2009 Front End Conceptual Estimating Yearbook

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2009 Front - End / Conceptual

Estimating Yearbook

8

th

_{Annual Edition}

• Front End / Conceptual CAPEX Estimating Issues

• Capital Cost Estimating Fundamentals

• Capital Cost Estimating Methods

• Benchmarking Data

• Exponents / 6/10 th Rule Scale Up Values

• Ratio / Percentage Factors and M.E. Multipliers

• Square Foot / M2 Unit Prices (60 + Building - Facility

Types)

• Unit Prices (Labor & Materials) 1,000 + cost line items

• Location Factors, Engineering / CM Fee’s, Labor

Rates

• Process Equipment Prices (85+ pages)

• Front End / Semi-Detailed Estimating Systems

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COMPASS INTERNATIONAL

A-4 - Basic Man-Hour Benchmarking Data & Reference Tables: 1 - 72 A-5 - Site Selection / Cost Data Sources / Estimating Checklist: 1 - 25 A-6 - Value Engineering / Change Orders / Claims / Contingency: 1 - 34 B-1 - Scale of Operations / Exponents (150 + Plants / M.E. items): 1 - 6 B-2 - Additional Estimating Factors Cost Models (7 examples): 1 -14 B-3 - Square Foot / M2 Estimating Data (104+ Buildings /

Facilities) Revamp / Rehabilitation cost values.

1 - 13 B-4 - Unit Price Data (1,000+ unit cost items): 1 - 40

B-5 - General Cost Estimating Data. 1 - 24

• Location Factors (200+ North American / International Cities): • International Location Factors / Productivity:

• Engineering / Engineering / CM Fee’s: • Union Labor Costs (10 trades):

• Open Shop Labor Costs (10 trades):

• Sales Tax (50 US states and 10 Canadian Provinces): • Inflation / Compass Cost Index:

• Rebar / Pipe / Concrete / Bricks Pricing (14 cities): • General Condition / Preliminaries Data:

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C-1 - Major Equipment / Process Equipment Cost & Labor Models (125 # Major Equipment Items).

1 - 85 D-1 - Front End / Semi-Detailed Estimating Methods. 1 - 59

• Front End Issues / Types of Data Required: • Benchmarking Metrics:

• Detailed Design / Engineering Metrics:

• Civil, Structural, Architectural / Miscellaneous Costs: • Structural Steel Costs:

• Facilities / Buildings Costs: • Piping / Insulation Metrics: • Electrical Systems:

• Instrumentation:

• Security Equipment / Robotics: • Miscellaneous estimating items:

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About the Firm

Compass International Consultants Inc. was founded in 1992 (C.I.C.I) and is a provider of estimating services, international construction cost data, location factors, training seminars, value engineering, estimating support and conceptual construction economic cost data. Compass International is backed by an excellent staff of experienced Cost Engineers, Cost Estimators, Civil / Mechanical / Chemical Engineers and Economists.

Web site: http://www.compassinternational.net Mailing Address:

Compass International P.O. Box 1295 Morrisville, PA. 19067 - USA

Telephone / Fax (215) 504 9777 E Mail

[email protected] [email protected] [email protected]

Acknowledgements: This data source is the result of more than twenty years research and data

collection. The information contained in this data source was collected from more than 50 + completed CAPEX projects (Refinery, Chemical and Manufacturing facilities) located in North America, the UK, Europe, Asia, Africa and South America valued between $0.50 million to over $3 billion. The data is based on Compass International’s twenty year old cost library, augmented with latest cost and labor data from International Development Banks and Agencies, European Union Commission Reports, various Country National Libraries and Bibliotheques from around the world, various Government Information Agencies, Global Quasi-Governance Organizations, an assortment of Government Trade Promotion Departments / Labor Departments, numerous trade magazines, hourly and annual salary rates from US / Overseas labor unions, professional society articles, an assortment of newspaper / magazine articles, various almanacs / directories / tables / reference books, internet data and various cost – construction related publications, the cost models and tables have also been augmented by a number of personal estimating libraries (that in some cases are more than twenty five years old), this information has been audited, expanded upon, modified and

calibrated and refined to today’s construction methods and installation applications. We would like to express our sincere thanks to the many engineers, contractors, vendors and other individuals (friends and colleagues) too many to mention who have given freely of their advice, input, time and

knowledge so that this data source could be produced for the benefit of individuals that have an interest in this subject matter. We welcome any comments or data that could be used in future updates to make this database more complete and accurate.

be reproduced or transmitted in any, electronic or mechanical means, including photocopying, faxing, scanning, uploading, copying and pasting, recording, or by any information storage or retrieval system without permission of the publisher; it is illegal and punishable by law. Compass International makes no warranty or guarantee as to the accuracy and completeness of the estimating data

contained in this publication and assumes no liability for damages that are incurred by utilizing the data contained within this publication. The data is conceptual and should be considered +/- 15% accurate, the cost and man-hour data contained in this database should only be used as an early budgeting tool or as a check against received bids. The publisher recommends obtaining a number of lump sum quotes and bids that are supported by a scope of work statement and a timeline of when the work would be completed, reliance on the data contained in this document could result in losing bids or worse still losing money

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SECTION A - 1

INTRODUCTION TO CAPEX ESTIMATINGAS IT RELATES TO FRONT END / CONCEPTUAL - CAPEX ESTIMATING

Introduction to Front End / Conceptual Estimating: “A Front End / Conceptual estimate is an estimation of the cost of a proposed CAPEX project based on initial conceptual engineering and design data, even though the specific details are not clearly revealed or specified at this early stage of the proposed CAPEX project, an all-inclusive value is required to determine the viability of the proposed undertaking”.

A front-end estimate / conceptual estimate is usually the first step in the CAPEX Estimating process. This publication has been compiled to assist all construction

professionals with an annual reference guide that will help them with “quick” reasonably accurate construction prices for work associated with chemical plants, refineries,

manufacturing facilities and other related industrial plants. A vast number of challenges and hurdles remain in place for “Process / Manufacturing / Chemical” companies (and there decisions to build new / revamped facilities): as we look into the future as of late 2008, the issues to be faced in 2009 and beyond include numerous issues (that have financial, construction and operating cost consequences) that will need to be gauged and planned for, if the decision is made to proceed with the EPC effort. The Process / Manufacturing / Chemical industry as the engineering / construction professionals knew it in the early years of the last decade will have changed dramatically in the next two or three decades. Emerging economies such as China, India, Brazil and South Korea to name but a few will continue to forge ahead in developing their R & D and manufacturing bases, there is an increasing anxiety in some of the more developed nations as to how this will all play out and what impact this manufacturing / economic “sea change” will have on the future employment opportunities, facility costs and engineering /

construction activities in Western Europe, North America and around the world, hopefully this publication and it’s future updates will assist the reader in navigating the

understanding the dynamics of this situation, and the associated engineering / construction related costs specific to Process / Manufacturing / Chemical facilities. THE GENERAL FORECAST FOR 2009 AND BEYOND: (Specific to the Process / Manufacturing / Chemical Industry and to the construction of these facilities).

