What is benchmarking and how does it fit into the execution of CAPEX projects:
Benchmarking is basically about making comparisons with other business’s and our main competitors – how they execute CAPEX projects, and then learning from the plus’s and minus’s that those comparisons come up with and making changes in the way we will execute CAPEX projects in the future to gain a competitive advantage.
Benchmarking is the constant measurement of installation methods, man-hour performance standard / routine(s), product(s), or service compared to those that are considered” best in class”: Benchmarking allows a company to recognize specifically where their performance standards / operations are relative to there competition, it is a tool that can be used to detect major production and performance disparities both on the plus side and on the minus side. By recognizing various production failings -
shortcomings, management can focus on remedies to improve that specific failing metric. Benchmarking is the continuous process of measuring our performance and practices against our toughest competitors or those companies recognized as industry leaders - best in class. Basically it is activity of refining ourselves by learning from the successes of others and considering our past failures.
This section is focused on basic benchmarking data (man-hour units – man-hour units to install various construction components), graphs and various fundamentals of a process plant / chemical facility / manufacturing plants, the focus of this section is to drill down deeper than the ratio and factor estimating methods described in Section A – 3, the reader will find numerous man-hour benchmarks for site works, civil, masonry, concrete work, structural steel, equipment setting (millwright work), piping, electrical work and an number of other related metrics that may be useful in compiling or auditing front end conceptual estimates. The Engineering, Procurement and Construction (EPC) effort involved in the expansion or creation of a new or revamped CAPEX process (chemical or manufacturing facility) journeys from initial idea to execution and final handover, the effort involves most of the following work stages / steps.
• Project Initiation (this could mean obtaining a project #, or obtaining funding for this effort).
• Front End assessments, PCA’s, site visit and evaluations.
• Engineering studies for economics - ROI / EBITDA returns
• Basic and detailed process design – followed by detail design.
• Development of Front End engineering / concept reports including deliverables for final design.
• Engineering / detailed design / effort (E).
• Procurement (Buy-out of major equipment and bulks) - Expediting - QA-QC effort (P).
• Construction / Field erection and installation(C).
• Construction Management and Commissioning / Start up of plant or facility (CM).
• Validation (on pharmaceutical facilities) (V).
• Plant Acceptance / Handover.
• Operator training.
• Manufacturing / on going operation activities.
• Maintenance of the operating unit / facility.
Typical Major Equipment that will be utilized on a Process / Manufacturing Facility (This is a Partial List) are as follows:
Air Dryers, Air Handlers, Agitators, Bag Houses, Bins, Blenders, Blowers, Boilers, Centrifuges, Classifiers, Coils, Compressors, Condensers, Conveyors, Cooling Towers, Crushers, Crystallizers, Drums, Dryers, Emulsifiers, Evaporators, Extruders, Fans, Fluidizers, Filters, Furnaces, Hammer- Mills, Heaters, Hoppers, Incinerators, Jacketed Vessels, Presses, Pumps, Reactors, Screens, Scrubbers, Separators, Spheres, Tanks, Towers and Vessels.
Items to consider when estimating these major equipment items include:
1. Obtain (2- 3) vendor prices if possible or determine weight and apply cost per pound or kg for the first initial Front End / conceptual estimating efforts, use values obtained in section C-1 for specific man-hours and pricing.
2. For installation man-hours review following data tables (5% - 10% of the ex works price is a starting point divided by $48 to determine man-hours for installation cost), this is a very rough method of estimating, but better than nothing if you have no other details.
3. Material used in the fabrication process – type of steel / alloy.
4. Pressure / operating temperature.
5. Welding – manual or automatic at fabrication shop or is field welding necessary.
6. Shell plate’s thickness can be 0.50” – 2” and more in some situations, the thickness typically increases in increments of 1/16”.
7. Codes can be ASME or API or other.
8. Heads can be flanged, dished, hemispherical or elliptical.
9. Nozzles, internal elements, internal supports, baffles, vessel internals, trays, manholes, external lifting points, insulation clips, legs and skirts.
