Fudging The Detailed Estimate

Many companies have a policy that requires a detailed 10% estimate before the project appropriation will be approved. These same organizations, typically manufacturing companies, also require that the project be started "yesterday." Manufacturing and plant management are able to "insist" on these conflicting objectives. These two objectives are incompatible. In most cases, the practical resolution of this management inconsistency is for the estimate to be "fudged. " This is to say, the estimate shows a 10% contingency, "below the line," with a similar amount of money "buried above the line" in individual categories where the risk is deemed to be the greatest. Whereas this "process" meets the company financial approval policy, it, nevertheless, provides a poor basis to execute and manage the project. From a project management viewpoint, it is poor practice. It is also quite common for such companies to execute projects on a "crisis management" basis. In most cases, this type of approach will increase the capital costs of their projects. However, this may increase the economic return as the product can reach the marketplace at an earlier time.

DESIGN CONSTRAINT ON ESTIMATING QUALITY

Figure 6-1, entitled "Overall Breakdown of Engineering, Procurement, and Construction," shows the quality of estimating in relation to its completion of the EPC progress curves. This information is based on historical experience and it shows that for a 10% quality estimate, the percentage completion for an EPC project should be the following:

With an outstanding historical data base and high quality personnel, it is possible to provide a 10% estimate with lower percent completions of EPC.

PROJECT MANAGEMENT ESTIMATING RESPONSIBILITY

As many companies have a formal estimating section, the relationship between the estimator and project manager should be clearly defined and properly understood by all parties.

Figure 6-1. Overall Breakdown of Engineering, Procurement and Construction.

Figure 6-1. Overall Breakdown of Engineering, Procurement and Construction.

The project manager should "direct" the estimate(s) development, approve the estimate(s) prior to issue, and ensure the estimate(s) properly reflects:

a) Project objectives and their priorities Design scope and design specifications

Maximizing of quantities and minimizing of factors (numbers of drawings and construction work units) d i Correct evaluation of design and labor productivities

Current project and site conditions (access, congestion, etc.) f) Proposed execution plan/contract strategy

Schedule requirements (economic versus acceleration) Adequate contingency evaluation

As can be seen from the above "definition," the project manager is actively involved in the development of the estimate and is responsible for the final product.

DEVELOPING OR CHECKING AN ESTIMATE

a) Scope Review

To ensure that the scope definition is of the required quality, the estimator/project manager should make a detailed review of all basic design documents, their revision numbers, and dates of issue:

Check that all major equipment is included and is listed by equipment number.

2) Review all items shown on plot plans, flow sheets, PIDs, and equipment lists to ensure their inclusion in the estimate.

3) Equipment and system capacities, flow rates, temperatures, and pressures should be checked for deviation.

4) Check that owner costs are to be included, or shown separately.

5) Evaluate deviations in the scope, design, or estimating basis from those assumed in the earlier estimate and include these on a "puts and takes" list.

6) Specialist engineers assigned to the project should review and verify the design scope.

b) Project Conditions Review

Prior to developing the line-by-line details of the estimate, an overall evaluation should consider the following.

1) Project location considerations, i.e., site characteristics (high winds, weather, soil conditions) and local affiliate-governmental practices or regulations.

2) Schedule, i.e., start of engineering, start of construction, mechanical completion, and milestone dates.

3) Labor basis, e.g., subcontract or direct hire.

4) Economic outlook.

5) Contracting mode and execution plan.

6) Estimate is compatible with contract conditions.

c) Reviewing Significant Overall Relationships

A comparison should be made of significant relationships including:

1) Engineering manhours per piece of equipment.

2) Construction manhours per piece of equipment.

3) Ratio of direct field manhours to engineering manhours.

4) Contractor's home office and engineering cost as a percent of total cost.

5) Contractor's fee as a percent of total cost.

6) Indirect construction costs as a percent of direct labor cost.

7) Percent breakdown of engineering manhours by prime account.

8) Percent breakdown of construction manhours by prime account.

9) All-in engineering manhour rate.

10) All-in field manhour rate.

11) Escalation allowances for material and labor.

12) Productivity factors for engineering and construction.

13) Currency exchange rates (for overseas purchases).

d) Major Equipment and Material

The cost of major equipment can be established by actual quotations or from historical data. The method depends on the type of equipment involved and its relative cost. For example, quotations should be obtained for large compressors, but small mixers may be estimated from catalogues or estimating manuals.

