2009 Front End Conceptual Estimating Yearbook

8/18/2019 2009 Front End Conceptual Estimating Yearbook

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2009 Front - End / ConceptualEstimating Yearbook

8th 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 - FacilityTypes)

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

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

• Process Equipment Prices (85+ pages)

• Front End / Semi-Detailed Estimating Systems

COMPASS INTERNATIONAL


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COMPASS INTERNATIONAL

Table of Contents

Section / Reference Number Page NumberA-1 Introduction to Capital Cost Estimating: 1 - 28

• The General Forecast for 2009 and beyond:

• The Project Control Cycle:

• Cost breakdown of a typical Chemical process facility:

• The CAPEX Estimating process:

• Presenting the estimate to Senior Management:

• Optimizing the estimating effort: A-2 - Capital Cost Estimating Fundamentals: 1 - 30

• Questions that need to be asked:

• The Estimating four step process:

•

Capital Cost Estimating Terms: • Estimating Types / Accuracy:

• Engineering Deliverables & Budget:

• Pricing to compile various estimates:

• Resolution allowance / Undefined Scope Allowance:

• Developing an Estimating Plan: A-3 - Capital Cost Estimating Methods: 1 - 40

• CAPEX estimating (10) approaches:

• Various factoring methods:

• Seven historical Ratio / M.E. percentage cost models: • Typical Solids, Fluids M.E. multiplying values:

•

General Process Industry Benchmarks • Summarizing the CAPEX Estimate:

A-4 - Basic Man-Hour Benchmarking Data & Reference Tables: 1 - 72A-5 - Site Selection / Cost Data Sources / Estimating Checklist: 1 - 25A-6 - Value Engineering / Change Orders / Claims / Contingency: 1 - 34B-1 - Scale of Operations / Exponents (150 + Plants / M.E. items): 1 - 6B-2 - Additional Estimating Factors Cost Models (7 examples): 1 -14B-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 - 40B-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 & LaborModels (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:

ISBN 0-9725845-2-8


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About the Firm

Compass International Consultants Inc. was founded in 1992 (C.I.C.I) and is a provider ofestimating 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 1295Morrisville, PA. 19067 - USATelephone / Fax (215) 504 9777E [email protected]@[email protected]

Acknowledgements: This data source is the result of more than twenty years research and datacollection. 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 $3billion. The data is based on Compass International’s twenty year old cost library, augmented withlatest cost and labor data from International Development Banks and Agencies, European UnionCommission Reports, various Country National Libraries and Bibliotheques from around the world,various Government Information Agencies, Global Quasi-Governance Organizations, an assortmentof Government Trade Promotion Departments / Labor Departments, numerous trade magazines,hourly and annual salary rates from US / Overseas labor unions, professional society articles, anassortment of newspaper / magazine articles, various almanacs / directories / tables / referencebooks, 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 morethan twenty five years old), this information has been audited, expanded upon, modified andcalibrated and refined to today’s construction methods and installation applications. We would like toexpress our sincere thanks to the many engineers, contractors, vendors and other individuals (friendsand colleagues) too many to mention who have given freely of their advice, input, time andknowledge so that this data source could be produced for the benefit of individuals that have aninterest in this subject matter. We welcome any comments or data that could be used in futureupdates to make this database more complete and accurate.

Copyright © 2003 – 2009: By Compass International. All rights reserved. This information may notbe reproduced or transmitted in any, electronic or mechanical means, including photocopying, faxing,scanning, uploading, copying and pasting, recording, or by any information storage or retrievalsystem without permission of the publisher; it is illegal and punishable by law. Compass Internationalmakes no warranty or guarantee as to the accuracy and completeness of the estimating datacontained in this publication and assumes no liability for damages that are incurred by utilizing thedata 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 earlybudgeting tool or as a check against received bids. The publisher recommends obtaining a numberof lump sum quotes and bids that are supported by a scope of work statement and a timeline of whenthe work would be completed, reliance on the data contained in this document could result in losingbids 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 / Conceptualestimate is an estimation of the cost of a proposed CAPEX project based on initialconceptual engineering and design data, even though the specific details are not clearlyrevealed or specified at this early stage of the proposed CAPEX project, an all-inclusivevalue is required to determine the viability of the proposed undertaking”.

A front-end estimate / conceptual estimate is usually the first step in the CAPEXEstimating process. This publication has been compiled to assist all constructionprofessionals with an annual reference guide that will help them with “quick” reasonablyaccurate construction prices for work associated with chemical plants, refineries,manufacturing facilities and other related industrial plants. A vast number of challengesand 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 late2008, the issues to be faced in 2009 and beyond include numerous issues (that havefinancial, construction and operating cost consequences) that will need to be gaugedand planned for, if the decision is made to proceed with the EPC effort. The Process /Manufacturing / Chemical industry as the engineering / construction professionals knewit in the early years of the last decade will have changed dramatically in the next two orthree decades. Emerging economies such as China, India, Brazil and South Korea toname but a few will continue to forge ahead in developing their R & D and manufacturingbases, there is an increasing anxiety in some of the more developed nations as to howthis will all play out and what impact this manufacturing / economic “sea change” willhave 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 theunderstanding 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 GeneralElection, he becomes the first African - American to take up office in the WhiteHouse and he will become Americas 44th President. Will his future policies havean 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 asignificant slowdown that could last anywhere from 2 – 4 years.

