question of survival.
First, competition will become fierce. Newly registered companies often have low qualifications and struggle to compete against established medium and large enterprises. For example, although construction project scopes have expanded, qualification upgrading now demands stricter performance evaluations.
Second, oversaturation will lead to inconsistent quality. Only truly capable and well-resourced enterprises will endure. Many newcomers may exit the market within 1-2 years.
Finally, surviving companies may still lack the strength to firmly establish themselves. To progress, they can either specialize in niche areas or adopt the rarely used “design and construction general contracting” model.
4. The Downsides of Separating Design and Construction
Currently, in China, design and construction are typically contracted separately. While this allows owners to reduce costs through separate bidding, it poses challenges for construction companies.
Firstly, the “pie” is unevenly divided: design firms often capture a larger share, leaving less for construction companies.
Secondly, since design and construction are separate, coordination suffers. Project schedules may slip due to delayed drawings, or designs may not reflect actual site conditions, complicating construction.
Thirdly, mutual respect between design and construction teams is often lacking. Designers work in offices, while construction workers endure tough site conditions. Both sides tend to guard their turf, making collaboration difficult.
With qualification standards relaxed and more companies entering the market, competition is intensifying. It’s time for the industry to rethink its approach.
5. Integration of Design and Construction Offers Clear Benefits
If the industry continues with separate design and construction, all players risk becoming “small fish” vulnerable to larger competitors. Forming integrated “design and construction general contracting” enterprises can open new opportunities.
First, this model is cost-effective and competitive. Small firms with limited staff and equipment keep costs low, resulting in attractive bids that owners appreciate.
Second, integration shortens project timelines and boosts efficiency. Coordinated design and construction phases ensure drawings and work schedules align, enabling timely problem-solving and smoother progress.
The main challenge is establishing a strong reputation, which takes time.
Structural Changes Behind the Industry Reform
These developments reflect a bottom-up reform strategy:
- Lower industry thresholds to increase competition and let market forces determine which enterprises survive.
- Encourage small businesses to either form alliances adopting the engineering general contracting model or specialize in niche areas.
- Small consortia with low costs and competitive bids will pressure medium-sized enterprises, which may eventually merge with powerful design firms to evolve into integrated contracting models.
- Large and strong medium-sized enterprises, backed by resources, will lead the industry toward construction industrialization and modernization.
Comprehensive Analysis of Engineering General Contracting
1. What is Engineering General Contracting?
Engineering general contracting is a globally recognized model for organizing and executing construction projects. An EPC contractor undertakes the entire process or several key stages—surveying, design, procurement, construction, trial operation—and assumes full responsibility for quality, safety, schedule, and cost.
Common Methods of Engineering General Contracting
These include:
- Design, Procurement, and Construction (EPC) / Turnkey Contracting
- Design-Build (D-B) Contracting
- Engineering-Procurement (E-P) Contracting
- Procurement-Construction (P-C) Contracting, among others
In China’s context, Design-Build and Procurement-Construction models are easier to promote.
3. Promotion of EPC by the Ministry of Housing and Urban-Rural Development
The Ministry requires construction units to prioritize the engineering general contracting model when selecting project execution methods. Government-funded projects and prefabricated buildings are especially encouraged to adopt EPC.
4. General Contracting Project Manager Requirements
Project managers must hold registered professional qualifications or senior technical titles in engineering construction, have prior experience as project managers or design leaders, be familiar with relevant laws and standards, and demonstrate corresponding engineering achievements.
Subcontracting in Engineering General Contracting
EPC enterprises can carry out design and construction within their qualification scope or subcontract design or construction work to qualified firms with the consent of the project owner.
If a firm only holds design qualifications, it must subcontract construction work to companies with corresponding construction qualifications. Conversely, firms with only construction qualifications must subcontract design work to qualified design enterprises, following legal regulations.
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