1) Developmental (or growth) allowances for "Fast Track" projects: Estimates based on vendor quotes, catalogue prices, or initial inquiries should include an allowance for future increases in scope. Costs can rise as much as 15% from an original purchase price as a result of design changes. Verify that the estimate has included an appropriate design allowance (typically 5-10%) for future changes. Based on the general specifications and detailed equipment specifications and data sheets, evaluate as follows.

Vessels (towers, reactors, drums): Check unit costs; adjust for size, material, shop versus field fabrication, operating temperature-pressure, metallurgy, number of manholes and platforms, internals required, and the need for insulation-stiffening rings and lifting lugs.

Heat exchangers: Check the cost per square foot of useful transfer surface.

Heaters and furnaces: Check the cost per British thermal unit of heat absorbed. Evaluate the degree of prefabrication prior to field erection.

Boilers and superheaters: Check the cost per pound of steam generated.

Pumps: Check the cost per horsepower. Pumps of similar capacity can vary greatly in price depending on type and materials of construction. It is important to know all special requirements and design characteristics. Storage Tanks: Check the cost per barrel capacity and the cost per pound of fabricated weight. Ensure that tank foundations are adequate for duty and soil conditions. S; Evaluate project-schedule conditions which could influence prices, e.g.:

i. Market conditions ii, Purchasing preference/plant compatibility/mainten-

costs

Schedule acceleration (premium costs)

iv. Escalation/currency exchange rates v. Freight, duties, taxes vi. Size of order/quantity discount

Use a "cheapest source" program for guidance on the source for a worldwide purchasing program.

e) Bulk Materials: Quantities and Costs Evaluation

1) Concrete:

i. Spot-check design quantities for large equipment foundations ii. Average cost per cubic yard installed (with rebar, formwork, excavation, and backfill)

iii. Quantity of rebar, formwork, excavation, and backfill per cubic yard of concrete.

2) Roads and paving: Cost per square foot installed-overall areas from plant layout.

3) Underground piping and sewers:

i. Total linear feet from drawing layout Location and number of manholes iii. Cost per linear foot of installed piping, including excavation, backfill, manholes and sumps. On large projects, underground quantities are often underestimated.

4) Miscellaneous concrete work: Ensure sufficient requirements for cooling tower basins, API separators, pipe sleepers, culverts, and particularly road and electrical crossings.

5) Fireproofing:

i. Check the cost per area of surface fireproofed.

ii. Ensure adequate allowance for cutouts and rework.

6) Buildings, structures: Review individual costs for the substructure, heating, ventilation, air conditioning, plumbing, and lighting as a function of the floor area and total cost. Look at all-in square-foot costs of building.

7) Site preparation:

i. Review grading and site preparation; check costs per cubic yard.

ii. Check soil conditions, i.e., type, frost depth, de-watering, sheet piling, and draining requirements.

iii. Consider possible underground obstructions.

On large grass roots projects, earth-moving quantities are often underestimated.

8) Piling:

i. Check the all-in cost per linear foot (including mobilization and demobilization) and the type of piles precast, in situ, or timber) and the cutting of pile caps.

ii. Check who does the layout work (the prime contractor or a subcontractor?).

9) Fencing and railroads (usually subcontracted): i. Total linear feet.

All-in subcontract installed costs.

10) Piping estimating methods: Following are four methods of preparing a piping estimate. The specific method would depend on detail and accuracy of the estimate.

i. "Estimating by Length Method." This method is based on historical data and assumes an average number of fittings and flanges for a "standard" piping configuration. Costs would be on a unit length basis by pipe size and schedule. Fabrication would be separated from field installation. It is necessary to add only the cost of valves, pipe supports, testing, etc. to arrive at a total direct cost for the piping system. Care should be taken to check allowances for unusual complexity of piping arrangements (especially on-site units or revamps).