• 2009 will be a pivotal year for the global economy, trade imbalances, budgetdeficits, the banking / finance problems, entitlement programs, energy prices justa few of the issues that will impact the global economy and the globalconstruction market.


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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 malaiseto improve.

• As much as 75% of all new refinery / gas plant construction projects have beenput on hold, with oil prices in the $35 - $45 a barrel range and with the possibilitythat 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 inprices.

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

• Uncertainties remain as oil and raw material prices increase relentlessly and thendecrease just as dramatically i.e. copper, steel, glass and lumber, it difficult toforecast 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 of1st 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 linessoared in 2008. In the USA it is forecast that 20 - 30 new nuclear power plantswill get green light to proceed in 2009. In the UK the Prime Minster announcedthat 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 willslow down in 2009 with oil in the $40 a barrel range, $50 billion worth of tar sandprojects in Canada have been cancelled as of 1/2009, Saudi Arabia hascancelled half a dozen major refinery projects also.

• Some ethanol plants are now being delayed or cancelled, due to negativepublicity of increases in animal feed and food costs. With the increase in cornprices, this could signal problems for ethanol industry, the 200 or so producingethanol facilities in US may have to be retrofitted to use a combination of switchgrass, sorghum, palm oil, hemp, wood waste bark, sawdust, sugar canerapeseed and possibly solid waste.

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

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

•

Lumber prices in US have declined 10 - 12% in the last year due to drastic slowdown 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 facilityis forecast to cost $990 million.


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

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

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

• On the political front the USA faces some serious decision making situations in2009 especially with a new President, specific to Russia and Georgia, NorthKorea, Iran, Iraq, Venezuela and Pakistan (the next big problem country).

• Globalization has had a awe-inspiring impact on the automotive, manufacturingand the pharmaceutical industries, these industries are in transition, in the next 5

– 10 years there will be a significant consolidation, instead there being ten majorglobal players in each industry there will be five or less, these industries in manyways 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 habitof repeating itself.

• The growth in infrastructure and general construction projects around the globe isproducing strong demand for qualified engineering and construction professionaland skilled workers, this situation plus the spike in escalation is causingsignificant shortages in the global construction market, this publication has beenproduced to assist various construction professionals with a “road map” tonavigate 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 growthplans.

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 / constructionmarketplace, include:

• The recent hostilities between Russia and Georgia, together with Ukraine (gasshutdown) and the consequences of these to the global construction market:

• Worldwide population growth, especially in Asia and South America, we will mostprobably see 8 billion people on the planet by 2015.

• China and India are seeking long term toll manufacturing / supply contractscountries 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, lumberand cement.

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

• The globalization and integration of the world economy: with countries such asBrazil, 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 ofSeptember 2008.

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

• The impact of $147+ a barrel oil (as of June, 2008) and the economic impact thiswill 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 bringto market there products more rapidly, the use of 3D / digital design to ensurethat 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 thatChina will have a construction market as large as or bigger than the USA in the nextdecade or two, the lion’s share of future CAPEX expenditures appear to be headedoverseas, it would appear that the days of big corporate engineering / estimatingdepartments would be over in North America. This situation was one the main driver forproducing this database, the publisher of this database determined that there would be aneed for this “type of information”, the writer(s) have always wanted an “estimating notebook” that they could carry around with them to produce or audit / check CAPEXestimates – 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 specificplant or facility: this usually embraces the following described direct and indirectconstruction and engineering related elements: “Project Control” (Capital CostEstimating, Planning and Cost Engineering) is understanding were the project is inrelation to it’s planned goals, it is being aware of where the project is headed andcommunicating these findings with the appropriate project stakeholder so thatconstructive mid course solutions can be implemented to maintain or improve the currentbudget and schedule, this publication is focused on the activity of Conceptual CostEstimating – CAPEX estimating, a flow diagram is depicted on the following pagesindicating 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 andcondensing 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 ROIstudies and marketing analysis reviews, Research and Development costs. (2) Propertyor land purchase or leasing / lease back arrangements, including perhaps third partytolling arrangements (including any site improvements and modifications). (3) Productionof Front End Engineering – Architectural Design Deliverables - Any front-endarchitectural or engineering economic - feasibility studies completed internally or by athird 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 andassociated travel costs. (5) Project Management activities associated with directing theCAPEX project includes owners and contractors staff. (6) Procurement activities – thebuy-out of the work (scope), i.e. purchase orders and construction contracts: (7) Theactual 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 theconstruction scope, trailers, storage sheds / small tools and consumables. (9)Construction equipment requirements i.e. cranes, welding equipment and thesubsequent maintenance of this equipment, and Field establishment i.e. (Division 1 orGeneral Conditions / Preliminaries): (10) Construction Management of the project,including any third party NDT inspection / testing requirements, and, (11) Other itemscould include contractors overhead, fees, freight, bonding; insurance (BAR and workerscompensation) 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 (perhapswe could call it (12) that may need to be considered includes: expense items(relocation), demolition work, owner provided equipment / materials – free issued to thecontractor, furniture and fixtures, spare parts, initial chemicals and vendor assistance,

