Closing the certainty gap in EPC projects: PwC

Principal, Capital Projects & Infrastructure Energy Leader, PwC US

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Partner, Engineering and Construction Leader, PwC US

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Key takeaways:

Fixed-price contracting can become dangerous when design, quantities, labor, supply chains, tariffs, and execution assumptions may be too uncertain or volatile to price reliably.
Commercial discipline and ERP reporting are required but may be insufficient, because losses often form in the field before they appear in financial and tracking systems.
Firms require connected digital solutions that deliver data in real time, so core systems and forecasting can be adjusted with signals on labor, materials, progress, and productivity.
Technology creates value only when governance converts signals into action through clear decision rights, escalation thresholds, timely commercial notices, and incentives tied to final risk-adjusted margin.

The engineering, procurement, and construction (EPC) industry is entering another strategic reset as legacy projects that were bid under outdated risk models continue to squeeze margins, strain cash, and fuel investor concerns globally.

The warning signs are hard to ignore. One publicly traded global engineering and infrastructure company recorded a more than $300 million pre-tax charge recently on a single legacy construction management project awarded in 2019. Bid under terms the company says it wouldn’t accept today, the project has faced subcontractor productivity issues, schedule delays, and continued cash outflows.

Another US-based global EPC contractor is working through a legacy “loss project backlog,” with charges tied to infrastructure, mining, and ongoing litigation. Other large global engineering and construction companies also report impairments and overruns, leading them to reject high-risk contracting models. We’ve seen this before. Today’s cycle echoes the 2017–19 fixed-price crisis, when large, lump-sum turnkey (LSTK) projects shifted from valuable backlogs to costly earnings liabilities, forcing many EPC companies to tighten bid discipline and shift toward more-predictable, lower-risk services.

The difference now is the operating environment. EPC risk is amplified by labor scarcity, supply-chain fragmentation, tariff and trade-policy volatility, inflation, and subcontractor stress on top of perennial challenges like design maturity, emerging technologies, and aggressive delivery schedules.

The industry isn’t witnessing the death of LSTK. Fixed-price models can have a place where design is mature, quantities are reliable, technology is proven, labor is available, and risk is priced confidently.

Fixed-price contracts can become a liability when project assumptions outpace the cost, schedule, productivity, and risk assumptions underpinning the bid. Tariffs are just one example of unpredictable factors that can widen the cost gap and increase risk. A bid priced against one set of import duties on steel, aluminum, or specialized equipment can be invalidated by a policy change long before the project reaches substantial completion. And unlike inflation, which moves gradually, tariff changes can shift overnight and target specific countries or sectors. A fixed-price contract that doesn’t explicitly address tariff exposure is effectively betting the current trade environment holds for the life of the project.

In response, many contractors now focus on commercial discipline, moving away from lump-sum contracts and embracing collaborative and shared-risk structures. Under alternatives like EPCM (engineering, procurement and construction management), reimbursable, or progressive design-build contracts, the contractor manages delivery while the owner assumes a greater share of risk. They’ve also invested in ERP software to tighten project controls and better track labor, materials, and risk.

Although these smarter contracts and ERP tools are essential, they may not be enough. Losses from material shortages, delays, and indirect costs often take shape and begin to erode margins before they appear in ERP systems. Resilience requires a connected digital operating model that links the bid room, engineering, procurement, project controls, commercial teams, and field execution. Modern tools like sensors, drones, and site imagery can help surface risks sooner and trigger action.

The next EPC winners won’t just aim to avoid fixed price contracts. They’ll likely see risks earlier, manage them smarter, and remediate before operational issues become financial losses.

The new wave of EPC margin pressure

The circumstances may differ, but the pressures are familiar—fixed-price risk, weak front-end definition, schedule delays, productivity shortfalls, procurement stress, and subcontractor or partner performance. Once a project is underway, the ability to recover costs can be limited, turning project challenges into margin and cash pressure. Across the global EPC market, just a handful of underperforming projects can materially impact earnings, cash flow, and investor confidence.