"Estimating by Weight Method." In this method, piping materials are assumed to have a value approximately proportional to their weight. Pipe is assigned a cost per pound for material and a number of man-hours per ton for fabrication and erection. Adjustments should be made for unusual materials and labor productivity for the plant location. "Estimating by Ratio Method." This method calculates piping as a percentage of the major equipment cost. Ratio methods can be used only with an appropriate data base. This is not a very accurate method and is usually applied to conceptual estimates. iv. "Estimating by Unit Cost Method." This method is more accurate but is costly and time-consuming as detailed takeoffs must be made of all labor and material units in the system. This method requires that engineering be well advanced before accurate takeoffs can be produced. It also requires detailed historical data.

v. "Piping Estimate Review." Examine the method and extent of takeoff by sampling line takeoffs, and com pare actual quantities and costs with estimate. Review the basis of fabrication, impact of special materials, etc. Also check the following:

A. Total linear feet and total weight as a function of plant capacity and plant area.

B. Overall cost of pipe, fittings, valves, and flanges to total cost of piping material.

C. Separately, compute the cost per ton for material, prefabrication, and erection of both small- and large-bore piping.

D. Cost per foot of pipe tracing (steam or electrical).

11) Electrical: In estimating electrical work, a schedule of the number and size of motor drives is a basic requirement. Motor control center and power distribution items usually constitute a major part of the electrical work. Since their prices can vary considerably, budget prices should be obtained from potential suppliers. The cost of power cable should be estimated in reasonable detail. A plot plan layout is useful in assessing quantities, while material unit prices may be estimated from historical data. Minor, miscellaneous services, such as emergency lighting, fire alarms, intercoms, power outlets, and telephone systems, can be assessed approximately or represented as an allowance. Plant lighting may be estimated on an area or unit length basis. A gross estimate of electrical work based on horsepower can be inaccurate. The estimate should take into consideration local electrical codes and area classification. Climatic conditions may require a different type of cable and hardware, and therefore could affect cost.

i. Electrical estimate review. Review the motor list against the equipment list and the single-line diagram. Also check the following:

A. Overall cost of the power supply related to the total horsepower or thousands of kilowatts.

B. Cost of the power supply per motor related to the size of the motor.

C. Lighting cost per square foot, per linear foot, etc.

D. Cost of grounding related to the area covered.

12) Instrumentation estimating methods: The following are those generally used:

i. Factor estimating. With an adequate data base, instrumentation can be factored relative to the installed major equipment cost. Additional points for consideration are the following:

A. Local electrical and environmental codes.

B. Degree of computer control.

C. Does the plant need clean, dry air? If so, an instrument air compression system may be required.

Estimating by instrument loops. Instrument costs are estimated at a cost per loop. This can be done by using previous return data to establish costs for typical loops based on instrument type and materials of construction and multiplying these by the number of estimated loops in the system. Loop configurations should be developed by the instrument engineer. Total installed cost per unit. In this method, instruments are priced from a preliminary list by means of quotes, catalogue prices, or past data. Auxiliary material and installation costs (e.g., tubing, wiring, racks, supports, testing, etc.) are assessed for each instrument based on past experience and judgment.

iv. Detailed estimating. This is the most accurate approach and requires a detailed instrument list. This can be priced from past data or quotes. Labor manhours for each instrument are added. Instrument tubing and wiring should be established by detailed takeoff. Auxiliary material and labor cost can be taken as a percentage of the total instrument cost.

v. Instrument estimate review. Examine process and instrumentation diagrams for numbers-complexity of instrumentation. Check for conflicts between owner and contractor specifications. Also review the following:

A. Interface between scope of work for additions to existing plants.

B. Electronic-pneumatic requirements.

C. Total number of instruments related to the number of pieces of major equipment.

D. Ratio of the cost of instrument piping and instrument wiring to the basic instrument cost.

E. Average cost of piping and wiring per instrument.

13) Insulation: Review requirements for heat conservation, winterizing, cold insulation, and personnel protection for equipment and piping. Analyze the cost of pipe insulation as a factor of the total installed piping value.

14) Painting: Not normally large enough to justify a detailed estimate. Review any prorated method and values allowed.

f) Direct Construction Labor

1) Equipment installation (manhours): A check of manhours requirement for equipment installation may be made as follows:

i. Manhours per material cost.

ii. Manhours per weight and type of equipment.

per piece and type of equipment.