10. Steam jackets requirements.
11. Stress relieving requirements.
12. Gaskets, seals and bolts.
13. Inspection NDT – X-raying / stamp requirements.
14. Size of major equipment (road, rail or air transportation) to jobsite.
15. Ladders and platforms make sure that these elements are covered in the estimate.
16. Consider weather protection if item is stored in outside location i.e. lay down area.
17. Does item need to be broken down for delivery to site.
18. Consider cranes, scaffolding, lay down areas.
19. Estimate the cost of holding down bolts and grouting work.
20. Transportation costs / freight / ocean freight / insurance costs.
21. Delivery time, how long will it take to design, go out for bid, purchase, fabricate and ship to site, is there any cost fluctuation clauses that could impact the purchase price, that needs to be added to the purchase price.
22. Do we need to pay any premiums for early delivery?
23. Do we need to estimate any refractory work?
24. Estimate the cost of removing any packing materials.
25. What about vendor assistance.
26. Consider other issues, such as currency fluctuations and inflation.
One of the more expensive elements to consider when installing a piece of Major Equipment is the cost associated with installing the internals and the lining up and aligning these internal elements. The following table(s) reflect the average cost breakdown of a Chemical Facility / Process Plant – broken out by main categories, together with a listing of lead times in weeks that a number of these major equipment items take to procure, engineer and fabricate, this data should assist the reader in determining the mid-points for major equipment and subsequent installation, this can also assist in forecasting future escalation and any monthly fluctuation clauses that are contained in a vendors quotation, the installation of major equipment is typically made up of millwright work and erection equipment i.e. cranes and other lifting devices:
Category Percentage Value Percentage Range
Major Equipment (includes freight) 22.9 18 - 27
Materials (Bulks / Engineered) 21.5 17 -26
Field Labor – including sub-contractors 24.3 19 - 29 Field In directs / General Conditions 11.7 9 - 13 Detailed Design / H O support /
Procurement / PM (includes Owner Engineering) Includes all necessary design deliverables
13.9 10 - 18
Construction Management 5.7 4 - 8
Total 100.0 100.0
Note: Typical delivery times associated with the (INP) - Inquire / Negotiate & Purchase of Major Equipment items, with the recent up tick in the refinery / process related
construction and the recent damage to the Gulf coast region these delivery times could move out by 4 – 12 weeks.
Major Equipment Category Inquire / Negotiate & Purchase (INP) in weeks and delivery to site:
Boilers 250 HP and above 20 - 36
Columns / Towers with trays 20 - 40
Compressors Reciprocating 20 - 40
Ditto Centrifugal 24 - 40
Control valves 10 - 16
DCS – i.e. TDC 3000 16 - 36
Electric Motors (250 – 500 HP) 16 - 26
Furnace (cabin type) 20 - 35
Hammer mill 26 - 44
Heat Exchangers 16 - 32
Instrumentation devices 8 - 16
Pumps 200 GPM and above 8 - 20
Reactors – high pressure 25 - 45
Turbines 25 - 36
Tanks (Floating Head) 12 - 24
Transformers / Sub stations 12 - 36
Spheres 12 - 36
Vessels (Heavy wall) 20 - 40
Note: The percentages shown above are appropriate to Inside Battery Limits (ISBL work) – Outside Battery Limits (OSBL scope / work) is not included in above values.
Contingency is included in above values. This front-end section of A - 4 will focus on the major equipment element which as can be seen is in the order of 23% of the cost typical chemical facility, it can range anywhere from 18% - 27%.
Cost Estimators / Engineers to be successful should be aware of the manufacturing
“global” competition- big picture, they should have an appreciation of the changes that are happening in the Process / Manufacturing industries and the impact these changes are having on costs and schedules, these issues include the following:
• Such as material and labor shortages and deliveries of major equipment taking 20% -40% longer due to the demand of these items in China and other S.E.
Asian markets:
• Price spikes related to material / commodities demand and shortages (copper, steel, lumber, plywood, glass products, and oil related products).
• CAPEX projects moving to S.E. Asia: (this trend is continuing).
