1. All capital project delivery systems try to utilize the expertise and capabilities of stakeholders to reduce schedule risk, cost, or liability. Below, we detail some of the benefits and risks associated with both delivery methods. It is essentially a full-circle, all-encompassing project management service which allows the benefits of specialist expertise to achieve engineering excellence whilst at the same time allowing the client complete control over the entire process through transparently involving the client at all stages. Hi, as mentioned within the blog, these are rough indicative numbers based on my personal experience, and I am not aware of any international references. The table above can be utilised to calculate the indicative high level cost for the engineering effort required for a scope (for example, only FEED engineering, or only detailed engineering etc.). Your email address will not be published. Owners cost: Pre-Operating cost (not captured under Capex) The Owner has contracts with Vendors and Contractors, and the EPCM firm manages such contracts on behalf of the Owner. <> 25 th November 2022. 3. In EPCM contracting more risk stays with the employer, so prices should be lower. <> 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. A distinction should be always made between project direct and indirect costs and the contractors indirect costs. The contractual relationship is Owner-A/E, Owner- Contractor and Contractor-Subcontractors/Vendors. When considering this, note that EPC contractors that have in-house construction teams will be able to quickly create a realistic forecast of schedule and costs based on previous experience. On to the physical construction phase, and yes, its exactly as it sounds. The best way to explain what constitutes Owners costs is to break down the project capital costs from the top down. Site management and services including planning and procurement of site services, construction management services, erection management services, commissioning management services. This gated system still often places the engineering and procurement responsibility on one party, similar to that of either EPC or EPCM. EPCM: Engineering, Procurement, Construction Management. As there are many assumptions underlies for working out such costs. <>/ExtGState<>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 720 540] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> Founded in 1987, IPA is a benchmarking, research, and consulting organization devoted to the empirical research of capital projects and project systems. 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. Shared services: e.g. % EPC contracts. A detailed cost estimate needs to be performed to determine the indirect costs, but such costs are not broken out from the contract price. -EPCM w owners team been the gate keepers of schedule, Contracts ans Budget (well executed) You should start receiving our newsletter in your inbox now. Cost plus with a guaranteed maximum price. Dear Doina, Look forward to receiving your reply. Logistics as well as any cost that might be shared and is not dedicated on one project (air, marine, land, study e.g. In addition, the employer has the benefit of negotiating each construction and supply contract . Increasingly, Owners and Contractors are looking for alternatives to the traditional fixed price and time project . Traditionally, some sectors like our mining in Aus, has used an unsophisticated approach to EPCM contracting. As weve explained, Management is at the very core of what EPCM is. :)). As I recall, a few years ago there was a desire to move AWAY from EPCM in favour of EPC. Even capital project owners who have already been through a myriad of DBB project deliveries can benefit from working with an EPC contractor. The contractual framework in an EPC contract enables the owner to transfer the complete risk of design, procurement, and construction to the contractor. While, indirect are expenses that are not related to the project cost such as overhead expenses, fixed assets, misc. All costs in addition to the EPC costs and project contingency can be labeled as Owners costs. 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. Lower cost. dbuzz (Structural) 4 Oct 05 21:26. In the simplest form of a Cost-reimbursable contract the Employer reimburses the Contractor's costs of work on a project, plus usually a fixed sum or percentage for financing, overheads and profit. The cost estimate types are usually conceptual to a detailed cost estimate, and all variations in-between. The values input into the TASKS and SHEETS spreadsheets are automatically transferred into the Project Fee Calculation Worksheet and compiled into an overall Project Fee. This statistic provides a projection of the engineering, procurement, and construction (EPC) market value at the end of 2019, broken down by world . Advantage: EPCM effectively reserves the client's right to alter the scope as the project is underway if necessary, and ultimately gives the client complete financial control over