2) Bulk materials installation (manhours): The following would be major items to check:

i. Manhours per cubic yard for excavation (machine, hand, or weighted average).

per cubic yard for foundation concrete (including forming, pouring, reinforcing steel, and embedments). Review dewatering, sheet piping, and shoring requirements for a civil program.

iii. Manhours per ton of structural steel (for field fabrication and erection).

iv. Manhours per ton or per foot of piping by size and pipe schedule.

v. Manhours per valve and specialty item.

vi. Manhours per instrument installed (including cable, termination and testing).

3) Productivity (manhours): Depending on the quality of the estimating base, the preceding manhours would normally then have to be factored for time and the location of the project. A geographic productivity system is essential for a quality estimating program. General items (handling, scaffolding, testing, rework, etc.) would be on a manhour percentage basis for a detailed estimate and included in manhour rates for a conceptual estimate.

4) Labor costs: Review current labor agreements and conditions, productivity factors, manpower availability, site conditions, and project conditions. Review total manhours as well as the craft manhour distribution:

i. Subcontract versus direct hire; what is covered in the all-in subcontract wage rate, especially field indirects?

ii. Average wage rate.

iii. Inclusion of appropriate fringe benefits, taxes, and insurances.

iv. Allowances for premium pay on overtime and shift work.

Construction Indirect Costs

Where possible, ensure that estimates have dimensional sketches showing layouts of temporary facilities which can then be quantified for estimating.

Temporary facilities: Review estimates for the following:

i. Temporary utility lines and utilities consumed during construction.

ii. Temporary roads and parking and laydown areas. Fencing and security.

iv. Temporary buildings, furnishings and equipment.

v. Personnel transportation and equipment-receiving facilities.

vi. Erection-operation of construction camp, if required. Most of these items would be estimated on a cost per foot and square foot basis.

2) Construction tools and equipment: Discuss and check the methods used by the construction group in establishing equipment requirements. Check the following:

i. List and scheduled duration of all major equipment. Small tools (normally estimated as cost per labor or percent of direct-labor costs). Availability of equipment; start and termination of rental period.

iv. Equipment maintenance, major and minor.

v. Equipment purchased; equipment rented and source.

vi. Review of cranage and heavy lift requirements.

vii. Construction equipment cost per direct-hire manhour.

3) Construction staff: Examine the site organization chart and assignment durations of personnel; also review the following:

i. Relocation costs, travel and living allowances, fringe benefits and burdens, and overseas allowances.

ii. Total staff manhours related to total labor manhours.

iii. Supervision cost related to the construction labor cost.

iv. Average monthly rate for the technical staff.

4) Field office expenses: Review the estimates of field office supplies, reproduction, telephone, telex, office equipment, and consumables. These items are usually estimated as cost per labor manhour or as a percent of direct field costs.

h) Home Office Costs

1) Percentage of project costs: This method requires considerable analysis of previousprojects, but can provide a reasonable estimate of H.O. costs for a conceptual estimate. Normally, H.O. costs would be expressed as a percentage of the following bases:

i. Total "constructed cost" (i.e., material + labor + subcontracts + field indirects). A typical range would be 10-15%.

ii. Direct material and labor (subcontractor or direct hire). A typical range would be 18-22%.

2) Engineering manhours based on pieces of major equipment: A typical range would be 1000-1500 manhours/piece of equipment. Factors may be applied to reflect size, complexity, prototype, and revamp work. These manhours will cover all engineering and design manhours. Manhours for services such as planning and scheduling, estimating, cost control, and procurement are derived as percentages of engineering hours.

3) Manhours per drawing (or work item): This method requires major completion of the process design so that a detailed drawing list can be developed. It is necessary that PIDs, plot plans, and equipment lists be available from which a total number of drawings can then be estimated.

4) Reviewing home office estimate: Review the basis of establishing manhours with the engineering group. Analyze the following:

i. Manhours per major piece of equipment.

per drawing using the estimated total number of drawings.

iii. Percentage relationship of discipline manhours for abnormalities.

iv. Average all-in rate for total home office technical personnel.

v. Benefits, burdens, and overhead rates.

vi. Fee basis on reimbursable and cost-plus contracts.

vii. General specifications for conflict or "gold plating." Service group estimates by organization chart, manning schedule, and statistical relationship.

ix. New technology contingency for prototype design.

i) Contingency

The contingency or estimating allowance is usually a function of the following:

1) Design definition (process unit, off sites, revamps).

2) Estimating methods (data base and level of detail).

3) Time frame and schedule probability.