• It takes almost 50% - 70% more time to build a manufacturing facility or plant in S.E. Asia, than it does in the USA, why, productivity, bureaucratic red tape a lack of basic infrastructure, plus a bunch of other issues that slows the EPC effort down.
Cost Estimators should become cognizant with the issue and factors and what impact they will have on projects they are involved with. As has been pointed out before, to be successful today individuals working for chemical / process related organizations, both owner and EPC firms, should be able to coalesce a number engineering and basic business disciplines, this includes the following:
• To compile a accurate capital cost estimate in a timely manner that conforms to the pre-established company estimating standards.
• Have appreciation of EPC construction related costs and how the global economy can impact these costs.
• Have an awareness of different types of capital cost estimates, and have an awareness of the differing project delivery methods, i.e. lump sump, GMP, reimbursable contracts etc.
• Have a basic knowledge of chemistry / process manufacturing steps, i.e.
(continuous or batch process)
• Have an understanding of civil / structural / construction methods / engineering considerations and needs.
• Have a basic understanding of piping systems, materials of construction, ISBL and OSBL issues.
• Have a basic knowledge electrical engineering issues i.e. area classification.
• The same situation with mechanical engineering and instrumentation / controls systems.
• And last but not least have a general business acumen / an understanding of the organizations business cycle / process- business economics, together with an understanding of the accuracy of the capital cost estimate deliverables (it’s a tall order - however these individuals are out there, the challenge is to find them and hire them and educate them to the organizations methods).
The term “Process / Chemical Industry” or “Manufacturing / Industrial / Chemical Production” sector - as it is many times described, embraces the following major
business sectors / industry nomenclature, (they mean the same thing to the lay person) that many times overlap each other and basically refer to the same industry sectors, this gets more complicated when discussing this in the context of building new facilities in this industry, the names bandied around when discussing this is that it is a Industrial project, or it is an Oil & Gas project, or it is a Petro-Chemical project, it’s hard to have a collective name for all these project types, the best way forward is to refer to them all as Process – Manufacturing type projects. Some of the most prominent sectors include (1) Petroleum / Gas Production / Refineries. (2) Pharmaceutical / Fine Chemicals /
Consumer Products (3) Power Generation (Oil, Gas and Nuclear facilities). (4) Food Processing (Dairies & Bakeries) Beverage (Soft drinks and beer production). (5) Manufacturing (i.e. paint, toner, plastics production, glass, paper manufacturing, detergents, cement, man-made fibers and various automotive components). (6) R&D Facilities – Pilot Plants – Animal Testing / Research Facilities etc. (7) Steel Mills &
Rolling Mills and (8) Automobile Production – this one could fall into # 5 above. There are most probably others that have not been mentioned.
These “Process / Chemical Industry” facilities – production plants utilize equipment (many times referred to as Major Equipment (M.E.) that carries out the following actions - heating, cooling, grinding, drying, mixing, blending, hammering, pressing, compacting, conveying, transporting / moving and pumping - conveying powders, fluids and gases, typically a fair amount of rotating equipment i.e. pumps and agitators and mixers are required in these facilities (perhaps 20 – 30% of the major equipment could be
considered rotating equipment).The majority of process equipment / major equipment can be classified into three main categories (1) Rotating equipment / electro–mechanical such as compressors, pumps, agitators and turbines and etc, major equipment items that are driven primarily by an electric motor(s) or steam turbines(s) etc, this type of major equipment - rotating equipment - typically are the most intricate and expensive to procure, these major equipment type items are typically long lead items (they could take anywhere from 2 – 12 months, or even longer to engineer and fabricate), (2) Heat
Transfer – Pressure Vessels (equipment items with a fair amount of internal elements / components that need to be aligned and hooked-up to fine tolerances) category of major equipment – typically consisting of heat exchangers, reactors, pressure vessels,