• Barack Obama won convincingly the 4th November 2008 American General Election, he becomes the first African - American to take up office in the White House and he will become Americas 44th President. Will his future policies have an impact on global construction costs, only time will tell?

• The worldwide economy is under extreme stress, this has been caused by the global economic / finance downturn. Global construction activity will experience a significant slowdown that could last anywhere from 2 – 4 years.

• 2009 will be a pivotal year for the global economy, trade imbalances, budget deficits, the banking / finance problems, entitlement programs, energy prices just a few of the issues that will impact the global economy and the global

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• The enduring pain from the global finance / credit crunch is impacting all US / Global construction sectors, the question is how long will it take for this malaise to improve.

• As much as 75% of all new refinery / gas plant construction projects have been put on hold, with oil prices in the $35 - $45 a barrel range and with the possibility that prices could go lower, it might be a long time before these projects come to life again.

• The actions of Russia and the Ukraine in blocking gas supplies to Western Europe have still to play out; gas is still not flowing as of 1/17/2009.

• The Israeli move into Gaza in early January, 2009 does not bode well for Middle East peace and future construction prospects in the Middle East.

• Inflation in the USA will continue to rise in 2009 averaging 3.5% for the year. Volatile energy and food prices will be the main drivers of this significant rise in prices.

• The USA had a 7.2% unemployment rate in January, 2009; President Obama hinted that this could rise to 10% by the end of 2009.

• Uncertainties remain as oil and raw material prices increase relentlessly and then decrease just as dramatically i.e. copper, steel, glass and lumber, it difficult to forecast these costs as we move into 2009, will oil head back up to $140 again, or will head south, below $30 a barrel, will we see another 1985.

• Growing pessimism about the German, French Italian and UK economies as of 1st Q 2009 (they re all in recession) is impacting the Euro / Dollar exchange rate, the forecast for the future growth of the Euro zone is cloudy going into 2009. • Spending on power plants, wind and solar facilities, and transmission lines

soared in 2008. In the USA it is forecast that 20 - 30 new nuclear power plants will get green light to proceed in 2009. In the UK the Prime Minster announced that 6 - 8 new nuclear plants will be ordered in the next year or two.

• Construction related to US and overseas onshore oil and gas development will slow down in 2009 with oil in the $40 a barrel range, $50 billion worth of tar sand projects in Canada have been cancelled as of 1/2009, Saudi Arabia has

cancelled half a dozen major refinery projects also.

• Some ethanol plants are now being delayed or cancelled, due to negative publicity of increases in animal feed and food costs. With the increase in corn prices, this could signal problems for ethanol industry, the 200 or so producing ethanol facilities in US may have to be retrofitted to use a combination of switch grass, sorghum, palm oil, hemp, wood waste bark, sawdust, sugar cane

rapeseed and possibly solid waste.

• The US construction market related to automobiles, housing, and lodging will slow or decline significantly in 2009.

• Residential construction and commercial construction will decline in 2009 due to the sub-prime lending crisis

• Lumber prices in US have declined 10 - 12% in the last year due to drastic slow down in housing market.

• In 2009 will a continuing major interest / activity in Tidal / Hydro, Fuel Cell Technology, Nuclear, Geothermal, Solar (Photovoltaic) Wind Power

• The OECD reported in October 2008 that the Euro zone plus Japan economies look to be entering a long period of recession for 2009 and 2010.

• VW in mid 2008 announced the construction of a grass roots auto plant in

Tennessee, the facility will initially produce 150,000 cars per year, and the facility is forecast to cost $990 million.

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• Some experts are forecasting $25 a barrel oil in 2009; this will stymie future CAPEX oil and gas projects, most probably.

• In the petro-chemical industry Saudi Arabia, Venezuela and Iran are set to become formidable players in the global oil / chemical market, these countries could account for 30% of the world supply by the year 2011.

• Will inflation experience a “spike”, with $120 oil and the pressure on commodities this situation could change dramatically in 2009?

• On the political front the USA faces some serious decision making situations in 2009 especially with a new President, specific to Russia and Georgia, North Korea, Iran, Iraq, Venezuela and Pakistan (the next big problem country). • Globalization has had a awe-inspiring impact on the automotive, manufacturing

and the pharmaceutical industries, these industries are in transition, in the next 5 – 10 years there will be a significant consolidation, instead there being ten major global players in each industry there will be five or less, these industries in many ways are following the same flight path / happenings of the US airline industry, remember Pan Am, TWA, and Eastern Airlines in the 1990’s – history has a habit of repeating itself.

• The growth in infrastructure and general construction projects around the globe is producing strong demand for qualified engineering and construction professional and skilled workers, this situation plus the spike in escalation is causing

significant shortages in the global construction market, this publication has been produced to assist various construction professionals with a “road map” to navigate through these complex procurement issues.

• Geopolitical risks include:

1. The world economic downturn (could it turn into a depression). 2. Iran producing an atomic bomb and the ramifications of this. 3. Venezuela flexing its regional muscle and its future nationalization

policy, with falling oil prices this problem may go away.

4. Russia’s future energy policy, consider the recent gas disruption (1/2009). Lower energy prices are not good for Russia growth plans.

5. The continuing war against al Qaeda in Pakistan and Afghanistan. Additional topics and questions that could impact the Process / Manufacturing /

Chemical companies in 2009 - and consequently the engineering / construction marketplace, include:

• The recent hostilities between Russia and Georgia, together with Ukraine (gas shutdown) and the consequences of these to the global construction market: • Worldwide population growth, especially in Asia and South America, we will most

probably see 8 billion people on the planet by 2015.

• China and India are seeking long term toll manufacturing / supply contracts countries such as Brazil, Venezuela, Nigeria, Angola, Algeria, Saudi Arabia, Iran, Qatar and the UAE, these countries in the past dealt exclusively with North American and Euro zone chemical / manufacturing companies

• The rapid pace of technology advancements: (wireless technology / faster chips / communications etc.).

• The chemical / manufacturing industry will continue to focus on reducing production / manufacturing costs.

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• The rapid increase of commodity prices, such as steel, copper, aluminum, lumber and cement.

• The drive by big North American, Western European and Japanese Automobile / Chemical / Consumer Product companies to establish a manufacturing presence in China and India, this trend should continue for another decade at least.