4) New technology and prototype engineering.

5) Remoteness of job site; infrastructure requirements.

6) Engineering physical progress (percentage complete).

7) Material commitment.

8) Construction physical progress (percentage complete). Determining overall estimate reliability is made more difficult by the fact that some segments of a project may be completely defined at the time of estimate, and others only sketchily defined; some may be estimated by reliable methods and others necessarily are estimated by methods which produce less accurate results, and so forth.

To cope with this, it is necessary to separately quantify the degree of reliability of the sub-estimate for each of the major independently estimated segments or units of an estimate as a whole. This can be done with the aid of guidelines for classifying degree of definition and quality of methods/data used. These, in turn, establish appropriate estimating allowances and accuracy ranges for each of the segments.

When a project has been approved and work begun, changes begin to take place in facility definition, estimating methods, knowledge of project conditions, and forecast time-span. This entails successive re-appraisals of contingency. It should produce a continuing reduction of estimating allowances.

Estimating Allowances and Accuracy Ranges

Estimating allowances or contingency is defined as the amount which statistical experience indicates must be added to the initial, quantifiable estimate, in order that the total estimate has an equal chance of falling above or below the actual cost. This allowance is required to cover oversights and unknowns, which on average, always results in final project costs that are higher than initial quantifiable estimates. If required, estimating allowances may be modified to produce greater or lesser overrun probabilities.

For any individual project in a series of projects, the estimated cost including estimating allowance, will fall under or over the actual cost of the project. A well-developed estimating system, when applied to a series of projects, produces a pattern of under and overruns which approach "normal" or bell-curve distribution. Overestimate and underestimate amounts are determined by so many unrelated happenings that the results resemble those obtained by chance. Major systematic errors are eliminated in the development of an estimating system, and analysis of departures from normal distribution is one of the tools available for estimating system improvement.

The error distribution of estimates produced by a given organization at a given period in its development will have a wider or narrower spread, or range, depending on factors previously listed. A quantitative measure of this spread is "accuracy range." This is defined as the percentage range, relative to actual project costs, within which eight tenths of the estimates of a given quality will fall. Theoretically, one tenth of such estimates will be outside the range on the high side. One tenth will be outside the range on the low side. When appropriate estimating allowances have been applied, half the estimates will be over actual cost and half under, so that average deviation will be close to zero.

In practice, most companies experience an average deviation which varies 10-20% from the zero level. This means that for an 80% probability, the estimating program has a built-in bias. In general, this is mostly a plus (overrun) bias in the range of 1015%. In simplistic terms, this means that the estimating program has a +10-15% "accuracy range," which means that more projects

(10-15% more) will overrun than underrun, even with the inclusion of an appropriate contingency.

It is important therefore, that a constant analysis be carried out of the actual costs versus the estimate, so that such biases can be detected and corrected.

These elements of contingency and accuracy are often determined by a computer risk analysis program.

j) Escalation

Escalation is usually included as a separate line item or is built into the estimate details. Either method is acceptable— assuming that escalation rates and cost centroids have been developed properly. Escalation rates for material and labor costs should be separately identified. The "cost centroid" technique and application of escalation rates is illustrated with the technique found in the data section.

Currency Exchange Conversion

As currency conversion rates can fluctuate widely over the life of a project, it is recommended that one use the rate established at the time of appropriation and track deviations thereafter as a one-line item. Corporate and affiliate financial groups should be consulted when establishing currency conversion rates for the estimate.

CONSTRUCTION LABOR PRODUCI'MTY a) General

Good assessments of labor productivity are essential for a quality cost estimate. Cost control and planning and scheduling can be ineffective without an adequate evaluation of labor man-hours.

Figure 6-2 shows major elements that can affect labor productivity. The recommended "condition productivity ranges" and associated curves have been developed from many projects built in the 1950's-1970's. However, on a specific project, any one or even several conditions can have an abnormal effect on productivity. It is assumed that the company estimating data

Figure 6-2.