Contractor profile	Reported loss / impairment	Strategic signal
US-based global EPC and engineering contractor	Multiple charges; loss project backlog	Continued runoff of legacy risk across infrastructure, mining, and litigation
South Korean EPC contractor	~ ₩337B / $250M+	Project impairments linked to execution, cost, and schedule exposure
South Korean engineering and construction contractor	₩1.77T in 4Q24	Overseas project cost overruns, one-off charges
European energy and infrastructure contractor	~€132M EBITDA	Waste-to-energy project delays and cost overruns
Global engineering and consulting firm	~$955M including goodwill and EPC-related charges	Strategic exit from large-scale EPC/LSTK contracting
US-based specialty infrastructure and E&C contractor	~$35M–$40M	Renewable project overruns
Japanese-based global EPC contractor	¥14.5B engineering segment loss; ¥35.7B construction-loss provisions	Overseas EPC cost growth and risk-response expenses; schedule, labor, subcontractor, and execution pressures
Japanese global LNG / process EPC contractor	¥15.0B operating loss; ¥15.8B net loss	Major US LNG project exposure; JV-partner, completion-cost, and execution pressures

_{Source: Publicly reported EPC / E&C losses 2022-2026}

From risk transfer to risk intelligence

The industry isn’t witnessing the death of LSTK. Fixed-price models can have a place where design is mature, quantities are reliable, technology is proven, labor is available, and risk is priced confidently.

What’s increasingly being challenged is the casual transfer of poorly defined risk.

The market is turning to more collaborative, phased models to help delay risk transfer until the project is mature enough to price it. They extend from EPCM and early contractor involvement to target-price contracts, open-book estimating, and phased conversion to lump sum.

For owners, this means recognizing that the lowest upfront price may not deliver the best outcome. Execution certainty is more valuable than nominal cost certainty.

For contractors, this means asking a different question. Instead of “Can we win it?” the focus is now on, “Can we deliver it at the margin we’re underwriting with risks we can actually control?”

The missing piece: Digital core plus field edge

Commercial discipline is essential, but even with stronger bid reviews, contract governance, and thorough ERP reporting, many EPC firms see project decline too late to change outcome.

That makes a connected, technology-powered EPC operating model essential.

This next-generation model goes beyond ERP and helps connect the digital core to the field edge, linking estimating, schedule, cost, procurement, risk, and forecasting with real-time signals on labor, materials, progress, and productivity. The goal is to use better data to drive earlier decisions on whether to bid, how to price risk, when to lock in commercial terms, when to intervene, and when to secure recovery rights.

The five-layer EPC digital operating model

Integrating systems is the key to closing the certainty gap. Field productivity should flow into the forecast, the impact of procurement delays on scheduling and commercial results should be clear, design maturity should inform fixed-price readiness, and subcontractor delays should initiate recovery plans and commercial notices.

The disconnect between estimating and execution is a persistent EPC challenge. The basis of estimate—the assumptions behind a project’s cost, schedule, productivity, and risk—should become a live operating baseline. A digital core can test those assumptions continuously against actual performance as the project progresses.

AI can strengthen the feedback loop, using historical project data to challenge assumptions before awarding and flag emerging risks during execution. Over time, project experience can become intelligence for future bids.

Labor productivity is another critical margin driver that’s increasingly difficult to manage amid skilled-labor shortages, rising costs, and execution complexity. Mobile field reporting, digital time capture, crew-level productivity tracking, digital work packaging, materials readiness tools, quality workflows, and constraint management can show whether crews can perform planned work.

Field and edge technologies—digital tools positioned at the worksite to capture and manage execution data—can highlight productivity loss early on. Advanced work packaging (AWP), a structured approach that breaks construction into executable work packages, can help align work to be released when drawings, materials, equipment, and access are ready. Together, these solutions enable more constraint-free work and earlier margin risk detection.

Traditional project controls often explain what happened last month. EPC companies now need systems that forecast what’s likely to happen next. Predictive project controls connect cost, schedule, engineering, procurement, productivity, subcontractor, and commercial data to surface margin risk earlier.