start-up expenses, commissioning and possible validation activities. The extent of eachof the above cost elements of course is based on the type of facility (i.e. unique – first ofit’s type (needing new utilities or an continuing ongoing production facility, that has ahistory 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 largeoperation 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 Americaor overseas. The essential principles of Project Control are to provide the best technicaland business solution to the business unit contemplating a new facility expansion(s) orupgrade(s). The initial description of a project scope begins at project commencement, itis accomplished with the establishment (creation) of an “approved” design basis that isaccepted 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 isdeveloped, however it’s purpose is to provide “basic” details of how to successfullyestimate early / front end scopes of work. An accurate Front End / Conceptual CostEstimate 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 aninitial path forward document) - information specific to cost, schedule, manpowerrequirements for the usual activities associated with a Engineering, Procurement andConstruction (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 completedon time and in a safe manner).

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

The decision on were to locate a new Chemical Facility / Manufacturing location(s) ismany 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 seniormanagement (the folks that will take ownership of the completed facility) this decision isone in which the cost estimator can play a significant role in finalizing the manufacturingprocess and possibly selection of the final site location, what are some of the key siteselection factors that need to be analyzed and estimated, some of these factors arelisted 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) orSouth America, were should the new facility be built, at an existing company ownedfacility, on a new grass roots location, or should we renovate an existing facility toaccommodate this new product, should the capital cost estimate include land purchase,is any demolition or site remediation costs to be evaluated, are there differingmanufacturing process (steps) that can be used, are there cost differences in theoperating costs of these processes, will the new facility be given grants, tax holidays andor incentives by the state or country that the new facility will be located?, will this facilitynew or add on require new services and utilities, will we need to train / educate the plantoperators, will the new plant require state of the art control systems, or can we obtain acompetitive advantage by using low cost labor to operate the plant and minimize costson 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 somedetail prior to proceeding with the prospective CAPEX project. In the early phases of theproject the Front End / Conceptual Cost Estimate should provide a framework tomeasure trends and to determine key project milestones.The number one indispensable principle of Project Control – Cost Estimating is to deliverthe best technical and business solution to the business unit considering or bidding on anew facility expansion(s) or upgrade(s), together with value (which of course is part ofthe business solution) for future CAPEX investments, the project team must deliver thecorrect business solution at the front end stage(s) of CAPEX project, the scope, needs tobe to some extent defined, some front end design work (basic design) needs to havebeen completed, various manufacturing / production schemes need to have beenconsidered 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 offinal product and (3) Profit – Return on Investment. The conceptual estimator / engineeris an person who can predict / analyze the “future” cost of an Engineering, Procurementand Construction (EPC) project(s) with a very modest (minimal) amount of “real” dataregarding the details of the project (basically there are no detailed design deliverables atthis stage – the future “CAPEX project” is in it’s infancy, very much in the speculative orconceptual 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. Inaddition they can be used to determine the viability of producing new products ata certain location. They can also be used to audit and initially checkout theproposal of an A/E firm or EPCM contracting company.

2. Used in the traditional annual or five year capital expansion / forecasting efforti.e. does the business outlook in Chile enable the project to produce an attractiveROI 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 ownercompanies Return on Investment (ROI). They can also be used as themanagement “go / no go” decision tool.

The Project Control cycle - is the methodical review and analysis of the projects (Scopeof 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 thecurrent cost estimate and schedule and counseling the Project Manager / Project Teamon any potential (EPC) problems is the job of the Project Controls Group and possiblesolutions that will ensure the projects budget and schedule is maintained or optimized,this publication focuses on Capital Cost Estimating element of the above Project ControlCycle. The foremost purpose of the compilation of a capital cost estimate is to transform

engineering / design, procurement and construction deliverables and data into anaccurate 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 otherdata within this publication should be used as a checklist to ensure that the costestimating 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 EPCfirm / 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-stagecompressor 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.9 Insurance issues (BAR / Umbrella / Bonds).


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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 insome 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 costcapacity curves, SF / M2 / M3 units, ratios, factors, exponents and historicalpercentages, for example barrels per day, $’s per MW, tons of production peryear.

• A Preliminary Estimate / Funding Estimate. Typically prepared when theconceptual / detailed design is 20% - 50% complete (or when the detailed designis perhaps 5% - 25% complete, or even less) Many times based on early PFD’searly P&ID’s, preliminary plot plans – indicating were major equipment is located

– many times the operation(s) group has not bought into these early conceptsand 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 quantitytake-off’s are available for civil, piping, electrical and instrumentation, the scopeof the engineering effort is pretty well known.

• A Lump Sum Bid – Hard Money / GMP Estimate. A lot is now known about theproject, the scope of work is reasonably “nailed down” the detailed design istypically 70% - 100% complete, bulk materials and major equipment (long leaditems) 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” arein a typical chemical facility project, not surprisingly these values will not be the same foreach specific facility, however these values can be used as a benchmark or guide, thepercentages are based on numerous (30+) projects that have been executed in the lastten years, they are a mix of new and revamped CAPEX projects with perhaps 70% ofthe data coming from “new” $5 - $45 million chemical and manufacturing facilities.

Typical Cost Breakdown of a new Chemical / Process related Facility (constructed on anexisting 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 requiringocean freight this number could increase, oceanfreight typically is 7% - 10% of the M.E. value.