PROJECT CONDITION ANALYSIS - CONSTRUCTION

PRODUCTIVITY

prOductiVitY FACtOrS Are MULTIPLIERS

THIS ANALYSIS ASSUMES THE ESTIMATING DATA BASE IS BASED ON GftASS ROOTS WORK . UNION LABOR

sizethours) pfj.:; labor field START FIELD DURATION

WORK WEEK

1. AREA LOCATION FACTOR (from data base) .

-this FACTOR GENERALLY RECOGNIZES LABOR SKILLS OF AREA . PREVIOUS PROJECTS IN SAME AREA PRODUCTIVITY

NOTE OTHER PROJECTS IN AREA

IT HAS BEEN ASSUMED THAT THE ESTIMATING DATA BASE REFLECTS A PROJECT SIZE OF ONE MILLION HOURS

4. SITE CONDITIONS

iv' ABNORMAL WEATHER !s,sliai|j|:Bi .'¡.j--i;;.ir u u-r e: - ____1 -Q

b) SITE ACCESSIBILITY________________________ . J-0_-_ L-ftfl.

C) GROUND . HEIGHT. HAZARD CONDITIONS_____________1-5 " i-JO

5. LABOR CONDITIONS

WORK WEEK SEE CHART)

b> UNION PRACTISES (work rules . craft re»trlctloni etc.)______

e> WORKER ATTITUDE (union labor)_____ _ ___________i_.ip_

6. FIELD MANAGEMENT (anticipated)

7. CONSTRUCTION BASIS ( direct hire to subcontract > oj»..

9. OTHER

a> ANTICIPATED ENGINEERING DRAWING DELAYS b) ANTICIPATED MATERIAL DELIVERY DELAYS __

ESTIMATED PROJECT PRODUCTIVITY

base is at 1. O. Higher numbers are poorer productivity and lower numbers are better productivity.

The productivity analysis starts from a general, area factor. Additional allowances, based on the recommended ranges are then made for the listed conditions. Judgment and experience are necessary for determining these additional allowances. If there is no previous experience of the area, this procedure can still be very effective as the "condition productivity adjustments" are often of a greater magnitude than area productivity differences.

Refer to Figure 6-3 for productivity adjustments for:

• Area workload and peak construction labor

• Extended work week

The data and analysis is generally based on construction of new facilities at an existing plant, with minor hot work restrictions and an average labor performance. Guidance for major revamps is given in the historical data section.

b) Area Workload/Peak Construction Labor

As area workload and peak labor increases, productivity will generally reduce in a normal economic environment. It is assumed that the estimating data base, at a productivity of 1.0 (on the curves), is based at "normal" area workload, with a peak manpower level of 750.

If area workload is low, then manpower peak can rise to 2000 before a productivity loss adjustment needs to be made. Conversely, if area workload is low and project size and schedule requires a manpower peak of 1000, then a productivity improvement (0.96) is determined from the curves.

c) Job Size

In addition to manning levels, job size (in manhours) has a significant effect on productivity. This curve shows the estimating data base reflects a project size of one million manhours (direct work only). Thereafter, as job size increases, productivity decreases.

Figure 6-3.

PRODUCTivrrv factors are multipliers

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AREA. WORK LOAD / PEAK_CONSTRUCTION LABOR

PROJECT CONDITION ANALYSIS - CONSTRUCTION

PRODUCTIVITY

PRODUCTivrrv factors are multipliers

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AREA. WORK LOAD / PEAK_CONSTRUCTION LABOR

i . î : i i t PROJECT CONSTflUjiOWiralBEBHCÍUnS [ hill row ?

EXTENDED WORK WEEK

d) Extended Work Week

Two curves are shown for small and large jobs. The productivity loss adjustment applies to total manhours and not merely to the additional overtime hours.

Refer to Figure 6-23, "Productivity Loss for Extended Workweek," for a more detailed explanation of this condition. Note: During periods of major low employment, such as recessions and depressions, it is possible that labor productivity will not follow these curves, as the fear of unemployment can be an over-riding consideration.

PRE-ESTIMATING SURVEY

Figure 6-4 shows the major items to be developed and/or considered prior to developing the estimate.

ESTIMATING CHECK LIST

a) General

In conjunction with the Pre-Estimating Survey, a comprehensive check list can be a significant aid in insuring that all appropriate details have been covered. The following is not a complete list, but it will significantly assist with the following major considerations:

1) Planning The Estimate

2) Cover All Items

3) Serve As A Base For Your Data Base

4) Particularly, Cover The Three P's—Political-Procurement-Process Design b) Political Considerations

These considerations can be broken down as follows:

1) Local, political and social environment

2) Regulatory, permitting requirements

3) Business environment

4) Tax structure; expense vs. capital costs allocation

5) Overseas — nationalistic/logistics/infrastructure

Figure 6-4.