• The globalization and integration of the world economy: with countries such as Brazil, China and India becoming “global” players in the next five years.

• The ongoing U.S.A. Trade imbalance: and the consequential impact of a “falling” US dollar to the world economy, this trend seems to have relented as of

September 2008.

• Increases in military hardware and manpower expenditures by China: and its future worldwide consequences.

• The impact of $147+ a barrel oil (as of June, 2008) and the economic impact this will have on the world’s economy and the drop in price to $40 in January, 2009. • The ability for Automobile / Capital goods manufacturers to develop and to bring

to market there products more rapidly, the use of 3D / digital design to ensure that piping / utility collisions are avoided in the design and construction process, thus minimizing re-work and generally speeding up the design process.

To see how things have changed in this industry in the last five years is the fact that China will have a construction market as large as or bigger than the USA in the next decade or two, the lion’s share of future CAPEX expenditures appear to be headed overseas, it would appear that the days of big corporate engineering / estimating

departments would be over in North America. This situation was one the main driver for producing this database, the publisher of this database determined that there would be a need for this “type of information”, the writer(s) have always wanted an “estimating note book” that they could carry around with them to produce or audit / check CAPEX

estimates – hence the creation of this book and it’s companion publications. The (CAPEX) capital cost for the Engineering, Procurement and Construction project (s) comprises of all the expenditures associated with the primary creation of the specific plant or facility: this usually embraces the following described direct and indirect construction and engineering related elements: “Project Control” (Capital Cost Estimating, Planning and Cost Engineering) is understanding were the project is in relation to it’s planned goals, it is being aware of where the project is headed and communicating these findings with the appropriate project stakeholder so that

constructive mid course solutions can be implemented to maintain or improve the current budget and schedule, this publication is focused on the activity of Conceptual Cost Estimating – CAPEX estimating, a flow diagram is depicted on the following pages indicating how conceptual cost estimating “fits” into the overall Project Management / Control cycle. CAPEX estimating specific to future capital expenditures related to “Process / Manufacturing / Chemical” facilities involves the collection, review and condensing a wide assortment of information and data, some of the more significant items and work tasks are as follows: (1) Owner front-end costs including internal ROI studies and marketing analysis reviews, Research and Development costs. (2) Property or land purchase or leasing / lease back arrangements, including perhaps third party tolling arrangements (including any site improvements and modifications). (3) Production of Front End Engineering – Architectural Design Deliverables - Any front-end

architectural or engineering economic - feasibility studies completed internally or by a third party i.e. A / E or EPC firm: (4) Production of the “Issued for Construction” - The Architectural - Engineering (A / E) (EPC) design effort (production of specifications and

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design drawings and project design deliverables) including reproduction expenses and associated travel costs. (5) Project Management activities associated with directing the CAPEX project includes owners and contractors staff. (6) Procurement activities – the buy-out of the work (scope), i.e. purchase orders and construction contracts: (7) The actual field construction effort, including site purchasing together with major equipment (which could be bought out in the home office, bulk and engineered materials, i.e. concrete, stone and lumber. (8) Field indirect support including field supervision of the construction scope, trailers, storage sheds / small tools and consumables. (9)

Construction equipment requirements i.e. cranes, welding equipment and the

subsequent maintenance of this equipment, and Field establishment i.e. (Division 1 or General Conditions / Preliminaries): (10) Construction Management of the project, including any third party NDT inspection / testing requirements, and, (11) Other items could include contractors overhead, fees, freight, bonding; insurance (BAR and workers compensation) and local state taxes / B&O taxes, (VAT / GST on overseas applications), tariffs and duties, specific to the project. There are a “bunch” of related matters (perhaps we could call it (12) that may need to be considered includes: expense items

(relocation), demolition work, owner provided equipment / materials – free issued to the contractor, furniture and fixtures, spare parts, initial chemicals and vendor assistance, start-up expenses, commissioning and possible validation activities. The extent of each of the above cost elements of course is based on the type of facility (i.e. unique – first of it’s type (needing new utilities or an continuing ongoing production facility, that has a history and has an existing utility infrastructure in place), magnitude or scale of operation – small operating unit i.e. 2 or 3 operators or a toll manufacturing plant or a large

operation with 100’s of plant operators, it’s operation – 24 / 7 / 365 days or 8:00 to 5:00, plant control philosophy and the actual location of the CAPEX project (s) North America or overseas. The essential principles of Project Control are to provide the best technical and business solution to the business unit contemplating a new facility expansion(s) or upgrade(s). The initial description of a project scope begins at project commencement, it is accomplished with the establishment (creation) of an “approved” design basis that is accepted by management (accepted to a least go to the next step of project approval cycle), this particular section will not get into how the scope of a capital project is developed, however it’s purpose is to provide “basic” details of how to successfully estimate early / front end scopes of work. An accurate Front End / Conceptual Cost Estimate can be the first step in the successful execution of a capital project, this “first” capital cost estimate should provide the project team with early (a “budgetary” and an initial path forward document) - information specific to cost, schedule, manpower requirements for the usual activities associated with a Engineering, Procurement and Construction (EPC) project, the tasks that will derive benefit from this “first” estimate are:

• The “initial” capital cost of completing the EPC effort.

• Detailed design (The approximate Engineering / Design staffing needs). • Procurement. (The number of Purchase orders and construction contacts

required).

• Field Labor (The peak manpower needs) / Construction Management. (The number of individuals needed to supervise and ensure the project is completed on time and in a safe manner).

• The major milestones associated with the CAPEX project i.e. start and finish date.

The decision on were to locate a new Chemical Facility / Manufacturing location(s) is many times a tough call, an easier said than done undertaking, it needs the input from

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corporate engineering, corporate finance personnel and the business units senior management (the folks that will take ownership of the completed facility) this decision is one in which the cost estimator can play a significant role in finalizing the manufacturing process and possibly selection of the final site location, what are some of the key site selection factors that need to be analyzed and estimated, some of these factors are listed below, what is the 5-10-15 year growth plan for this facility / and or product, is this were future growth for this product will occur, i.e. South East. Asia (China or India) or South America, were should the new facility be built, at an existing company owned facility, on a new grass roots location, or should we renovate an existing facility to accommodate this new product, should the capital cost estimate include land purchase, is any demolition or site remediation costs to be evaluated, are there differing

manufacturing process (steps) that can be used, are there cost differences in the

operating costs of these processes, will the new facility be given grants, tax holidays and or incentives by the state or country that the new facility will be located?, will this facility new or add on require new services and utilities, will we need to train / educate the plant operators, will the new plant require state of the art control systems, or can we obtain a competitive advantage by using low cost labor to operate the plant and minimize costs on the I/C account, lots of questions need to be tabled and answered during the CAPEX estimating effort. These questions and many more will have to be analyzed in some detail prior to proceeding with the prospective CAPEX project. In the early phases of the project the Front End / Conceptual Cost Estimate should provide a framework to

measure trends and to determine key project milestones.