columns / towers (with various trays), this type of major equipment is used to raise or lower temperatures (under pressure many times) during the chemical reaction phase of the manufacturing step and (3) Static fixed / inert equipment; i.e., (bins, storage tanks, hoppers, silo’s this could also include dispensing and possibly packaging equipment etc.), note some of these action in (3) are done by gravity – gravity feed - on the whole, many of the operations / functions carried out are supporting / supplementing, i.e., storing - rather than performing the actual chemical / process reaction / manufacturing step, other electro – mechanical items that fall within the above (3) categories include utility equipment, including all rotating equipment, adjustable speed drives, pneumatics, mechanical / piping systems, programmable logic controllers (PLC’s), instrumentation devices, servo and non-servo robotic systems, electrical cable, conduits and fittings, motor control centers (MCC), transformers, regular and explosion proof conduit, panel boards enclosures and fittings, push buttons and control stations, various power &
lighting systems, signaling devices / equipments, various bushings, brake motors, variable speed drives and a host of other systems to long to describe in detail all of these systems will need to be estimated and accounted for in the estimating effort. In
order to play a significant part in the capital cost estimating effort specific to of process / major equipment the estimator / cost engineer should have an understanding to the extent and details of the required detail / engineering design and the equipment
selection criteria, they should have more than a basic awareness of some of the above three categories and following stated issues. Process plants / chemical plants /
manufacturing facilities in the last decade have become much more sophisticated in how they are operated, with the use of highly complex computerized control systems (PLC’s), together with dedicated control systems such as TDC 3000 and Delta V to name but two), these systems are growing in there use and application, this trend will continue in the next couple of decades, historical cost data collected in the 1970’s and 1980’s is no longer valid due to this specific situation, i.e. the instrumentation account values have grown by as much as 40% - 80% due to the use of these control systems. The above three categories of major equipment are perhaps more often than not fabricated and constructed out of Carbon Steel (research has indicated that perhaps 40 – 70% of Process Equipment / Major Equipment is specified / called out to be Carbon Steel) the remaining Process Equipment / Major Equipment is made out of various costly types of
“exotic” metals and special alloys, such as Stainless Steel (304, 316, 304 L or 316 L), Monel, Aluminum, Inconnel, or Hastaloy to name but a few, as has previously mentioned these major equipment items usually take weeks or months to procure, engineer /
design, fabricate and deliver / transport to job site for subsequent erection and installation into the new facility.
Cost items to consider when estimating major equipment installation include: Pick up at lay down area / temporary weather protection - tarpaulins, clean up of any packing materials, use of come along’s / chains & pullies, hardcore (hard standings) / temporary staging areas, aligning and leveling items, i.e. shims, items that may need to be included or excluded are: labor and material for foundations (concrete and excavation) and
structural steel / brackets, core drilling and grouting of equipment / utility piping systems, and subsequent final hook up, electrical cable, conduit and hookups, equipment
supports / brackets, H D bolts (anchors), sleeves and jumpers / final balancing and adjusting finished systems, equipment and piping passivation and cleaning (pickling), equipment identification / stenciling & subsequent tagging, commissioning / validation activities, testing and NDT work, costs associated with the use of construction rental or owned equipment, vendor start up assistance, barricades and OSHA safety measures, factory witness testing and any acceptance testing and operational tests, initial chemical charging, cooling liquids, “grogg” type chemicals and any scaffolding and hoisting needs, remember there could be a need for a full time hoist operator on union projects.
Major Equipment (M.E.) / Chemical / Manufacturing facility major equipment is
fundamentally all the components that are utilized in the above mentioned industries / business sectors, the (M.E.) major equipment includes items such as the following together with the “judgment” percentage to set the particular piece of major equipment described below, a description of (A), (B) and (C) is described below.
