Thursday, March 05, 2015

12. Journal Paper (2015); Understanding Risk and Return in Bidder’s EPC Price Using CAPM Concept

Projects are currently characterized by their complexity, size and intensified multiparty involvement. It is therefore difficult to meet between company’s and contractor’s expectation in terms of project objectives. Using different type of contract, contractor may have different view that is reflected from their price.

In EPC contract that uses a concept of lump sum contract, price submitted by contractor is a promise of each contractor to deliver the project. Contractor will then face risk in executing the project, while in the same time they will have its potential return.

This paper describes behaviour of contractors in submitting price as part of bidding process using CAPM concept. It mathematically proves that risk and return will be going to the same way, e.g. high risk may have high return. It concludes that the price heavily rely on contractor’s experience and risk profile.

Keywords: Engineering Procurement Construction (EPC), Contract Price, Capital Asset Pricing Model (CAPM), Risk and Return.