22.9 18 - 27

Materials (Bulks / Engineered). 21.5 17 -26Labor costs – including sub-contractors. 24.3 19 - 29Field In directs / General Conditions / Preliminaries. 11.7 9 - 13Detailed Design / H O support / Procurement / PM(includes Owner Engineering) Includes all necessary

13.9 10 - 17


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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) – OutsideBattery 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 activityof capital cost estimating is at best a time-consuming and an easier said than doneundertaking, 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 verydifficult and demanding, encumbered with potential dangers (future events are of coursedifficult to anticipate, for example, who would have thought in the early 2000’s that abarrel 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 andConstruction effort, it is the work effort of determining all the numerous costelements which will be required for a particular activity / (EPC) constructionproject and arriving at a total cost value for completing the itemized scope ofwork (basically a shopping list of required items).

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

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

• A judgment / opinion of final cost by a person(s) / cost engineer(s) / costestimator(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 themanufacturing / process industry / chemical engineering / pharmaceutical / industrialsectors, 60% to 70% of the “cost estimating / benchmarking data” contained in this datasource is targeted on these specific industry sectors, however it is not aim of thedatabase to exclude other construction industry sectors, some of the followingbenchmarks and data can be use in estimating the cost of General Buildings (Airports,Logistic centers / Warehouses, Office facilities, Public Buildings, Schools, together withcivil engineering related projects etc.) some of this data is outlined / indicated in sectionB 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 forexamples of these topics) which may be required and budgeted using similar / parallelconceptual / 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 – endCAPEX estimate. The main goal of this publication is to assist the user in not “droppingthe ball” and making erroneous front end / conceptual type capital estimates andbasically to provide a more focused and disciplined approach in producing a moreaccurate 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 startingout 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 allintents and purposes a data gathering activity (getting your arms around the projectsscope 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 theCAPEX project, in addition it includes gathering local construction cost data, localmaterial costs, field crew productivity / production statistics, determining contractingmethods, plus a host of other cost related issues.

Capital cost estimating is a four step process; these four basic estimating steps are asfollows. (This assumes that the cost estimator has read and absorbed the current scopeof 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 drawings3. 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 fora particular activity / construction project and arriving at a total costvalue 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 isrealized as they relate to the implementation / execution of the “CAPEX project”, is theoxygen 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 - Moneyand the management of it, is of acute importance in estimating / cost engineering andproject management, as is the essential metrics of knowing the current status of theproject and the performance to date and how much it will cost to complete the workremaining (forecast to complete), i.e. are we making a profit or loss on this project, howdoes it measure up against the original capital cost estimate, (basically we areperforming ongoing benchmarking activities as the project proceeds). Each and everyable cost engineer / estimator / project manager must become familiar with basic costestimating methods, procedures and techniques that were touched on earlier (and arementioned in some detail in the first three sections of this publication) i.e. the visit to thesite 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 / costestimator must also have a basic knowledge of the background / supporting data that isthe estimate based upon, i.e. scope of work – project definition, additionally they shouldunderstand basic accounting principals, cost control methods, value engineeringprincipals, cash flow and profit generation specific to their current project(s) to bebeneficial to there employer and there clients, these are important attributes that can notbe learnt overnight, it could take 3 – 5 years to get up to speed with these issues. Theimportant 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 acrossin the last twenty years is a young engineer with 3 – 5 years experience – his filing anddata collection skills were first class, he was never at a loss when questions were askedof him, he did his homework, his estimates were accurate and well prepared, he kept hisown audit trail (a large three binder that contained all the relevant estimating / pricingdata). 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 allconstruction disciplines i.e. CSI Division 1 - 16, the most important prerequisite is theability to look into the future (crystal ball and tea leaf readers…apply here.) and thesecond 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 teammembers is very important – squeezing out all of the relevant data from the teammembers is important), complete with the skill of being able to cut through all the detailsand focus on the specific “cost drivers” of the future / current EPC project. A number ofthe more important qualities and basic traits are Business Acumen (understanding theimportance of cash flow, change management i.e. change orders / claims, negotiationswith clients / vendors / sub contractors). Knowledge of the construction process i.e. theunderstanding 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 moreimportant in this business environment): (3) Team Player / People Skills as wasmentioned above (work individually or as part of a team): (4) Time Management (createshortcuts and ability to think outside the box): Additional know-how that would bebeneficial to an Owner or EPC organization is the aptitude to visualize each physicalengineering, 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 beintegrated into the “construction project”, and how each activity / work effort fits into thetotal / whole scope of work (big picture), and to interpret the extensive and lesssignificant details into accurate and detailed total cost budget / cost elements, ensuringthat the scope (the intent of the design team is captured in the take-off process isfollowed as carefully as possible). One of the main prerequisites of professionalestimator / 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” costengineers / estimators, individuals that have been involved with estimating for more thanfive years have in many cases collected and formulated there own personal “estimating”libraries during their career(s), many times when these individuals retire these librariesare lost, or thrown out, the exercise of this publication is to download the writers ownextensive 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 datasource that cost engineers and estimators are constantly searching for on a day too daybasis (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 capitalcost 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 ishard to do on a such a large and complex topic, the book is aimed at giving the readerthe “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 formanagement action (go or no-go or go back and re-work the numbers), how much willthis project cost, what is the ROI, can we buy this product from a “Toller”, does it makeeconomic sense to build this proposed facility, should we expand this facility, wereshould we locate this facility in North America, Europe or in South East Asia, questionsand more questions that need to be resolved. For those reasons to assemble andcompile accurate (CAPEX) capital cost estimates historical data and benchmarking datais 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 couldbe 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 installationunits, construction equipment – plant and productivity adjustments) - (calibrated to a keylocation(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 competitiveadvantage over there competitors. There are today numerous capital cost estimatingsystems / procedures / methodologies both computerized and hard copy – and perhapshalf a dozen or more reference books being used in the EPC industry to generate capitalcost estimates. One of the main problems with some of these cost data reference booksis 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). Thebasic focus of the data contained within this publication is the process / manufacturing /chemical industries and to some extent the pharmaceutical sector of the constructionindustry, 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 andare prepared and compiled at any point in the projects life cycle development, from theinitial 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 theproject. An example of this early estimate is (Identification / Conceptual / BusinessConcept Estimate ) – as it is sometime referred to (little or no engineering produced –

