All the other costs which the Owner still needs to include in the CAPEX budget are indirect costs. When a project begins with an undefined scope, issues can arise throughout execution. Contractors direct and indirect construction costs, Site development outside of project boundaries, Freight for Owners supplied equipment (if any), Escalation during capital expenditure period, Interest on debt during capital expenditure period. The percentage will be at the lower end for a larger project (higher . However, these metrics provide many more levels of detail in the metrics, from discipline-level cost ratios (e.g., Piping Engineering Cost / Piping Construction Cost) to labor rates to unit hours (e.g., Piping Labor Hours / Piping Feet). The contractual relationship is Owner-A/E, Owner- Contractor and Contractor-Subcontractors/Vendors. Why is project financing or taxes or bonds & insurance an indirect cost. This is a very high-level observation of what constitutes owners costs. Change), You are commenting using your Twitter account. EPCM stands for Engineering, Procurement and Construction Management and is a professional engineering services contract growing in popularity for the construction of manufacturing plants or heavy engineering facilities across many industries. Something went wrong while submitting the form. The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network. In my experience, the waste industry, going down the EPC(M) route as opposed to EP saves in CAPEX around 40% of costs. Primavera P6 tool is really usefull to manage this process. stream In summary: After going through this article I was refresh and possess more information for future Projects. 2 0 obj In this mode, the objective is to create a schedule with costs that are used only as an estimate. Dispute resolution The rough cost could also be helpful to plan the manning level in the design office. Not an easy task though! We find our clients across all markets & industries have both exacting requirements as well as a need for innovation in their respective highly-specialist fields, which is where our EPCM full-circle approach shines. Having multiple service providers adds a layer of complexity to any project and forces either the owner or contractor to work within separate contracts. I could seperate them the Direct and Indirect Cost by means of a Table like a Trial Balance with Chart of accounts that will allocate them the daily transactions monthly in there respective accounts. The EPC contract usually stipulates the design requirements in the form of performance requirements, and these will constitute the basis for the design development performed by the EPC contractor. Despite the similarity in their names, EPC and EPCM contracts are very different and sometimes confusion may arise in relation to what these contacting methods entail and the typical risk allocation under each model. There is also more transparency in contracts due to the more segmented nature of DBB. Some will also charge a five percent fee, yet mark their materials and labor up 10 percent, meaning you are actually paying them 15 percent. -Classic EPC done before schedule and cost (w rewards shared) 1 0 obj Activities may have many resources assigned to them to develop an accurate cost estimate and include many items that would never be updated in the process of updating a schedule. The schedule will never be updated. Results showed that severe VO factors affecting time performance are; change in schedule, change of scope, change in design, financial problem and lack of . In this category, we have: freight for Owners supplied equipment and materials. The smallest projects are defined as having a total installed cost (TIC) of $100, 000 or less; medium-sized projects range from $100,000 to $1 million; and the largest projects are in the range of $1- $10 million TIC. Lower cost. We maximize business value by helping clients develop strategies for risk management, owner team structure & staffing, contracting & procurement, and project delivery. However, since there are far more complexities involved than we are covering here initially, we will be following up with a series of articles on this topic. This is where the EPCM approach really shines. The EPCM Engineering team is a multidisciplinary group with a broad range of specialist consultants. The contractor performs all the construction activities, with their own forces or subcontractors, assumes all the risks, and the contract type is lump-sum. . Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Typical CM type. Below, we detail some of the benefits and risks associated with both delivery methods. What would be % cost considered for Design as compared to overall cost estomate of the project. 3. Quality assurance & quality control EHS and configuration management. In an EPC contract, the EPC contractor develops the project from commencement to final completion. So, I thought I would share my point of view and experience on this subject. Sometimes a very rough high level engineering cost for a future project might be needed for budget approvals, initial planning, contracting strategy discussions, benchmarking of bid prices or negotiating with the engineering contractors. My definition of indirect costs is: it depends on who is asking? This article is instead for those who are less familiar with this well-used acronym, intended to provide an understanding of the basics and an initial introduction to the world of EPCM and EPC. the shortage of experienced labour and quality materials and resultant fluctuations in associated costs. I typically consider a 50/50 split between hard and soft costs. DRILLEX drilling Many organizations undervalue the soft costs believing that most of the costs should be in actually buying and laying bricks and such. Estimating cost is an important process in project management as it is the basis for determining and controlling the project budget. This method of project delivery tends to attract higher project costs as opposed to the EPCM (Engineering, Procurement and Construction Management) method. For the natural resources industry, the project lifecycle can be broken down into the following stages: Exploration, Appraisal, Development, Production, and Abandonment. :)). 1 - Percent of General Construction Total General Construction Estimate = $50,000,000 25% of Total General Construction = MEP Portion of the Construction = $12,500,000 endobj (LogOut/ Decommissioning: Cost of decommissioning all facilities after Cessation of Production CoP is granted (Operator project management; Facility running/ owners costs; Well plugging and abandonment; Facilities/pipelines making safe; Topsides preparation; Topsides removal;Substructure removal; Topsides and substructure onshore recycling; Sub sea infrastructure (pipelines, umbilicals) Site remediation; Monitoring). Both delivery methods are not without risk, however. As you might have gathered, here at IntES we are huge advocates of EPCM. As you would expect, where EPCM contracts are employed there is a significant amount of specialist engineering processes which need to be scoped, strategized, organised, planned, coordinated and executed. In an EPC project, just like all projects, the biggest risk comes from the scope development phase. The initials EPCM are also encountered frequently on international projects, but this is very different from EPC. Our integrated approach allows us to complete your project on schedule and within budget. In the UK to my knowledge, no EPC company has paid up for plant performance on any waste to energy project - so what are you paying the huge mark up for? :). The most common way to break down the capital cost of a project, with the EPC element in it, is: The direct costs are all the costs included in the EPC contract: All costs shown above are in base-year currency. Like the summary cost metrics, the objective of the Detailed and Unit Cost Metrics is to support estimate development and review. EPCM Project Academy is the online academy for Engineering, Procurement, Construction, and Project Management professionals. Project Requires the Following Time Commitments: Assuming a 10% profit, the total MEP fee for this project would be $500,278 (or $450,250 0.9). 8.9 Tracking of Cost Impact of Addenda and Change Orders. Founded in 1987, IPA is a benchmarking, research, and consulting organization devoted to the empirical research of capital projects and project systems. In an EPCM arrangement, the client selects a contractor who provides management services for the . In this instance, the contractor is selected through direct negotiations and awards. Hi Felipe, thank you for reading my article. The most common way to break down the capital cost of a project, with the EPC element in it, is: The direct costs are all the costs included in the EPC contract: All costs shown above are in base-year currency. Our expertise spans many industrial sectors. 8.8 Markup on Addenda and Change Orders. Here is the link: http://www.learncostestimating.com/capital-cost-estimating-owners-costs/. In this case, the CM is performing no construction activities. DBB remains popular due to the ability to get pricing at each stage. the project delivery methods such as engineering, procurement, and construction management (EPCM) contracts give them greater flexibility and that they have the expertise and experience required to control costs in an EPCM Contract. To calculate the total plant cost one needs to add the auxiliary services and contingency costs, so 15 percent of the module cost is considered for contingency, 3 percent for contractors, and 35 percent for auxiliary services. The contractors estimator develops the direct and indirect costs as they relate to the contractor. Much appreciated, this is helpful for me. Like the summary cost metrics, the objective of the Detailed and Unit Cost Metrics is to support estimate development and review. Generally what is ratio between these two i.e. Few years ago I was in contract section of EPC Contract 3rd LNG Project at Das Island, UAE. 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