The number one indispensable principle of Project Control – Cost Estimating is to deliver the best technical and business solution to the business unit considering or bidding on a new facility expansion(s) or upgrade(s), together with value (which of course is part of the business solution) for future CAPEX investments, the project team must deliver the correct business solution at the front end stage(s) of CAPEX project, the scope, needs to be to some extent defined, some front end design work (basic design) needs to have been completed, various manufacturing / production schemes need to have been considered and scoped out to determine there viability. The decision to engineer / procure and construct (EPC) a new Chemical / Manufacturing Facility, or to upgrade, revamp or modernize an existing facility is many times based on future business growth, maintaining market share and to ultimately to increase profits and ROI. Chemical / Manufacturing Facilities must be designed to meet the goals of (1) Safety, (2) Quality of final product and (3) Profit – Return on Investment. The conceptual estimator / engineer is an person who can predict / analyze the “future” cost of an Engineering, Procurement and Construction (EPC) project(s) with a very modest (minimal) amount of “real” data regarding the details of the project (basically there are no detailed design deliverables at this stage – the future “CAPEX project” is in it’s infancy, very much in the speculative or conceptual mode), typically these types of estimates are required at the very front end / early stages of a project, they are typically used to:

1. Evaluate the capital costs associated with a new or add on to a current facility. In addition they can be used to determine the viability of producing new products at a certain location. They can also be used to audit and initially checkout the proposal of an A/E firm or EPCM contracting company.

2. Used in the traditional annual or five year capital expansion / forecasting effort i.e. does the business outlook in Chile enable the project to produce an attractive ROI now or in the next two years.

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3. Used as a tool to determine the best EPC approach to maximize the owner companies Return on Investment (ROI). They can also be used as the management “go / no go” decision tool.

The Project Control cycle - is the methodical review and analysis of the projects (Scope of Work) from a cost / schedule standpoint. The following flow chart demonstrates the coordination that is required to have “accurate” Project Control on a CAPEX Project.

Regular updates / communications to the Project Manager of any departures from the current cost estimate and schedule and counseling the Project Manager / Project Team on any potential (EPC) problems is the job of the Project Controls Group and possible solutions that will ensure the projects budget and schedule is maintained or optimized, this publication focuses on Capital Cost Estimating element of the above Project Control Cycle. The foremost purpose of the compilation of a capital cost estimate is to transform engineering / design, procurement and construction deliverables and data into an accurate prediction of current and or future construction cost(s).

Capital Cost Estimates (CAPEX) - what are they used for:

• A tool for analyzing various case studies / business economic models: • An assessment of costs and resources to complete a specific scope of work: • An appropriation for funds, appropriation for expenditure - (AFE):

• A basis for analysis of contractors and vendors bids and submissions.

• The supporting documents that are the basis of an offer / bid to complete a work / scope item:

• A basis for future cash flow requirements and forecasting.

• A project control tool: (used to monitor and control the EPC effort).

• A benchmark tool for determining future project costs and possible use as a historical data tool for future CAPEX estimating applications.

Issues and factors that can influence a capital cost estimate, this list together with other data within this publication should be used as a checklist to ensure that the cost

estimating effort is completed and fully budgeted (i.e. scoped out): Project Controls Cycle Capital Estimating Planning / Scheduling Cost Engineering Engineering Data Procurement Data Construction Data Project Manager

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# Issues and factors that can impact the bottom line of a CAPEX Estimate Engineering

1 Production of design deliverables / specifications (who produces Owner or EPC firm / when).

2 C / S / A design deliverables (who produces / when).

3 Process Flow Diagrams (who produces – Owner or EPC firm / when).

4 E/I design deliverables / Control Philosophy / Classification (does owner have a preferred vendor who produces outline spec / when).

5 Piping design and detailing (who produces – does this exist – has Owners Engineering group produced the first draft of this document / when). 6 Relevant codes to be utilized.

7 Other Engineering issues.

Procurement

1 Long lead items (M.E. items) some complex items such as a multi-stage compressor could take as long as twelve months to design and produce. 2 Freight issues.

3 Import duties.

4 Bulk material purchasing. 5 Expediting.

6 Inspection / trafficking / performance testing. 7 Warehousing.

8 Early delivery bonuses / payments.

9 Other Procurement issues i.e. spare parts, vendor assistance. Construction

1 Location of facility (USA or Overseas). 2 Weather issues (cold or hot climate). 3 Productivity expectations of workforce.

4 Union / Non union / Merit Shop construction approach. 5 Plant start up activities.

6 Labor availability and possible overtime / shift work requirements. 7 Protection of the completed work.

8 General Conditions / Preliminaries. 9 Construction equipment usage.

10 Establish camp / Establish concrete batch plant. 11 All required permits.

12 Small tools / Consumables. 13 Guards / Security.

14 Special safety issues.

15 Cleaning protocols / special requirements.

Project Specific items 1 Completion date (Normal schedule or fast track schedule). 2 Escalation / Taxes.

3 Operator Training issues.

4 Owner costs / Owner provided items. 5 Contractual issues / Type of contract.

6 Warranty issues (procure extended warranty period). 7 Payment terms / Financing costs.

8 Currency impact issues.

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10 Liquidated damages / Consequential damages clauses. 11 Bonus / Penalty clause for early or delayed completion. 12 Contingency issues (technical and general contingency).

The following pages and sections A -1, A -2 and A -3 of this database will describe in some detail, the following types of capital cost estimates, a more complete description of these estimates and hybrids of these estimates are discussed in section A-3.

• Order of Magnitude Estimate (OOM). Typically arrived at by utilizing cost capacity curves, SF / M2 / M3 units, ratios, factors, exponents and historical percentages, for example barrels per day, $’s per MW, tons of production per year.

• A Preliminary Estimate / Funding Estimate. Typically prepared when the

conceptual / detailed design is 20% - 50% complete (or when the detailed design is perhaps 5% - 25% complete, or even less) Many times based on early PFD’s early P&ID’s, preliminary plot plans – indicating were major equipment is located – many times the operation(s) group has not bought into these early concepts and they have a habit of moving around, however there is some realism usually associated with these concepts.

• A Definitive Estimate / Control Estimate / Validation Estimate with the detailed design effort perhaps 30% - 50% complete, more information is known, bids / quotes have been obtained for some of the key major equipment, initial quantity take-off’s are available for civil, piping, electrical and instrumentation, the scope of the engineering effort is pretty well known.