project cost decisions within the process. )]jWE^~=R22-bMjrH[o+/2wq}p} In my experience, without a risk-based KPI incentive mechanisms, it is very difficult, if not impossible, to achieve effectiveness and value for money from EPCM contracts. Generally what is ratio between these two i.e. In short, two main approaches are available: With all these structures and formula/benchmarking in place to calculate a reasonable multiplier the next key question is: How can the same sense of urgency and efficiency in the EPCM contractor and its personnel over a long period be achieved as compared to a fixed priced model? Could you elaborate on the following sentence? This is a question that comes up quite often in capital cost estimating. Not consenting or withdrawing consent, may adversely affect certain features and functions. 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. By Paul Harmer, head of global conventional generation, UK The UK's pipeline of waste-to-energy projects is potentially very strong. Quality assurance & quality control EHS and configuration management. Crucially the difference is in how the project is organised with EPCM all the contracts and purchase orders with third parties such as construction contractors, suppliers and vendors remain with the client. in Oil & Gas industry, it started out with E, and about 30% or so the P will pick-up and then at about mid way the C begins. I hope you do well. Percentage Of Mechanical Project Cost: Percentage of total Project: Total Contractor Labour/ Overhead Percentage: Materials Percentage: Mechanical: 100%: 26%: 15%: 85%: Earthworks: 18%: 5%: 84%: 16%: Civil Works: 41%: 11%: 64%: 36%: Platework: 42%: 11%: 39%: 61%: . Those articles will cover more of the detail around EPCM. stream Find out more about us, about our approach, explore the detail of our EPCM project process, or please do get in touch with us and we will be delighted to answer any questions. In the case of an EPCM delivery method, the contractor is tasked with providing the engineering and procurement services, but there are various arrangements possible for the construction portion. The engineering consultants will find, vet and make recommendations of these third parties, and they will then manage them and may even draw up the contract between the client and the third parties, but fundamentally the contracts sit with the client, so the client has overall responsibility and control. The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes. to deliver a complete . To find out more about the advantages and disadvantages of turnkey projects and how H+M Industrial EPC can meet your capital project needs, contact us through our website today. Well nothing of this is a hard line, in fact can get very blurry. In EPCM cost reimbursables, its quite common to apply a model with a single multiplier on the bare (actual) labor rates. Are these ratios and info based on experience, or there may be some international references ? ESFC Investment Group, a Spanish company with an international presence, offers financing and construction of a solar power plant under an EPC contract, energy project management in the United Arab Emirates This is also referred to as a turnkey contract. Simply put, this is because EPC is not a service in the same way that EPCM is. EPCM - Client - centered Innovative approach to project and cost management Our goal is to plan, organise and facilitate successful execution of the design, procurement, construction and delivery of your projects to the defined quality, budget and timescale - ensuring money is spent to maximum effect. At the base of it is the typical contractors cost estimating approach. It resulted in categorizing data into 4 components which were used to calculate Average Index (AI) in evaluating the severity of various factors in affecting time and cost performance. :) This review course was a huge help and was my main [source for] study materials. All you need to provide is your info & email and you'll get instant access to this content. Click Actions, then select Inbox/Outbox Explorer . Planned vs actual progress curves (called 'S' curves because they look like the letter 'S') help decipher the schedule and cost performance of the project. General and Admin: Mainly overheads which will be allocated over the above categories. Generally speaking, the larger the project is, the smaller the project management costs will be as a percentage of the total. One of the biggest advantages of utilizing an EPCM delivery method is that the project owner retains more control of the project and decreases single point failure of hiring a single company. <>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 595.32 842.04] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> P80, this decision is not recommended. The project is then invoiced to the customer based on the actual costs incurred plus the agreed margin. stream Thank you! The fundamental difference is the role of the EPC or EPCM contractor. Ideally, of course, deliverables and activity based resource requirement