Prime Contractor Joint Venture

PRE-ESTIMATING SURVEY

Geographical Area

Climate

Site Access

Soil Conditions Earthquake Factors Site Elevation Offshore Platforms Environment Attitude of Community

Prime Contractor Joint Venture

Qualified labor Pool Recruiting and Training |Labor Productivity | Labor Contracts Labor Cost

OVERTIME

Recreati on Fac,

Pre-Fabricated Assemblies-School

PERMANENT COMMuNiTY

Specifications Local Codes Procurement

Schedule

Origin of Materials & Equipment

Export Packing ^Construction ¡-acilities]

Temporary Facilities Housing ) los i st i cs Communications Warehousing Guard Service

Inflation Escalation

I CuRRENCI~

Site Fabrication Fac.

Construction Equipment

Hedical Facilities Food & Catering Sanitary Facilities

RETRO-FIT / REVAMP

Hazards-Work Limitations

Security-Clearance-Permits Health Factors Contractor Training Standby Allowance

Financing Overseas Premium Cost of Living Cost of Traveling

Taxes INSuRANCE

Legal Assistance Government Agencies

Letters of Credit

And Bonds Language Problems Local Cultures

Qualified labor Pool Recruiting and Training |Labor Productivity | Labor Contracts Labor Cost

C) Procurement Program Considerations

A careful review of the procurement program is essential, as the equipment/material costs can be more than 50% of the total cost. The following are typical considerations:

Quality Vendors List/Inform ation/Experience of Suppliers Domestic Vs. Worldwide Purchasing Plan

Import Duties, Taxes, Delivery Charges (company exception)

Currency Considerations and Exchange Rates

Vendor Servicemen Requirements

Plant Compatibility of Existing Vs. New

Ease of Maintenance/Operating Costs

Spare Parts Requirements

Inspection and Expediting Requirements

"Critical" Purchasing Plan (Schedule Priority)

d) Detailed Checklist for Estimating

1) Climate Arctic Humidity Temperate Temperature Prevailing Winds Winterization Storms Winters

Snow Accumulation Rain

Lost Days Due to Weather Shelters Required

Special Method of Construction Necessary Equipment

2) Earthquate Factors

3) Access

• Roads/Water/Air/Railroads

• Conditions of Roads Clearance of Roads (Tunnels)

• Capacity of Roads & Bridges

• Ice Conditions

4) Offshore Facilities

• Sea Floor Conditioning

• Soil Conditions

5) The Environment

• The Attitude of the Community

• Present & Future Zoning

• Other Industry in the Area

• Environmental Restrictions

• Environmental Impact Study

• Required Permits — Local - State - Federal - Others

• Legal Counseling

• Delays in Obtaining Permits & Associated Costs in Terms of Escalation

• Requirements for Pollution Control for Noise, Air, Water,

Disposal of Waste, and Their Cost

• Consideration for Alternate Site

6) The Political Aspect

• What is the political climate of the proposed site and the prospect for future stability?

• Is the governing authority encouraging investment; is it favorable to business; what is the tax structure?

• For an overseas project, to what degree are governments involved?

• For an overseas project, what are the terms of payment and are delayed payments probable?

7) Procurement

• What is the source of information about vendors

• Where are the vendors located

• How will equipment and material be transported

• Are there a minimum of three bidders available

• What is vendor reliability and experience

• What will be the origin of material and equipment

• For overseas, what are the import restrictions

• What is the import duty

• Is equipment available on reasonable delivery schedules

• What will be the terms and conditions ■' Any discounts for large purchases

■ Will purchase orders be firm, cost plus, or with specified escalation What are the warranties

• What service can a supplier provide during construction and operation, and at what cost Provisions for inspection and expediting

• Export packing requirements Spare parts and their costs

In what currency will the purchases be made

What is the exchange rate

What will be the payment schedule

Marshalling yards requirements

Loading and unloading requirements

Lightering

Demurrage costs

Higher costs due to congested harbors Will trading companies be used

8) The Process

• What is the plant capacity

• What are the products

• What are the by-products

• Flow sheets available

• Utility flow sheets

• The plant layout

• Plant location

• Material specs - exotic - standard

• Mechanical specs: Pressures - temperatures - flows -

corrosion

9) The Process

• Local code requirements

• State code requirements

• National code requirements

• Client/engineer's specifications

• Architectural requirements

• Metric/English measurements

• Pollution control

STATISTICAL/HISTORICAL DATA

This section includes the following references which should be helpful in developing a cost estimate.