• A Lump Sum Bid – Hard Money / GMP Estimate. A lot is now known about the project, the scope of work is reasonably “nailed down” the detailed design is typically 70% - 100% complete, bulk materials and major equipment (long lead items) are on order or some of the construction work is under way i.e. site work, piling and foundations may be partially installed).

The following table will give the reader an appreciation of were the “big cost drivers” are in a typical chemical facility project, not surprisingly these values will not be the same for each specific facility, however these values can be used as a benchmark or guide, the percentages are based on numerous (30+) projects that have been executed in the last ten years, they are a mix of new and revamped CAPEX projects with perhaps 70% of the data coming from “new” $5 - $45 million chemical and manufacturing facilities. Typical Cost Breakdown of a new Chemical / Process related Facility (constructed on an existing facility with available utilities – that may need some upgrading):

Category Percentage Value Percentage Range

Major Equipment (includes freight) the value for freight is 3%. For overseas applications requiring ocean freight this number could increase, ocean freight typically is 7% - 10% of the M.E. value.

22.9 18 - 27

Materials (Bulks / Engineered). 21.5 17 -26

Labor costs – including sub-contractors. 24.3 19 - 29

Field In directs / General Conditions / Preliminaries. 11.7 9 - 13 Detailed Design / H O support / Procurement / PM

(includes Owner Engineering) Includes all necessary

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design deliverables.

Construction Management (incl CM Gen Conditions) 5.7 4 - 8

Total 100.0 100.0

Note: These values 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 (it has been pro-rated into the above percentages). The activity of capital cost estimating is at best a time-consuming and an easier said than done undertaking, trying to forecast the many project variables such as weather, productivity, labor costs, major equipment, field in directs, bulk material quantities and unit costs, taxes and escalation and to attempt to look into the future, say two or three years is very difficult and demanding, encumbered with potential dangers (future events are of course difficult to anticipate, for example, who would have thought in the early 2000’s that a barrel of oil would cost $140 + a barrel in January of 2009 and then drop like a stone to $35), hopefully this publication will shed some light on this important topic(s).

A CAPEX capital cost estimate can be considered as one of the following:

• The bottom line cost / bid for completing an Engineering, Procurement and Construction effort, it is the work effort of determining all the numerous cost elements which will be required for a particular activity / (EPC) construction project and arriving at a total cost value for completing the itemized scope of work (basically a shopping list of required items).

• A cost summary together with a description of work (scope of work / mission statement) specific to a project to be performed or considered.

• A current photograph / snapshot of an (EPC) project(s) current scope of work together with a cost value of its anticipated final cost.

• A judgment / opinion of final cost by a person(s) / cost engineer(s) / cost estimator(s) / project team that has considered the SOW to be performed. This data source and the basic focus of this publication is targeted primarily at the manufacturing / process industry / chemical engineering / pharmaceutical / industrial sectors, 60% to 70% of the “cost estimating / benchmarking data” contained in this data source is targeted on these specific industry sectors, however it is not aim of the

database to exclude other construction industry sectors, some of the following

benchmarks and data can be use in estimating the cost of General Buildings (Airports, Logistic centers / Warehouses, Office facilities, Public Buildings, Schools, together with civil engineering related projects etc.) some of this data is outlined / indicated in section B 3, B 4 and C 1, this data can be used in the production of cost estimates for other “specific / one off” engineering and construction discipline items such as demolition, civil, site work, architectural, engineering and construction management fee’s, mechanical, electrical and instrumentation / controls and insulation (refer to section A 4 and D 1 for examples of these topics) which may be required and budgeted using similar / parallel conceptual / front end estimating methods and procedures described in this data source, this should allow a cost estimator the ability to compile a reasonably accurate front – end CAPEX estimate. The main goal of this publication is to assist the user in not “dropping the ball” and making erroneous front end / conceptual type capital estimates and basically to provide a more focused and disciplined approach in producing a more accurate and concise front end / conceptual estimate(s) – i.e. to shed some light on an

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area of cost estimating that can be a challenge to new young estimators that are starting out in this business and need an initial road map to get started. The responsibilities, mission statement and basic activities of capital cost estimating (the “job”) is for all intents and purposes a data gathering activity (getting your arms around the projects scope and documenting it), it includes reviewing design documents (design deliverables – drawings and specifications and scopes of work) if they exist and the preparing a take-off / shopping list of scope items that need to be completed in the execution of the CAPEX project, in addition it includes gathering local construction cost data, local material costs, field crew productivity / production statistics, determining contracting methods, plus a host of other cost related issues.

Capital cost estimating is a four step process; these four basic estimating steps are as follows. (This assumes that the cost estimator has read and absorbed the current scope of work and reviewed the current engineering deliverables that currently exist).

1. Familiarization - Site visit / investigation (if timing allows)

2. Quantities Effort - Quantity take-off (shopping list of required items), the quantification of all the necessary items needed and depicted upon the preliminary and final design drawings

3. Costing Routine / Effort - Collection and selection of pricing / benchmarking data.

4. Finalizing the CAPEX Estimating Effort - Summarization of this data, is the work effort of calculating all the costs which will be required for a particular activity / construction project and arriving at a total cost value for performing the (EPC) work.

They say “money make the world go round”, - CAPEX funds whether they be dollars, pounds, yen or euro’s and the subsequent cash flow of these funds and the profit that is realized as they relate to the implementation / execution of the “CAPEX project”, is the oxygen of any profit motivated construction / manufacturing related organization (Owner / EPC firm), many times it is identified as the bottom line, selling price, required funds, contract price, P & L (profit and loss), anticipated or final bid cost. Cash Flow - Money and the management of it, is of acute importance in estimating / cost engineering and project management, as is the essential metrics of knowing the current status of the project and the performance to date and how much it will cost to complete the work remaining (forecast to complete), i.e. are we making a profit or loss on this project, how does it measure up against the original capital cost estimate, (basically we are

performing ongoing benchmarking activities as the project proceeds). Each and every able cost engineer / estimator / project manager must become familiar with basic cost estimating methods, procedures and techniques that were touched on earlier (and are mentioned in some detail in the first three sections of this publication) i.e. the visit to the site to collect data (project specific information), the take-off routine, the pricing effort together with the summarization of all the relevant data, the cost engineer / cost

estimator must also have a basic knowledge of the background / supporting data that is the estimate based upon, i.e. scope of work – project definition, additionally they should understand basic accounting principals, cost control methods, value engineering

principals, cash flow and profit generation specific to their current project(s) to be

beneficial to there employer and there clients, these are important attributes that can not be learnt overnight, it could take 3 – 5 years to get up to speed with these issues. The important attributes / skills of a cost estimator are:

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• Technical ability - (EPC) knowledge. (understand the big picture):

• Team player. (help out on other estimating / project management assignments when needed):

• Basic Construction - Business acumen.