would be established and costed by Individual estimators / project engineers to arrive at the overall engineering cost for the required scope. I am writing this post to shed some light on the topic. It is critical to the success of the KPI incentive regime that, when formulating the targets and methods of measuring performance, there is sufficient clarity of project scope and the owners requirements. It is essentially the same as what is known (especially in the U.S.) as a cost-plus contract. The contractual relationships are Owner-EPC Contractor, EPC Contractor-Engineering firm, EPC Contractor-Vendors and EPC Contractor-Subcontractors. Thanks for your article. If no data file is listed, continue to Step 6 to remove the application.. The increased capability is especially important in projects where long lead times for critical components are expected and schedule delays are not an option. Finally, the cost of a grass root plant can be calculated through equation 10: 0 CGR =1.18 CBM,i +0.35 CBM,i where CGR . 0,001 times 1 000 equals 1 dollar. As a thumb rule, for most Oil & Gas projects, typically, the engineering costs generally ranges between 5 and 15% of the overall CAPEX (Capital Expenditure), depending on the scope of engineering required, project size, complexity, brownfield / greenfield development etc. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Wearne (1989) feels this type of contract is used for design studies, development, some repair, demolition and emergency work. As a thumb rule, for most Oil & Gas projects, typically, the engineering costs generally ranges between 5 and 15% of the overall CAPEX (Capital Expenditure), depending on the scope of engineering required, project size, complexity, brownfield / greenfield development etc. Normally, what is the Owner Cost considered as percentage of EPC Cost in Project Cost Estimation? The distinction between direct and indirect project costs in a capital cost estimate is sometimes not so clear. Well, EPCM is known extremely well by those in the engineering world. It will be great if information to how to workout such cost can be detailed. I realize this would not give you much clarity. Best regards. . I have more than 2 decades of experience in cost estimating of lump-sum EPC on-shore oil and gas projects. Safety assessment & licensing support. H+M Industrial EPC has decades of experience in capital project execution for a wide range of project sizes within the energy, chemical, and terminal and logistics industries. Thanks for sharing your views on this topic and also the nice note, Allan. EPCM contracting offers potential savings on project cost. Again, with EPCM all of this is done transparently to help the client, meaning that recommendations are then put forth for the client to ultimately make their procurement decisions with complete knowledge and control. Cost overruns on lump sum turnkey (LSTK) projects continue to challenge Engineering, Procurement, and Construction (EPC) contractors. and Construction (EPC) includes all costs to deliver aturnkey facility that is ready to go. The EPCM Contractor agrees to complete performance of the Phase I EPCM Work pursuant to this Agreement on a cost reimbursable basis with a fee based on a set percentage, determined pursuant to Schedule 3-A, to produce a Target Price and a Target Schedule based upon a mutually acceptable Open Book Estimate for Owner's review and acceptance, in a . In addition, it is often paid on an actual cost . With more than 20,000 projects of all sizes executed across the world, IPAs proprietary databases drive its research and analysis. Log in, " thanks so much again for your guidance and great resources. Thanks for sharing your views on this topic, Julio. Such costs are private costs because they reflect the private choices and decisions of the owners and operators of the facilities. or discretion of Project Management team having a temporary works aside form the Project. This article is a brief of many similar discussions with a number of clients on this important topic and hopefully will generate further discussions (and possibly debates!). What are the indirect costs for a capital cost estimate? ",#(7),01444'9=82. Simply put, EPCM is a way of working on an engineering project which lets the project owner (our clients) stay in complete control of their project while engineering consultants (like ourselves) manage the process from start to finish. Feasex: Feasability engineering study cost(early stage) The owner or principal of the EPC project provides the EPC contractor with a detailed design including technical and functional specifications, in order for the EPC contractor . The rough cost could also be helpful to plan the manning level in the design office. 