LOCATION FACTORS

Perhaps the most common technical inquiry received by AACE International, and also by the International Cost Engineering Council, goes something like this: “I am trying to evaluate the costs of constructing a new plant/facility/ building in three foreign countries, and I’m having trouble locating relevant international cost data. Do you have any suggestions?” This is quickly followed by … “My feasibility report is due tomorrow,” and, “I know what it costs to construct this facility in my country, but I need to be able to adjust that cost to these other countries. Can you help me?”

While cost engineers generally are very familiar with major sources of cost data in their own country, it is not surprising that they often are unaware of useful sources of commonly published cost data and related information in other countries. This problem can be further compounded by lack of time to perform a proper search, publications being in various languages, and lack of information about key factors that can impact the estimate for particular geographic locations.

In this regard, a word of caution is necessary. Published information must always be used with care! Every location factor or commonly available cost index has its own underlying method of construction, with its particular inherent components and weightings. It is vital for the estimator using such quick- estimate data to understand how they were created and to recognize just what their limitations and applications are. In addition, published data also are often inadequately explained and frequently improperly dated. Date of publication is meaningless because the data may be months or years old and may require adjustment to current cost levels. Equipment cost data may or Therefore the total project cost, including escalation, is:

may not include ancillaries and/or transportation and installation, etc. Too often it seems that in the rush to complete the assignment, people will grasp any number they can find without fully understanding how it was derived, or what it represents.

With location factors one must recognize that they generally reflect only the relative cost to replicate a facility exactly in another location. The factors do not consider cost effects which are introduced by site-unique conditions such as climate, earthquake and geological considerations, etc. If the design is not identical in both locations, the cost differences are not generally accounted for if location factors alone are used.

7.2.1 Background Sources

In order to make a proper estimate of a particular international project, it is vital that the cost engineer understand the conditions existing in the country or countries where a project is to be located. In a paper presented at the Fifth International Cost Engineering Congress, Utrecht, Netherlands, Walker (1978) outlined the major economic system parameters to be evaluated as follows:

• Political Stability

Attitude towards foreign investment Type of bureaucracy • Finance Banking system Insurance regulations Tax system Duties • Legal system

Laws governing conduct of business and individual freedom • Social system

Business ethics Education

Language and religion • Geography

Infrastructure and communication Climate

• Industry Capacity Diversity Efficiency

Walker expressed the interactions of these factors in matrix form as shown in

Figure 7.3.

Many others (see recommended reading and other information sources at the end of this chapter) have discussed site- or country-specific factors that

can impact the cost, schedule, and/or price for an international project. These include: local material quality and availability, labor availability, equipment availability, labor productivity, import duties, import licenses, customs, local taxes, language, length of workweek, holidays, inflation, fluctuating exchange rates, religious customs, buy-local laws, shipping cycles, weather and climatic impacts, workforce level of education, communications, language, logistics, workforce housing, training, and many other relevant factors. Regional variations of these factors within a country must also be expected, and remoteness and distance from major cities or supply centers can often aggravate the above problems even further.

Patrascu (1979, 1988) has proposed preestimate survey checklists to help identify background concerns for foreign construction projects. These checklists delineate a large number of factors which must be considered, including those described by Walker (1978). A detailed discussion of this topic and a checklist of factors which should be considered before undertaking any international or multinational project is provided in Chapter 10.

For offshore projects an excellent detailed checklist (ACostE, 1982) is available from the Association of Cost Engineers (ACostE), Lea House, 5 Middlewich Road, Sandbach, Cheshire, CW11 9XL, United Kingdom. Based on North Sea oil field construction experience, this publication provides a very detailed breakdown for offshore work.

Many other references are useful in preparation for estimating international projects. However background literature cannot replace pre- estimate site visits, proper contract development, and conversations with others who have experience estimating work in the particular country or countries of interest. Review of appropriate literature, however, can help to ensure that all important factors for the project have been considered in developing the estimate.

Figure 7.3 Economic basis of cost: the Levels at which the economic systems impact on cost. (From Walker, C.G. Estimating Construction Costs Abroad, Transactions Fifth

International Cost Engineering Congress, Dutch Association of Cost Engineers, The

The topics mentioned and those listed in Chapter 10, while far from forming a complete list, should nevertheless make the cost engineer aware of most of the potentially important considerations which are unique to international work.

7.2.2 International Location Factors

When little time is available or warranted to perform the type of background studies suggested above, and detailed design and engineering has not been completed, estimators must turn to published indexes, location factors, or other sources of relevant data for help. Table 7.6 shows a collection of sources for multicountry information. The references in Table 7.6 are examples of multicountry data sources. For conceptual studies these may be useful, depending on what countries are of interest. Various reports by banks, governments, trade associations, etc also exist if one is willing to search for them. One example is a report (Fong, undated) that compares building costs in a number of countries to those in Malaysia. This special report was issued by a government task force and provides a handy reference for those comparing building costs in Pacific rim countries.