A procurement delay, for example, shouldn’t show up in an isolated report but instead reveal its potential impact on schedule, labor, cost, and commercial exposure. AI and analytics can enhance visibility into these issues by detecting patterns, like productivity declines or subcontractor underperformance, across projects.

Project losses can deepen when commercial recovery rights aren’t preserved during execution. Changes, delays, and disruptions may create legitimate entitlement, but recovery often depends on recognizing the event, issuing notice on time, and building a defensible record of cause and impact.

Digital commercial management can make that process more systematic. It can flag events that may trigger contractual rights, track notice deadlines, link correspondence and field records to schedule and cost impacts, and maintain the documentation required to support change orders, claims or back-charges. This can help teams move from recording what happened to recovering costs.

Tariff exposure is another growing category of this same recovery challenge. When a new or increased tariff hits imported materials or equipment mid-project, contracts should preserve the right to pass that cost through, and digital solutions should provide the documentation to support it. The same discipline applies in reverse. Contractors who’ve paid tariffs may be eligible for exemption, exclusion, or duty drawback later. Systematic tracking can help contractors recover those refunds, rather than leaving money on the table.

Digital commercial management should treat tariff events with the same rigor as a schedule delay, early warning, or change notice, namely, flag the event, track the deadline, document the cause and impact, and take prompt recovery actions before the window closes.

Visibility should not be confused with control. Many organizations have dashboards, but few have governance models that force action when the data shows deterioration.

Insight drawn from connected project, field, and performance data only helps safeguard margins when it triggers action. EPC companies require clear decision rights and thresholds—from bid/no-bid criteria before award to escalation when productivity, schedule, procurement, or contingency deteriorate.

The digital EPC model can help executives pinpoint concentrations of risk and spot systemic trends before they worsen. The data can also drive behavior change. Align incentives to reward project managers for flagging problems early and tie bonuses to final, risk-adjusted margin rather than short-term project volume.

What EPC leaders can do now

Use the current loss cycle as a catalyst to modernize your commercial and operating models and build risk intelligence into project selection, pricing, and delivery. The priorities are clear. Strengthen front-end risk discipline, connect estimation to execution, extend visibility to the field, build predictive project controls, and close the learning loop. Taking these actions can help you price risk more deliberately, identify margin pressure earlier, and apply lessons to future bids.

Priority	What it means	Why it matters
Strengthen front-end discipline	Use risk-adjusted return, design maturity, and capacity checks before bidding	Helps prevent underpriced risk from entering backlog
Connect estimate to execution	Make bid assumptions traceable into schedule, cost, and forecast systems	Reveals when the project being built differs from the project that was priced
Digitize the field edge	Capture labor, quantities, constraints, and materials readiness in real time	Improves productivity and helps reduce lost time
Build predictive controls	Use leading indicators to identify margin-at-risk early	Enables intervention before losses are embedded
Digitize commercial management	Connect contract rights, notices, and change documentation to project events	Helps improve recovery and protect entitlement
Close the learning loop	Feed actual project performance back into estimating and bid governance	Helps apply the learnings from each project to improve the next bid

Owner implications

For owners, the question is shifting from “Who will accept the lowest fixed price?” to “What risk allocation gives this project better chance of success?”

Seeking fixed-price certainty before scope, design, and execution plans are mature can yield a price without any certainty of delivery, raising the risk of claims, delays, and cost overrun. Stronger front-end definition, earlier contractor involvement, and commercial models that allocate risk to the party better able to manage it can improve outcomes.

Tariff risk, especially, deserves the same explicit allocation as other unpriceable risks. Owners who leave tariff exposure ambiguous in the contract are effectively asking contractors to price in a hedge against future trade policy, which can either inflate the bid or get absorbed silently until it resurfaces as a claim.

Contractor implications

For contractors, the challenge is often discipline. Strong demand can make backlog growth attractive, but not all backlogs create equal value.

Leading contractors will likely be more selective and pursue work where they have an execution advantage, reliable labor and supply chains, and commercial terms that reflect the risks they’re taking. The test is to understand and control the risk, and to be paid appropriately to take it. If those parameters aren’t met, it may be more effective to restructure the deal or walk away.