real lack of engineering documentation - i.e. engineering deliverables and reports, theonly document might be a preliminary “major equipment” list) the estimate is compiled bymultiplying the major equipment items by a factor to arrive at a total installed cost, thisearly stage estimate would need perhaps 20 – 25% contingency to cover risks and lackof project definition, the next “update” of the estimate would be a preliminary stageestimate, possibly 10 - 20% engineering phase is compiled, we would need lesscontingency because we know more about the project (and we have less risk goingforward), the semi detailed execution phase submission would perhaps be the nextestimating 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 lastbut 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 subcontactors 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 andrequired data is described in Section A - 2 of this publication.

Prior to getting up to speed / on board with the basics of conceptual capital costestimating techniques, there are number of basic fundamentals / terms andmethodologies that will be discussed and described via tables and charts in this andsubsequent sections. This initial section A-1 is devoted to describing a few basic capitalcost estimating goals / tasks / perceptions (a view down from 30,000 feet) and methodsthat are utilized (in some organizations) in the “Process / Chemical / Manufacturing”(PCM) industries, section A-2 discusses capital cost estimating fundamentals, section A-3 discusses and describes various capital cost estimating methods, the remainingsections “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 specifiedmaterial / product that it was design to produce, however perhaps 10% – 30% areunsuccessful (the capital budget was exceeded, the plant was handed over late and thefacility is not producing the product in the quantities it was designed for or to thespecification 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 bemore customary in recent years, perhaps because more CAPEX projects are beingundertaken now than in the 1960’s and 1970’s (many times because goals are setunrealistically high) this is because interactions / communications are much morewidespread (the curse of e mail, more individuals seem to be in the loop and have inputinto 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 thefuture. 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 risksassociated with the project.

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

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

• Many major projects are being built in S.E. Asia (China and India are currentlyexperiencing significant inflows of CAPEX from North American and WesternEuropean operating companies, however with the recent credit crisis this seems

to have slowed down) and in other remote locations (language, culture, timedifferences – all add to the challenge).

