Research On Principal-Agent Mechanism Of EPC Model

EPC model, as one of the model with the design, procurement and construction, is to facilitate the management of the project owners as a layman. With the booming of global economy, more and more big projects or even super projects commencement, therefore, EPC model is more and more concerned by the owners. The EPC model was led to wide application in China with its rapid development since the founding of new China especially after the reforming and opening up. The EPC model is mainly used in petroleum and chemical industries, while more and more wide range of applications in recent years.The traditional contracting models of our country is personally managed by the owners part to control the entire project, which means that each stage is controlled by owners to contract with all the relative part like the design unit to design, construction unit to construct material suppliers to supply materials and all the contracts are independent of each other, conducted in accordance with the order. Therefore, EPC general contractor model has not been considerable development in China and the proportion is very low. The main reason is the EPC model is essentially different from the traditional model and the Chinese owners don't want to handle the project to the EPC contractor for the complete management because they do not trust each other due to the asymmetric information.This article is made to solve this problem to analysis agency relationship and costs for the EPC model from the perspective of agency owners, commission on behalf of the theoretical application of the basic model, to establish asymmetric transaction costs and the various relationships between factors so that the minimum of information asymmetry that brought the transaction costs can make the EPC contract model in China faster and more effective development. The incentive and restraint mechanisms will be carried out in the research about how to improve the general contractor on the owner's work effort and degree to make the EPC general contractor works positively for the owners.In this paper, the owners of utility maximization works as the objective function, the general contractor lowest income more than opportunity cost works as the participation constraint and the general contractor's marginal revenue equals marginal cost works as incentive constraint to establish the principal-agent model which represent the relationship between the agency costs and show symmetrical factors in order to take appropriate measures to reduce agency costs and improve owners' efficiency.Finally, AHP and fuzzy comprehensive evaluation method evaluation will be applied to the general contractor on the performance of the job evaluation by the EPC behavior of the general contractor and the evaluation report will be the important basis for owners' next choice for contractors. Therefore subject to an incentive constraint, the general contractor will work hard in the course of the whole contract for the continued interest and sustained and more effective in future.