*a) Typical Prime Contractor Cost Breakdown (large project) — Figure 6-5.

*b) Cost Basis - Engineering/Construction Relationship — Figure 6-6.

*c) Construction Complexity and Labor Density - Figure 6-7. *d) Typical Project Cost Breakdown (large versus small project) — Figure 6-8.

f) Nelson-Farrar Cost Index - Figure 6-10.

*g) Cost — Size Scaling (economy of scale) — Figure 6-11.

h) Cost Capacity Curve - Alkylation Unit - Figure 6-12.

i) Estimating Shutdowns/Turnarounds and Retro-fits - Figure 6-13.

j) Engineering/Home Office Estimating — Figure 6-14. *k) Home Office Manhour Breakdown — Figure 6-15. 1) Typical Data Points — Engineering — Figure 6-16. m) Construction Estimate Basis — Figure 6-17. n) Construction Overhead Costs — Figure 6-18. 0) Home Office Expense Breakdown — Figure 6-19. p) Subcontract Estimating — Figure 6-20. q) Typical Data Points - Construction - Figure 6-21. r) Typical Data Points ■ Construction — Figure 6-22. *s) Productivity Loss for Extended Workweek — Figure 6-23. t) Escalation Calculation Technique — Figure 6-24.

*The figures asterisked are described below:

TYPICAL PRIME CONTRACTOR COST BREAKDOWN

Figure 6-5 illustrates the overall breakdown of project cost, based on historical data for projects built in the United States on a prime contract basis during the period 1955-1975.

Application

When only an overall cost is known, this breakdown can be useful in providing overall data for a quick evaluation of engineering and construction costs and manhours. This can enable cost claim and schedule evaluations to be made.

Figure 6-5.

TYPICAL PRIME CONTRACTOR COST BREAKDOWN (EPC PROJECT)

(excludes owner's costs)

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Example:

Assume that a project has an estimated overall cost of $100 million.

1. From Figure 6-5, home office costs are roughly 13% or $13 million. By a further assumption that the contractor home office all-in cost is $30/hr., we can derive a total number of home office manhours:

Thus, a gross schedule and manpower evaluation can now be made.

2. From the chart, direct field labor costs are roughly 21% or $21 million. By a further assumption that the direct field labor payroll cost is $10/hr.:

Applying known and historical relationships, allow gross evaluations for engineering and construction durations to be made. These, in turn, can be used to prepare manpower histograms and progress curves.

Note: For larger projects, the percent of home office and field overheads will probably increase.

COST BASIC -

ENGINEERING/CONSTRUCTION RELATIONSHIP

Figure 6-6 shows the construction indirect and direct costs in the "true" trapezoidal configuration. The "trapezoidal reality" is extremely important for the development of construction claims. As the majority of construction claims are time/scheduled related, the understanding of the trapezoidal reality is vital. In fact, quality assessments of claims cannot be made without this application.

A typical breakdown of the major indirect costs is also shown. Individual companies might allocate their indirect costs slightly differently, but there is a high degree of conformity to this direct/ indirect allocation within the process industry. Again, it is emphasized that the stated information only applies to a "full EPC" project. A further emphasis of this exhibit is on the engineering/construc-relationship. This is shown as the ratio of 1:6. In other words, one engineering manhour "automatically" generates six (6) direct construction manhours. This is a very useful "rule of thumb" and, of course, the ratio does vary a little as the design/construction complexity varies.

This relationship highlights the need for design engineers to fully realize that as they are designing, they are also "generating" the construction manhours. Full realization of this fact should lead the

Figure 6-6. Engineering-Construction Relationship.

COST BASIS ( excluding MATERIAL )

CONSTRUCTION HOUR3(OIRECT) ¿000000

ENGINEERING HOURS

ENGINEERING HOURS

CONSTRUCTION HOUR3(OIRECT) ¿000000

HOME OFFICE SERVICES - *0%

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Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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