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

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

downsized, and Project Managers are getting loaded up with additional


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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+ pagedocument – with hundreds of line items (is a dynamic and living document) it is a listingof 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 aforecast / educated opinion / snapshot of the funds needed to complete the scoped outwork of the individual(s) involved in the engineering, procurement and constructionscope definition and estimating effort. The cost estimator more often than not developsthe path forward / road map of the estimating process (and is the focal point of theestimating effort – refer to Section A-2 for information on the Estimate Plan), it is he orshe who should determine the estimating plan, who does what and when - withmanagement buy-in of course, what are the required engineering and procurementdeliverables needed to produce the capital cost estimate, do we require vendor quotesand layout sketches, it is the cost estimators / cost engineers function to determine theresources, tasks, construction equipment, crew sizes, field installation production manhour 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 whoresponsible for providing an estimating audit trail / document / basis of estimate and lastbut not least forecasting the “final” cost of the construction related project(s), of courseagain with the “blessing” of senior management. To successfully perform accurate andtimely front end or hard money estimating activities, it is necessary to be able to accessupdated “estimating” data bases of construction cost information / data (purchased fromthird parties, in house or personal historical data), the estimator / cost engineer mustconstantly accumulate cost estimating data, annual cost estimating reference books,vendor pricing / cut sheets, installation catalog(s), and copy / high light / file ad infinitumall pertinent estimating data and verify return cost data, unit costs and values fromongoing field operations. Keeping this up to date with current world events such as9/11/2001 (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 theENR / Chemical Engineering / Building and other relevant industry magazine(s) togetherwith various specialized trade magazines etc, keep copies of cost indexes as theyspecifically relate to labor and material costs, keep a file on labor rates, sub-contractorbids and proposals etc. It is his or her occupation / function to calibrate, adjust, makerecommendations / comments and notes on specific project / construction installationproblems and potential under-runs or over-runs, location factors, scrutinize productivityprofiles, performance hours and return costs from the job-site and file them away forfuture use, this is a vital function that must be performed on a constant basis if the costdata is to be useful to organizations that depend on this data to grow and prosper. Letsface it capital cost estimating and how it is performed is a very important topic to anyprofit 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 yourcareer prospects. Developments and improvements by software / estimating / consultingfirms in prevailing computer technology / data storage and retrieval systems has resultedin more than a few of these estimating data sources being put on the market to assistestimators / 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, alsodial up / direct on line service is currently available. Operating, maintaining and runningthis 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 thefuture (skill and dexterity in the use of computers is a “needed” proficiency if one is to beemployed as a cost estimator). Front End / Conceptual capital cost estimates ofrefinery, chemical and manufacturing / process related (PCM) facilities need to begrounded on real life / historical benchmarks for management to buy into them andeventually 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 theeventual 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 ofmajor equipment, phone quote pricing of major equipment items, engineered materialsand 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 toabsorb, 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 engineeringdocumentation, that may have to be included with the CAPEX estimate, the question ishow do we estimate these scope items, how much time do we available (1) should weproduce 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 infollowing sections) – remember the more definition (design information) that is availableusually means the estimate is more complete and it’s accuracy is improved, this is animportant decision that needs to be made in the CAPEX estimating effort. Looselydefined scope items / construction categories that are often / difficult or challenging toput 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 productspecification / production rates of the ISBL unit before we can size out the OSBL – utilityneeds. Many times these items 1 – 6 are understated (undervalued in the initialestimating 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 bea separate capital cost estimating effort, but usually it is estimated by the individualestimating the (ISBL) scope of work: The OSBL / Off Sites are ‘loosely” described above1 - 6 and include (ISBL) support systems i.e. power / electrical production / steamgeneration and distribution systems / process support utilities and systems (compressedair, gas, process and cooling water / ponds), storage / tank farm facilities, loading /shipping / receiving facilities, jetties, wharf’s, pumping stations, elevated water storagetanks, road crossings, etc, the facilities are of course vital for the plant / facilities safeongoing operations, by there very support function they are not a part of the specificprocessing units manufacturing / chemical reaction production “major equipment”, -these off sites might support two or more (ISBL) operating units, they are necessaryutilities / 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 lastitems to be engineered and estimated / evaluated, (hence the reasoning why they aredifficult to estimate / scope out at the early stages of the project). The OSBL / off-sitesinclude the scope described above, plus some of the following. Think of them as itemsoutside the “main process”, however they are needed to make the “main process” workand 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, thesescope items / elements are many times engineered and defined at the 20% design levelor 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 notyet focused at this point in the projects life cycle). Many times cost estimators / costengineers use a percentage of between 20% and 70% of the defined ISBL process unitcost 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 isavailable), then again, many times senior management will consider this as not accurateenough and requests better definition (and rightfully so, this value could be a significantpart of the projects final cost), i.e. more scope definition (hence more design andadditional 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 toestimate it.

In Front End Conceptual / Preliminary Estimates, determining and calculating thecommodities (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 thespecification(s) have not yet been fully developed) has been completed (basically thedesign team has not thought this scope out yet), bear in mind 5% to 15% of theengineering scope has been defined at this point, the engineering team is trying toscope 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 isto get the “big ticket” items on order. Front end / conceptual capital cost estimatingproblems/ challenges usually begin to develop in the “take off” of the commodities / bulkmaterials – see above listing of for types of materials, they included the above andsome or all of the following, concrete formwork, rebar, foundations, piping systems, brick/ block walls, painting, siding, steel platforms, roofing, structural steel supports and theitems 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 takeoff. The cost estimator / cost engineer at this stage of the project must many times usehis or her judgment on how to estimate these items, should we perform detailed / semidetailed estimate or take-off of these items, should we get quotes from various vendorsfor these systems (design / build quotes for specific systems, i.e. a high speedpackaging line, or a specific “black box” system or component), or should we use thedown and dirty method of coming up with historical allowances to establish a price, timeis the deciding factor in determining the path forward on this approach. Will management


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accept factors and allowances or will they insist in a complete take-off. Other questionsthat may need to be resolved / estimated include the following:

• Under ground rock, how extensive - what type of rock, how should we estimatethis item, unit prices or an allowance?

• High water table / Bad ground conditions – running sand conditions how will we

keep foundation free of water – well point system or another method.• Hot taps (system shut down) will plant remove insulation and drain systems, do

we need special permits.• Tie-in’s, yard / utility / service piping – do we need to shut down any operating

unit (s) what about plant permits (hot work).• Electrical sub station expansions – do we need to contact local utility company?• Removal of hazardous materials – were do we remove material to, do we need

documentation do we need to keep records for future audits.• Shut downs at night or on a specific weekend.• Fire water system – can we calculate GPM needs or should we just make an

allowance.•

Revamp / upgrades – do we have current drawings (as-built’s).• Cooling towers – what are requirements, what type of tower (Concrete or timber).• Waste water treatment facilities – is this scoped out, can we get a vendor price.• Roads, gate houses tank farms, tank loading areas and a myriad of other items

that need to be considered and estimated that are unique to that particularproject.