• Ability to work well under pressure / a hard worker that can think outside the box. • An inquiring mind. (Ask questions never assume):

• Good computer skills (a very important ability).

• Pack rat mentality – collects information for future use. (Discard out of date data when necessary):

The best cost estimator (the one with the best potential) that the writer has come across in the last twenty years is a young engineer with 3 – 5 years experience – his filing and data collection skills were first class, he was never at a loss when questions were asked of him, he did his homework, his estimates were accurate and well prepared, he kept his own audit trail (a large three binder that contained all the relevant estimating / pricing data). As has been touched upon, the forte and skill set of the professional estimator / cost engineer must be comprehensive - they should have an appreciation of all construction disciplines i.e. CSI Division 1 - 16, the most important prerequisite is the ability to look into the future (crystal ball and tea leaf readers…apply here.) and the second most important trait is the ability to get along with people and be a team players (being able to communicate and collect relevant data with or from the other team members is very important – squeezing out all of the relevant data from the team

members is important), complete with the skill of being able to cut through all the details and focus on the specific “cost drivers” of the future / current EPC project. A number of the more important qualities and basic traits are Business Acumen (understanding the importance of cash flow, change management i.e. change orders / claims, negotiations with clients / vendors / sub contractors). Knowledge of the construction process i.e. the understanding of the following main categories – (1) Construction / Engineering / Procurement / Construction Management, field experience is a definite advantage: (2) Communications and Computer skills (computer skills are becoming increasingly more important in this business environment): (3) Team Player / People Skills as was

mentioned above (work individually or as part of a team): (4) Time Management (create shortcuts and ability to think outside the box): Additional know-how that would be beneficial to an Owner or EPC organization is the aptitude to visualize each physical engineering, procurement and construction activity / operation (and how they impact / ripple into each other – fitting all the pieces of the puzzle together) that is required to be integrated into the “construction project”, and how each activity / work effort fits into the total / whole scope of work (big picture), and to interpret the extensive and less

significant details into accurate and detailed total cost budget / cost elements, ensuring that the scope (the intent of the design team is captured in the take-off process is followed as carefully as possible). One of the main prerequisites of professional

estimator / cost engineer is to ask questions and to question the feedback and answers that are provided by his or hers questions. The preponderance of “seasoned” cost engineers / estimators, individuals that have been involved with estimating for more than five years have in many cases collected and formulated there own personal “estimating” libraries during their career(s), many times when these individuals retire these libraries are lost, or thrown out, the exercise of this publication is to download the writers own extensive library and some of his co-workers / colleagues and to make it available to “rookie” and journeymen / women cost engineers / cost estimators joining the industry.

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This important and vital subject matter i.e. Front End / Conceptual Estimating is a data source that cost engineers and estimators are constantly searching for on a day too day basis (hopefully this data source will be beneficial to the reader on future Front End / Conceptual cost estimating activities). For the reasons just touched on, the author(s) after years of searching / compiling and collecting this type of process related capital cost estimating data decided to summarize there thoughts and views on this subject in an effort to fill this void, without getting too deep / long winded and detailed, which is hard to do on a such a large and complex topic, the book is aimed at giving the reader the “headlines” of various cost estimating items, a quicker way of arriving at a “cost”. All CAPEX capital cost estimates have one universal objective, they provide the basis for management action (go or no-go or go back and re-work the numbers), how much will this project cost, what is the ROI, can we buy this product from a “Toller”, does it make economic sense to build this proposed facility, should we expand this facility, were should we locate this facility in North America, Europe or in South East Asia, questions and more questions that need to be resolved. For those reasons to assemble and compile accurate (CAPEX) capital cost estimates historical data and benchmarking data is required, this means that a source of easy to use and precise – up to date historical / current cost specific data is essential, this data should be broken down basically into quantities of materials, labor man-hours and total dollars (money), the data source could be via the use of in-house return data or “proven” third party external resources, i.e. estimating books / pricing catalogs that are up to date. Annually or real time updated i.e. current capital cost estimating data sources (material unit costs, man-hour installation units, construction equipment – plant and productivity adjustments) - (calibrated to a key location(s) i.e. U.S. Gulf coast, Washington D.C or the North Western area of the UK) are what is needed this data can provide Owners and EPC firms a competitive

advantage over there competitors. There are today numerous capital cost estimating systems / procedures / methodologies both computerized and hard copy – and perhaps half a dozen or more reference books being used in the EPC industry to generate capital cost estimates. One of the main problems with some of these cost data reference books is that these the data is focused primarily on general construction, i.e. housing,

remodeling, office buildings, schools etc (low tech construction as it referred to). The basic focus of the data contained within this publication is the process / manufacturing / chemical industries and to some extent the pharmaceutical sector of the construction industry, the data in this publication reflects man-hour benchmarks, bulk materials, capital major equipment (CAPEX equipment), EPC construction practices, labor rates (union & non union or merit shop), schedule of rates / unit prices, engineering costs / fee’s, owner costs, plant / construction equipment. Capital cost estimates may be and are prepared and compiled at any point in the projects life cycle development, from the initial early stages 0% to perhaps 5% of the design has been established, to defined / complete engineering stages (the detailed design may be 70% - 100% complete) of the project. An example of this early estimate is (Identification / Conceptual / Business Concept Estimate ) – as it is sometime referred to (little or no engineering produced – real lack of engineering documentation - i.e. engineering deliverables and reports, the only document might be a preliminary “major equipment” list) the estimate is compiled by multiplying the major equipment items by a factor to arrive at a total installed cost, this early stage estimate would need perhaps 20 – 25% contingency to cover risks and lack of project definition, the next “update” of the estimate would be a preliminary stage estimate, possibly 10 - 20% engineering phase is compiled, we would need less contingency because we know more about the project (and we have less risk going forward), the semi detailed execution phase submission would perhaps be the next estimating step or update, perhaps, 20 - 50% of the detailed design completed, again

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more is known about the project and we would basically need less contingency, and last but not least the lump sum / turnkey bid / hard money estimate (proposal or budget), perhaps 50% - 100% of the detailed design in completed (pricing from vendors and sub contactors is typically available), the contingency requirements with this “detailed” estimate may be less than 10% and could be as low as 5%.

A detailed estimating plan i.e. a plan that lists various engineering deliverables and required data is described in Section A - 2 of this publication.