• Activators (B) / Agitators (A) / Air Dryers (B) / Air Handlers (B)
• Bag house (B) / Blenders (B) / Bins (B) / Boilers (C)
• Centrifuges (B) / Chlorine Evaporators (B) / Columns (B)
• Compressors (B) / Condensers (B) / Conveyors (C) Crusher (B) Crystallizers (B)
• Dearators (B) / Drums (A) / Dryers (B)
• Emulsifiers (B) / Electrical Switch Gear (B) / Evaporators (B) Extruders (B)
• Filters (B) / Presses (B) / Furnaces (C)
• Hammer Mills (B) / Heaters (C) / Heat Exchangers (C)
• Instrument and process control equipment (B)
• Reactors (C) / Pressure vessels (B) / Pumps & Motors (B)
• Size reduction and separation equipment (B) / Scrubbers (B) Steam Turbines (C)
• Tanks (A) / Towers (B) / Valves (motor controlled) (B) / Vessels (B)
(A) = Large / static pieces of M.E. needing relatively minimal setting hours (and minimal internal setting and aligning) 3% -7% of M.E. cost divided by $50 / hour will provide a man hour budget for setting the M.E.
(B)= Mid sized pieces of M.E. needing additional setting and requiring internal work and aligning work hours 5% -10% of M.E. cost.
(C)= Complex pieces of M.E. requiring a fair amount of assembly and setting / internal aligning hours 7% -14% of M.E. cost will provide a man hour budget for setting the M.E.
Example of a calculation to determine the cost and percentage value of installing a Reactor: 20 ton Reactor (with internals 5 ton), total weight 25 ton Purchase price delivered to site = $98,345 Labor and construction equipment to install (lift into it’s final location and set and align internals, does not include piping or E&I, excludes heavy lift crane.) 2005 Cost basis:
Labor / Other Hours Unit Cost Total
Foreman 6 $55 330
Millwright 6 $52 312
Millwright 6 $52 312
Millwright 6 $52 312
Millwright 6 $52 312
Millwright 6 $52 312
Equipment Operator 6 $48 288
Chains / cables 1 day $200 200
Miscellaneous l shims / rags /
grease
LS $350 350
Flatbed trailer 6 $25 150
Tractor 6 $35 210
Total $3,088
$98,345 divided by $3,088 = 3.14% note if you add the cost of the crane to this calculation the percentage would increase.
All major equipment items need foundations, structural steel, platforms, piping, valves, insulation, painting, electrical services, etc, etc. the commodities / bulk materials required will be described in the following sections. Typical break-downs of the major cost elements cost models of a Chemical / Process Plant are indicated on the next couple of pages, hopefully this data will give the reader an appreciation of how large an element of a capital cost estimate the major equipment really represents. The hours for installing major equipment typically include all the activities related to receiving, storing, lifting, moving to field location, setting, aligning, welding, bolting, leveling, grouting and testing. Items or topics that the estimator / cost engineer needs to consider and be
aware of when considering the major equipment elements of the capital cost estimate should include.
• Pricing basis, in-house estimate or based on a quote (potential for scope creep / future pricing increase due to situations were nozzles / baffles / bracket locations are not fully known)
• Long lead time in the fabrication and delivery of complicated pieces of major equipment.
• Transportation costs and logistics (wide loads, ocean freight or air freight).
• Vendor assistance in the start up of complex items of equipment.
• Insurance issues / Special QA / QC requirements.
• Any performance / witness testing.
• Cash flow / Special payment terms.
• Warranty issues.
• Required documentation O-M manuals etc / Spare parts.
• Possible currency considerations for items being imported.
To determine the setting hours for these items of major equipment mentioned above divide the setting value by $50 / hour, cranes and other lifting devices are not included in this method. If the total cost of chemical / process plant is 100%, a characteristic break-down of other major equipment specific items
MAJOR EQUIPMENT / PROCESS EQUIPMENT TYPICAL BREAKDOWN RANGE OF FREIGHT, M.E. SETTING AND SPARE PARTS COST
Freight Costs North American domestic 3% - 5 % of ex works value of M.E.:
Freight Costs European domestic 3% - 5 % of ex works value of M.E.:
Overseas freight typically 7% - 10% of Major Equipment ex works value, consider import duties if applicable. Setting M.E. in place, millwright related activities (excludes civil, structural, piping, electrical insulation etc) typically range between 3% and 14% of the
Overseas freight typically 7% - 10% of Major Equipment ex works value, consider import duties if applicable. Setting M.E. in place, millwright related activities (excludes civil, structural, piping, electrical insulation etc) typically range between 3% and 14% of the