In the marketplace there are currently some excellent cost estimating tools / softwaresystems and procedures for each estimating phase of a CAPEX project (Conceptual –M2 / Square Foot and Detailed Estimating), which when appropriately used, can createcomprehensive and accurate capital cost estimates and front end tools which are usuallysatisfactory and helpful to management for resolution and the CAPEX decision making

process. The downside of some of these systems is the initial cost of buying andsubsequent annual renewals can be very expensive. However it is always good to havea couple of different cost estimating systems, reliance on a single system is not perhapsthe way to go. Of course it is always good to have a couple of different reference pointsto validate the CAPEX estimate; hopefully this publication will satisfy that need in a lot ofcases. Of course it is vital that the cost estimator / cost engineer maintain controlthroughout the life cycle of the estimating effort (total reliance “blind faith” oncomputerized CAPEX estimating systems and methods is dangerous to say the least)the cost estimator needs to know the “details” that backup the computerized estimatingsystems and question any irregularities that show up – hopefully this database will assistand augment in that audit effort, the cost engineer has an important and significant audit/ oversight responsibility – function, it is imperative that a completed cost estimateencompass an audit trail to support the capital cost estimate of it’s basis this includes:

• List of assumptions / Inclusions:• Start date of Engineering:• Commencement date of procurement activities:• Start date of Construction:• Construction completion:• Description of the project / Scope of work statement / Major milestone schedule:• Sketches / Drawings and any Photographs (video’s):


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• Details (quantities, related to civil, mechanical and electrical systems and pricingbasis).

• Vendor / Sub Contractor Quotes:• Pricing basis (source of labor rates – union – non union and material costs):• Reports (soils / boring logs):• PCA’s, Environmental impact studies:• Lists of major equipment / instrumentation:• Basis of escalation:• Exclusions from the estimate, estimating assumptions:

Compiling a CAPEX estimate is challenging undertaking as we have previouslydiscussed in some detail, after reading this section and the remainder of this data sourcethere will be questions that the reader needs to ask themselves, these questions are,who should be involved in the verification process, which stakeholders should audit and“buy into / approve” estimated cost (is it one person or is it a committee) how will theestimate be reviewed, how can we improve the capital cost estimate preparation andapproval process, should we consider the “Gatekeeper” type of estimating approach,how can we improve the CAPEX estimating accuracy, how should we react to a project ifthe project shows potential for going out of control, i.e. schedule, cost and quality,should we:

1. Scale down / back the original scope, 70 tons of production of cementper day, instead of 90 tons per day.

2. Stop the design effort and evaluate the immediate path forward.3. Call in the “experts”, understand what the problem is, A.S.A.P. and

come up with a list of corrective options.4. Perform a re-evaluation (re-estimate).5. Consider a detailed value engineering effort.6. Chart a new course; determine the most cost effective and prudent

path forward to meet the original or “new” goals of the project.

As stated before the rationale of this data source is to provide more general conceptual /rule of thumb estimating data, front end / methodology and source document to rookie /

journeymen and journeywomen cost estimators and project managers. It goes withoutsaying, that it is the cost estimator / cost engineer who must conceptualize, visualizesthe intent of the scope of work, understand the manufacturing process of the facilityoutlined on the preliminary drawings, the business future dynamics of the facility /project, to be aware of the materials of construction, operating parameters, EPCexecution method, capital major equipment and implementation techniques required toconstruct the facility / process related plant, estimating and compiling the final cost of theproject from, concept drawing (consisting of perhaps 3-6 sketches and a preliminarymajor equipment list) to the detailed design , procurement effort and construction

approach (consisting of 100’s of detailed drawings, reports and specifications) andeventually to successful commissioning hand over of the “Process / Manufacturing”facility to the end user / operations group is a challenging effort, hopefully some of thedata contained in this data source / guide will shed some light on the needs of therequired Front End / Conceptual Estimating effort.

CAPEX Estimate Schedule and Review Cycle:


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Factors to consider and plan for include.

1. When is the CAPEX Estimate required?2. What accuracy is required?3. What resources will be required to complete the estimating effort, together with

the required engineering deliverables?

4. Has a budget been established to pay for the CAPEX Estimate?5. Who will review and “buy” into and approve the CAPEX Estimate?

Presenting the completed Capital Cost Estimate to Senior Management:

This activity is usually undertaken / conducted by the cost estimator and the appropriatesenior management to upper management, it may take an hour or it could take a coupleof days, if the capital cost estimate is a lump sum bid that needs to be submitted at aspecific time and delivered to a certain address this listing may need to be optimized toreflect these timing and delivery logistics.

1. Provide a written description of the projects scope and the

current goals the project team is aiming for, discussion theexpectations and timing needs of the business unit.

2. Describe in detail the engineering deliverables that the capitalcost estimate was based upon, PFD’s PCA’s, Phase 1Environmental reports.

3. Describe any de-commissioning activities, removal of tanks andother “good” condition major equipment items.

4. Include a bar chart that indicated major milestones, start ofengineering, mobilization to field and project completion, plusany other unique milestone specific to this project or study.

5. Be prepared to show quotes, records of telephone calls, faxes,sub-contractor pricing, e-mails and conference notes (have a file

with all the associated documentation available for review).6. Explain basis of labor / wage rates (union, open shop or merit

shop).7. Describe any necessary operating unit shut downs / tie-ins.8. Describe any demolition, disposal of chemicals / sludge,

required clean-up activities.9. Describe labor productivity basis, i.e. Gulf Coast or N.W.