Prior to getting up to speed / on board with the basics of conceptual capital cost estimating techniques, there are number of basic fundamentals / terms and

methodologies that will be discussed and described via tables and charts in this and subsequent sections. This initial section A-1 is devoted to describing a few basic capital cost estimating goals / tasks / perceptions (a view down from 30,000 feet) and methods that are utilized (in some organizations) in the “Process / Chemical / Manufacturing” (PCM) industries, section 2 discusses capital cost estimating fundamentals, section A-3 discusses and describes various capital cost estimating methods, the remaining sections “drill” down into more detailed estimating data. Many EPC projects are

successful, it was estimated correctly, it was built on time and it produces the specified material / product that it was design to produce, however perhaps 10% – 30% are unsuccessful (the capital budget was exceeded, the plant was handed over late and the facility is not producing the product in the quantities it was designed for or to the

specification required), no one wants this situation. Loosing money on EPC (CAPEX) projects is the reality all companies face today, this situation has occurred since “Adam” was a boy, cost over runs are not a new event although such incidences seem to be more customary in recent years, perhaps because more CAPEX projects are being undertaken now than in the 1960’s and 1970’s (many times because goals are set unrealistically high) this is because interactions / communications are much more widespread (the curse of e mail, more individuals seem to be in the loop and have input into the day to day business ‘running” of the project), everyone always remembers bad news, cost over runs have happened in the past and guess what they will happen in the future. Some of the reasons that this situation seems more prevalent today are:

• Failure to scope out and estimate the project and failure to recognize the risks associated with the project.

• Clients are trying to get to the marketplace quicker, to beat there competitors to the punch (it seems everyone is in a rush these days).

• Less CAPEX dollars are available now and this will be the same possibly in 2009 and 2010 (refer to next point).

• Many major projects are being built in S.E. Asia (China and India are currently experiencing significant inflows of CAPEX from North American and Western European operating companies, however with the recent credit crisis this seems to have slowed down) and in other remote locations (language, culture, time differences – all add to the challenge).

• Companies are trying to do more with less money (i.e. CAPEX spending in USA down between 50 – 60% since 2000, less qualified staff are available than previously).

• Many projects are built using fast track engineering and construction methods. • A lot of the “old hands” have retired, Corporate Engineering groups have

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responsibilities, it seems that more and more reports are needed now, construction professionals are working harder now than they did in the past. The capital cost estimate, be it a five page Front End study or a detailed 500+ page document – with hundreds of line items (is a dynamic and living document) it is a listing of basic assumptions, a “priced out” shopping list of the owners (projects) needs, (hopefully it corresponds to the needs of the client) it’s end result, at best can only be a forecast / educated opinion / snapshot of the funds needed to complete the scoped out work of the individual(s) involved in the engineering, procurement and construction scope definition and estimating effort. The cost estimator more often than not develops the path forward / road map of the estimating process (and is the focal point of the estimating effort – refer to Section A-2 for information on the Estimate Plan), it is he or she who should determine the estimating plan, who does what and when - with

management buy-in of course, what are the required engineering and procurement deliverables needed to produce the capital cost estimate, do we require vendor quotes and layout sketches, it is the cost estimators / cost engineers function to determine the resources, tasks, construction equipment, crew sizes, field installation production man hour rates, bulk and engineered material requirements, overhead, profit margin,

contingency and risks, (again, with the buy in of upper management) it is he or she who responsible for providing an estimating audit trail / document / basis of estimate and last but not least forecasting the “final” cost of the construction related project(s), of course again with the “blessing” of senior management. To successfully perform accurate and timely front end or hard money estimating activities, it is necessary to be able to access updated “estimating” data bases of construction cost information / data (purchased from third parties, in house or personal historical data), the estimator / cost engineer must constantly accumulate cost estimating data, annual cost estimating reference books, vendor pricing / cut sheets, installation catalog(s), and copy / high light / file ad infinitum all pertinent estimating data and verify return cost data, unit costs and values from ongoing field operations. Keeping this up to date with current world events such as 9/11/2001 (and the recent worldwide financial crisis) together with the spike in oil prices above $140+ a barrel is an ongoing challenge, it is prudent to subscribe and read the ENR / Chemical Engineering / Building and other relevant industry magazine(s) together with various specialized trade magazines etc, keep copies of cost indexes as they specifically relate to labor and material costs, keep a file on labor rates, sub-contractor bids and proposals etc. It is his or her occupation / function to calibrate, adjust, make recommendations / comments and notes on specific project / construction installation problems and potential under-runs or over-runs, location factors, scrutinize productivity profiles, performance hours and return costs from the job-site and file them away for future use, this is a vital function that must be performed on a constant basis if the cost data is to be useful to organizations that depend on this data to grow and prosper. Lets face it capital cost estimating and how it is performed is a very important topic to any profit or non profit organization, getting the budget right is important, nobody wants to go back to management and ask for more money, its embarrassing and it could impact your career prospects. Developments and improvements by software / estimating / consulting firms in prevailing computer technology / data storage and retrieval systems has resulted in more than a few of these estimating data sources being put on the market to assist estimators / cost engineers, they can be purchased on various software formats i.e. floppy disc’s, C D ROM’s and smart sticks and can be accessed via the internet, also dial up / direct on line service is currently available. Operating, maintaining and running this software data and applying it to compute accurate and well-timed front end / conceptual capital cost estimates is today the distinctive challenge and important job

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function of the estimator / cost engineer and an occupation / skill that will expand in the future (skill and dexterity in the use of computers is a “needed” proficiency if one is to be employed as a cost estimator). Front End / Conceptual capital cost estimates of

refinery, chemical and manufacturing / process related (PCM) facilities need to be grounded on real life / historical benchmarks for management to buy into them and eventually approve them, the following is a listing of engineering deliverables that should be made available prior the commencing the front end / conceptual estimating effort, (note some of these early engineering might constitute no more than 2.5% - 5% of the eventual detailed design effort).

• Assignment / mission statement / estimating plan. • Any relevant engineering deliverables.

• Front end / preliminary scope of work statements (execution approach) • Process Flow Diagrams, (P.F.D.’s).

• Preliminary / early major equipment lists (with budget pricing if possible). • Plant / facility location (and location within an existing facility).

• Location of any existing utilities / existing tank farms.

• A bar chart / major milestone schedule (start and finish date)

• Preliminary P. & I. D.’s and or process flow sheets / block diagrams. • Latest engineering deliverables (plot plans and general arrangements). • Conceptual plot plan (Major Equipment locations / foundations).

• Applicable sketches / notes / photographs / videos, reports such as PCA’s etc.

