The Critical Role of Operational and Technical Due Diligence when Investing in EPC Companies
GrowEasy Market Insight Report
By GrowEasy | Dubai, UAE | June 24, 2025
Kuwait Clean Fuels Project
Executive Summary
The Engineering, Procurement, and Construction (EPC) industry plays a vital role in executing large-scale infrastructure projects, including energy, transportation, water treatment, and industrial facilities. As global demand for renewable energy and infrastructure continues to rise, investors are increasingly eyeing EPC companies as attractive opportunities. However, the EPC landscape is fraught with complexity, risk, and variability in project execution.
To safeguard investments and identify sustainable opportunities, operational and technical due diligence (OTDD) is not just a best practice — it is a necessity. This document outlines the critical importance of OTDD, key areas of evaluation, market challenges, and best practices for investors.
Introduction to EPC Investment Landscape
The EPC Model
EPC companies are responsible for end-to-end project execution: they engineer, procure materials, and construct facilities. These companies serve as single-point contractors, taking on time, cost, and performance risks. As such, they are central to industries such as:
Renewable energy (solar, wind, hydrogen)
Oil & gas
Power generation and transmission
Transportation infrastructure (roads, rail, ports)
Industrial and manufacturing facilities
Investment Appeal
EPC companies offer potential for:
Stable cash flows from long-term contracts
High-margin growth in renewable and energy transition sectors
Exposure to government infrastructure initiatives
However, projects often run into cost overruns, delays, and technical failures, making the risk-to-reward ratio contingent upon robust due diligence.
The Value of Due Diligence
Operational and technical due diligence is a comprehensive assessment of an EPC firm’s capabilities, practices, and underlying project risks. It goes beyond financial auditing and aims to answer:
Can this company deliver what it promises — on time, on budget, and with quality?
Are its systems and technical competencies scalable and resilient?
Are its project and contract risks adequately managed?
Investors who skip or dilute this process often face diminished returns, reputational damage, or even insolvency scenarios.
Operational Due Diligence: Key Focus Areas
Project Management Capabilities
Scheduling and planning tools: Primavera, MS Project use, integration with ERP
Change order management: Ability to handle scope creep without cost explosions
Resource allocation: Efficiency in manpower and machinery deployment
Supply Chain and Procurement
Supplier reliability and contract structures
Global sourcing capabilities vs. local content mandates
Inventory risk and logistics optimization
Health, Safety, and Environment (HSE) Performance
TRIR (Total Recordable Incident Rate) and LTIFR benchmarks
Compliance with ISO standards and local regulations
Culture of safety across job sites
Contractual Risk Management
Balance of fixed-price vs. cost-plus contracts
Exposure to liquidated damages or performance guarantees
Dispute resolution mechanisms and insurance coverage
Quality Assurance and Control
QC procedures during construction
Materials traceability
Commissioning and punch-list completion practices
Human Capital and Organizational Depth
Experience of the executive and project leadership teams
Staff turnover rates
Engineering bench strength and upskilling programs
Technical Due Diligence: Key Focus Areas
Engineering Design Integrity
Strength of engineering systems, design tools and methodologies
Understanding of local design and environmental standards
Track record in similar EPC project’s / technologies
Technology Stack and Digital Maturity
Proven status of advanced digital tools and methodologies
Integration of IoT sensors, remote monitoring
Predictive maintenance and digital twins
Constructability Review
Design-to-build translation quality
Site-specific adaptation (terrain, weather, utilities access)
Modular vs. stick-built preferences
Technical Benchmarking and Innovation
Proprietary solutions and patents
Innovation in materials, methods, or energy efficiency
Use of automation or robotics
Project-Specific Risk Review
For each major ongoing or proposed project:
Geotechnical conditions
Brownfield tie-in studies
Design margins and redundancy
Supply chain challenges
Client-provided specifications vs. EPC assumptions
Client litigation history
Risks of Inadequate Diligence
Failing to conduct robust operational and technical due diligence can lead to:
Project delays and cost overruns: Often eating into investor IRR
Litigation and penalties: From underperformance on guarantees
Technical failures: Structural collapses, process inefficiencies, or energy output shortfalls
Loss of market reputation: Which limits future contract awards
Write-downs and impairments: Especially for large single-project EPCs
High-Profile Examples
Vogtle Nuclear Plant (U.S.): Over $30 billion in cost after poor risk oversight
Crescent Dunes Solar Tower: Shut down due to molten salt storage issues, despite significant investment
Case Studies and Lessons Learned
Case Study 1: Solar EPC Company in MENA
A private equity firm invested in a solar EPC based on rapid revenue growth and backlog. However, technical due diligence was overlooked. It was later discovered that:
Many EPC projects lacked single-axis tracking systems, reducing performance
Civil foundation designs were not suited for sandy terrain, leading to rework
Result: IRR dropped from 16% to 6%, and exit delayed by 3 years
Case Study 2: Wind EPC in India
A family office conducted a detailed OTDD revealing:
Dependence on 3 key subcontractors
Weak HSE track record in high-wind zones
Poor grid evacuation planning
They renegotiated terms and insisted on conditional investment tied to performance KPIs. This avoided a potential $20M loss due to project cancellation.
Market Trends and Outlook
Boom in Clean Energy Infrastructure
Green hydrogen, offshore wind, and grid-scale storage projects are increasing EPC complexity. Investors must align technical diligence with these new technology curves.
Digital EPC Transformation
AI-driven scheduling, drone-based surveying, and digital twins are becoming norms. OTDD must assess not just current tools, but innovation adaptability.
Geopolitical and Supply Chain Risks
Cross-border EPCs are exposed to raw material tariffs, local regulations, and political risk. OTDD helps assess the resilience of procurement and logistics plans.
Consolidation and Vertical Integration
Larger EPCs are acquiring design and OEM firms, affecting risk profiles and requiring deeper end-to-end value chain assessments.
Conclusion and Strategic Recommendations
Operational and technical due diligence is not merely a checklist — it is the foundation of informed investment in the EPC sector. In a market where execution risk can eclipse even the most promising project forecasts, OTDD ensures investors avoid surprises, structure deals intelligently, and unlock long-term value.
Strategic Recommendations
Start early: Conduct OTDD before term sheets or exclusivity agreements.
Use domain experts: Engage engineers, project managers, and HSE professionals.
Go site-specific: Review active projects and client interactions.
Model risk-adjusted cash flows: Use OTDD findings to pressure-test financial assumptions.
Set KPIs and milestones: Tie capital injection to risk-mitigated benchmarks.
Embed digital maturity checks: Evaluate tools, platforms, and cybersecurity.
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