England.10. Explain purpose of estimate (funding, validation or lump sum

submission).11. Is the project delivery need to be in a phased approach, what

are the cost consequences of this approach?

12. Provide listing of major cost components (M.E. multiplier, costper SF / M2, cost per gallon – try to measure the cost of thefacility to company benchmarks).

13. Describe pricing received for major equipment, how many bids;pricing basis, how long is pricing valid, delivery time.

14. Be prepared to discuss any relocations of equipment.15. Provide an explanation of direct and in-direct costs.16. Explain ISBL work and OSBL work scope.


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17. Describe how costs for civil, concrete, structural steel, buildings,piping, electrical, instrumentation, insulation, painting,engineering, construction management and any other significantaccounts were derived and estimated and compiled (Ratioapproach or detailed take-off or based on sub-contractor bidsand vendor quotes).

18. Explain instrumentation scope and control philosophy.19. Provide details of lead paint removal, asbestos removal,

underground obstructions, hazardous waste, and moldremediation.

20. Provide cost details of any “refurbished equipment”.21. Make available details of “expense” items (demolition, asbestos

removal and relocations).22. Make known required tie-ins, and any shut downs that may be

required.23. Provide details on any required overtime or shift work.24. Explain general condition Division 1 costs.25. Be prepared to discussion assumptions made regarding

productivity.26. Provide details of any allowances and provisional sums.27. Indicate the anticipated accuracy of the capital cost estimate.28. Explain how currency fluctuations are estimated, if applicable.29. Provide details of transportation costs.30. Provide details of any temporary roads, temporary camps /

accommodation that may be required.31. Provide details of costs specific to vendor assistance, spare

parts and initial chemicals are estimated.32. Provide supporting documentation for demolition and any

hazardous material removal.33. Determine the percentage of pricing that is based upon “firm”

quotes.34. Be prepared to discuss QA/QC requirements, NDT, inspection

costs and acceptance provisions.35. Provide any other project specific details that may be applicable,

such as warranty issues, what is the warranty period 12 monthsor two years.

36. Explain insurance and contractors fees.37. Be prepared to discuss a “modular” construction application.38. Explain contingency value that was utilized and method used to

determine indicated amount.39. Explain the work that the operating group will complete and be

responsible for.

40. Describe any Royalties / Licensor fees contained in theestimate.41. Spare parts how is this accounted for, detailed list or an

allowance.42. Be prepared to discuss any shared saving provisions in the

contract.43. Explain any initial operating costs such as plant operator

training.44. Explain costs associated with initial fill / catalyst.


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45. Be prepared to discuss the cost ramifications of the “contract”between the owner and the contractor, (i.e. payment terms,payment cycle 30 days or 45 days or possibly more, retention,liquidated damages and bonus / penalty provisions, bonds,parent company guarantee and consequential damages).

To recap the previous paragraphs on front end / conceptual estimating methods, thistype of capital cost estimates are compiled and used for many different reasons,including the following activities:

• Control and monitoring of capital expenditures / Cost control – Pro activeinvolvement in reducing / forecasting costs:

• Proposal evaluation / Bid check reviews.• Choice from among alternate layouts / designs / process configuration.• Board of Director Approval / Appropriation of funds (A.F.E.).• Compilation of bids / proposals.• Funding / Feasibility studies.• Choice from among varying site / manufacturing locations / countries.• Choice of alternate investments methods, lease or purchase / toll manufacture,

3rd party outsourcing.• Claims mitigation / Change order control.• Value engineering baseline cost model.• Future benchmarking points / data.

Designing and constructing new process related facilities is a risky undertaking, theindividual preparing these CAPEX capital cost estimates should understand theramifications / risks that could influence and impact the final cost of the EPC effort, theserisks include.

•

The state of the economy.• Federal and local Government grants / incentives.• Technology being used (proven or first of its kind).• Sophistication of specifications (high end or industry standards).• Schedule requirements.• Current market conditions.• Union or Open Shop labor utilization.• Productivity of the workforce.• Weather conditions.• Ambiguous site conditions (rock or high water table).• Strikes / lock-outs:• Material / Major Equipment shortages.• Accidents at the jobsite or accidents to equipment in transit.• Type of contract.• Estimating errors.• Joint Venture arrangements.• Possible bankruptcy of key players• Contractual issues.


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All of the many partakers in the efforts of compiling front end engineering studies andestimating, planning, funding, constructing and successfully starting up a new or re-vamped building, manufacturing facilities or production unit has many times a differentpoint of view on CAPEX (capital cost estimating) i.e. how to go about it, this section andthe subsequent sections goes over a “proven” method for compiling these importantproject related documents, by following the steps indicated in the following sections the

reader should be better served to understand and complete these types of costestimates. Construction is an important industry employing hundreds of thousands. Thecost of construction has an impact on everyone; the cost of construction is passed on toconsumers via price increases on every product consumer’s purchase.

Optimization of the construction process especially the CAPEX estimating effort is a win-win situation for everyone, savings can be ploughed back into the economy, providingnew opportunities for companies and individuals. The Engineering, Procurement andConstruction of a new or upgraded building, chemical plant or manufacturing facilitymore often than calls for a significant capital expenditure possibly over a two to threeyear period prior to any return on investment (R

Documents

2009 Front End Conceptual Estimating Yearbook