Massa (1984, 1985) has proposed development of international cost location factors based upon a weighting of 33.05% for a labor factor, 53.45% for an equipment and civil material factor, and 13.50% for an indirect and home office cost factor. He presents a detailed form for calculating these three factors and the composite factor for any given country referenced to US Gulf Coast costs. Massa has also provided labor factors for many countries. His factors are presented in Table 7.7 along with a list of labor factors complied by Bent (1996) and country location factors previously reported by Bridgewater (1979). The Bridgewater factors are for complete chemical plants and are referenced to both the United Kingdom and the United States. Note that the Bridgewater factors reflect currency exchange rates, taxes, and duties which were prevailing when the factors were first reported. They should not be used without adjustment for changes which have occurred since the factors were developed.

Also included in Table 7.7 are selected 2003 location factors for some major cities from Aspen Richardson’s International Construction Cost Factor

C). See the source for details on compilation of these factors and the cities to which they apply. This publication is regularly updated and as information becomes available additional countries are added.

In addition to these sources, another excellent source of location factor information is the AACE International Cost Estimating Committee. The committee maintains a listing of industry contacts who are willing to share location factors and foreign cost estimating data.

Table 7.6 International Data Sources-Multiple Country

Foreign Labor Trends—periodic reports of labor trends and costs for specific

countries—includes key labor indicators, information on unionization, labor availability, recent developments affecting the workforce, etc. Each report covers one specific country and is prepared by the American Embassy staff in that particular country. (U.S. Department of Labor, Bureau of International Affairs, Washington, DC)

Dutch Association of Cost Engineers Prijzenboekje (Price Book)—periodically

published booklet of actual installed project costs as reported by about 200 Dutch companies. Although the booklet is published in Dutch, an English language glossary of terms makes it easy to use but those who do not read the Dutch language. The data provided is valid for the European Economic Community. (Dutch Association of Cost Engineers, P.O. Box 1058, 3860 BB Nijkerk, the Netherlands)

Hanscomb/Means International Construction Cost Intelligence Report—

newsletter—provides comparative building construction cost information for many countries. (Hanscomb, Faithful & Gould, 817 W.Peachtree St. NW, Suite 500, Atlanta, GA 30308)

U.N. Monthly Bulletin of Statistics—includes a variety of production, trade,

financial, commodities, construction, wage and other cost/price indices and statistics for about 190 countries.(United Nations, New York, NY)

Engineering News Record—weekly magazine—primarily US and Canada, variety

of commercial/industrial construction and builders indexes plus materials prices and labor rates; substantial North American data featured in “Quarterly Cost Roundup” issues; World Parameter Costs column features building costs for one or two countries per quarterly issue. (McGraw-Hill, Inc., 330 W. 42nd Street, New York, NY 10036)

Costos de Construction Pesada y Edificacion (Heavy Construction and Building Costs)—cost estimating data base on building, industrial and heavy

construction reflecting costing in Mexico and other Latin American countries eg, Bolivia, Venezuela, Panama, Brazil and Chile. (Bimsa Southam, S.A. de C.V., Sófocles No. 118, Col. Chapultepec Polanco, Deleg. Miguel Hidalgo, C.P. 11560 Mexico DF, Mexico)

Spon’s Architects’ and Builders’ Price Book—contains a European section for

tendering and costs of labor and materials in 13 countries. Spon’s European

Construction Costs Handbook provides coverage of 28 countries in Europe

plus the United States and Japan. Spon’s Asia Pacific Construction Costs

Handbook provides similar coverage of 15 countries in Asia plus the United

States and the United Kingdom. Spon’s Middle East Construction Price Book is a two volume set which provides detailed unit cost information for 6 Middle East countries. (E. & F.N.Spon, Ltd., Spon Press, 11 New Fetter Lane, London EC4P 4EE, United Kingdom)

R.S.Means Co.—various cost books and CD-ROM databases published annually

for building and industrial construction in the U.S. and Canada. (R.S.Means Co., 100 Construction Plaza, Kingston, MA 02364)

Aspen Technology Inc.—Aspen Richardson’s R-Books unit cost databases

published for U.S. and Canada building and general construction; U.S. And Canada process plant construction; and international construction. (Aspen Technology, Inc., Ten Canal Park, Cambridge, MA 02141–2201)

International Construction Costs and Reference Data Yearbook—provides

detailed information on construction costs, including fully loaded labor rates, for 30 countries. (John Wiley & Sons, New York, 1996)

Chapter 7