It goes without saying, to have all of this data, together with outline specifications of major equipment, phone quote pricing of major equipment items, engineered materials and conceptual “quantity take off” information available, (foundations, piping lengths, electrical motor(s) list, and perhaps an instrumentation list etc), this is a lot of data to absorb, however the estimating effort / endeavor must be completed to support this early cost estimating (of course there is a “cost” to procure this front end engineering

documentation, that may have to be included with the CAPEX estimate, the question is how do we estimate these scope items, how much time do we available (1) should we produce detailed take-off’s of the foundations and piping systems etc, or should we (2) estimate the bulk accounts by historical ratio’s, percentages and factors (described in following sections) – remember the more definition (design information) that is available usually means the estimate is more complete and it’s accuracy is improved, this is an important decision that needs to be made in the CAPEX estimating effort. Loosely defined scope items / construction categories that are often / difficult or challenging to put your hands around and price out are:

1. Outside Battery Limits: OSBL piping (above and below grade). 2. Outside Battery Limits: OSBL electrical work (ditto).

3. Other work outside the battery limits (Roads, jetties and loading areas etc).

4. Fencing / Gatehouses / Parking and Lay down areas. 5. Product loading area / tank farm facilities / warehouses. 6. Process support utilities (steam / electricity / WWT facilities).

The reason these are many times difficult to price out is that there is limited information (design parameters / basic design information) on the scope of these items, these cost

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items are typically not started and defined from an engineering point of view until the “heart” of the project – the ISBL facility is nailed down – we need to know the product specification / production rates of the ISBL unit before we can size out the OSBL – utility needs. Many times these items 1 – 6 are understated (undervalued in the initial

estimating effort) a lot of times these process supporting components are called the off-sites or outside battery limits items (OSBL), the actual process operating unit is as we know is the inside battery limits i.e. - (ISBL). The (OSBL) scope items can sometimes be a separate capital cost estimating effort, but usually it is estimated by the individual estimating the (ISBL) scope of work: The OSBL / Off Sites are ‘loosely” described above 1 - 6 and include (ISBL) support systems i.e. power / electrical production / steam

generation and distribution systems / process support utilities and systems (compressed air, gas, process and cooling water / ponds), storage / tank farm facilities, loading / shipping / receiving facilities, jetties, wharf’s, pumping stations, elevated water storage tanks, road crossings, etc, the facilities are of course vital for the plant / facilities safe ongoing operations, by there very support function they are not a part of the specific processing units manufacturing / chemical reaction production “major equipment”, - these off sites might support two or more (ISBL) operating units, they are necessary utilities / services needed to ensure the manufacturing plant / facility operates in a safe, reliable and cost effective way, typically these support systems are some of the last items to be engineered and estimated / evaluated, (hence the reasoning why they are difficult to estimate / scope out at the early stages of the project). The OSBL / off-sites include the scope described above, plus some of the following. Think of them as items outside the “main process”, however they are needed to make the “main process” work and function safely:

• Perimeter roads / tank farms / product storage tanks / pipe track crossings. • Power plants / electrical power generation.

• Utility water, gas supplies / plant air. • Process water / cooling ponds.

• Sub stations, or supply / steam production by means of oil / gas fired boilers, potable cooling and process water supply and needs.

• Wastewater treatment facilities and sewage plants.

• Administrative / control / warehouse / repair & maintenance workshops / support buildings change rooms / etc.

• Parking areas, fenced off lay down / marshalling areas etc. • Raw material receiving etc.

• Flares. • Pipe racks etc.

• Product shipment buildings, guard houses jobsite security etc. • Jetties and off-site piping / pump houses etc.

• Plus other Off Site (OSBL) specific items not described above.

As was mentioned earlier in the normal detailed engineering timeline of a project, these scope items / elements are many times engineered and defined at the 20% design level or detailed design mid point of the detailed design / engineering and procurement effort; and that is the problem for the estimator / cost engineer, definition of these work tasks / scope items is typically “loose” i.e. not to well defined (the definition of the project is not yet focused at this point in the projects life cycle). Many times cost estimators / cost engineers use a percentage of between 20% and 70% of the defined ISBL process unit cost to come up with a value for this OSLB / “off sites” scope of work (not very scientific

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to say the least, but the percentage has some validity and when nothing else is

available), then again, many times senior management will consider this as not accurate enough and requests better definition (and rightfully so, this value could be a significant part of the projects final cost), i.e. more scope definition (hence more design and additional engineering costs) to define and scope out this important part of the project. An estimator needs to review the OSBL scope, is it a complex piece of work, or is it minor in nature, it’s the call of the estimator and his or hers management on how to estimate it.

In Front End Conceptual / Preliminary Estimates, determining and calculating the commodities (many times referred to as bulk or engineered commodities or “bulks”) examples of these items are as follows:

• Stone / Gravel / Hardcore / Engineered fill. • Concrete / Rebar / Formwork.

• Architectural finishes and features.

• Bricks / Masonry / Pre-cast walls / Curtain walls. • Structural Steel / Gratings / Miscellaneous Metals. • Miscellaneous, Steel / Ironwork / Platforms. • Pipe / Valves (not control valves) / Fittings. • Electric cable / Conduit.

• Insulation (equipment and pipe). • Refractory.

• Instrumentation Material (none tagged). • Paint / Coatings.

• Road Paving (Blacktop material) / Concrete curbs. • Plus many other specific items.

In the early stages of a CAPEX project the above are usually inadequately scoped out due to the fact that little or no detailed design / engineering (or more importantly the specification(s) have not yet been fully developed) has been completed (basically the design team has not thought this scope out yet), bear in mind 5% to 15% of the engineering scope has been defined at this point, the engineering team is trying to scope out the big ticket major equipment items (long lead time items), towers,

compressors, heat exchangers, filling lines etc, the big push in the engineering effort is to get the “big ticket” items on order. Front end / conceptual capital cost estimating problems/ challenges usually begin to develop in the “take off” of the commodities / bulk materials – see above listing of for types of materials, they included the above and some or all of the following, concrete formwork, rebar, foundations, piping systems, brick / block walls, painting, siding, steel platforms, roofing, structural steel supports and the items mentioned above, the problem in estimating these items (as mentioned above) is that the scope is not defined and some scope items are missed from the quantity take off. The cost estimator / cost engineer at this stage of the project must many times use his or her judgment on how to estimate these items, should we perform detailed / semi detailed estimate or take-off of these items, should we get quotes from various vendors for these systems (design / build quotes for specific systems, i.e. a high speed

packaging line, or a specific “black box” system or component), or should we use the down and dirty method of coming up with historical allowances to establish a price, time is the deciding factor in determining the path forward on this approach. Will management

2009 Front End Conceptual Estimating Yearbook