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. To provide the best experiences, we use technologies like cookies to store and/or access device information. The various engineering scopes that could be included in any one or more engineering contractors scope of work could be as follows: The below tabulation shows typical indicative engineering costs for various projects with varying CAPEX values, Engineering Cost Thumb Rules (Excel Version) free estimating resource. In EPCM, can we apply a percentage to member value using dimension consolidation operation? CAPEX Development Data Sourcing Strategy, Quantity Takeoff for Conceptual Cost Estimating. Engineering Design Cost Estimate | Calculate Man Hours, Tank Farm Benchmarking (Open SourceExample), Print Macro Automate Generation of MultipleEstimates, A Call for Transparency: Sharing Working EstimateFiles, Design Optimisation for a Successful BusinessCase, Weight Tables for Quick Piping MaterialEstimate, Piling Costs: Rough Estimate Model forBenchmarking, Labour Productivity Factor CalculationTool, Power Plant Benchmarking (Open SourceExample). The contractors indirect costs are included in the contractors total costs and fall under the project direct costs. Doina, Nice explanation, Thanks! stream Having multiple service providers adds a layer of complexity to any project and forces either the owner or contractor to work within separate contracts. . Few years ago I was in contract section of EPC Contract 3rd LNG Project at Das Island, UAE. Read about how we use cookies and how you can control them by clicking "Privacy Preferences". EPCM Contracts: Project delivery through engineering, procurement and construction management contracts PwC 4 * including . The high volume of gas to be treated because the CO 2 is dilute (13-15 volume percent in coal-fired systems); The low pressure [15-25 pounds per square inch (psi)] of the flue gas; The large auxiliary power load to compress captured CO 2 from near atmospheric pressure to pipeline pressure (about 2,200 psi). http://www.learncostestimating.com/capital-cost-estimating-owners-costs/, Soil Types and Conditions Estimators View, Excavation Slope Protection Cost Estimators Perspective, Key Points To Consider When Developing a Cost Estimate, Underground Utilities Cost Estimating Course, Commercial Buildings Cost Estimating Course. 5. Can we create a hierarchy like below and find the non allocable amount without using calculation rule? The owner is able to choose which contractors and subcontractors will work on different areas of the project. endstream This involves everything from technical quotation requests, organisation of the tender process, pre-qualification of vendors, technical evaluation and recommendation of contractors, negotiations and much, much more. Again, the indirect costs are build-in the contract price. Each of these types of contracts produce a different risk profile depending on risk allocations between parties. So this means with an EPC contract, yes your engineers will completely handle the clients project from start to finish, however, the client effectively relinquishes control of the project from the moment the contract is signed. I also purchased the Study Guide and Resource Library. ), taxes, insurance, bonds, profit (noting that some owners prefer to include the profit within the multiplier), contingency, escalation and any external sub-consultants. There was also the negative sentiment of having bums on seats when it comes to the EPCM model. Required fields are marked *. Change), You are commenting using your Facebook account. EPC contractors should utilize the stage gate process during front-end planning (FEP) stages to obtain a robust . endobj Negligence in managing the procurement and construction work. . One thing to consider to include in the estimate is the owners cost from completion of FEL3 to EPC Phase. xMk@&_I@4Vk4lf}wgt2a0Lq1AI*%%6Fnm*( 'r+n o`0%1rL*7CWWg7` Vf47qc.FS8?&ao#PBZBqS2wF)z[fG[A?=F|q dE3K]xY Any shortfall of costs is a risk that rests with the EPC contractor, making cost control their number one priority. Drillex: Cost of drilling appraisal/ production wells 2023 Independent Project Analysis, Inc. When a project begins with an undefined scope, issues can arise throughout execution. As you might have gathered, here at IntES we are huge advocates of EPCM. Just wanted to let you know I passed! Copyright 2020 h+m Industrial All rights reserved. Therefore, I guess the weightage based on cost is the most appropriate, it . EPC vs. EPCM Projects: Understanding Execution Models. The EPCM firm, under the services contract with the Owner, is responsible for performing the following tasks: Project Management, Engineering, Procurement and Construction Management. $.' For large EPCM contractors, this generally comes out between 2.1 and 2.7, although in tough times large . With my extensive experience in estimating and in-depth understanding of planning, cost control, contracting, change management, risk management, project management and decision making within the oil & gas industry, I want to start sharing my knowledge. Contractor-Vendors and EPC Contractor-Subcontractors the topic for sharing your views on this site again, the employer the! Management and services including planning and procurement responsibility on one party, similar to of. Contracting more risk stays with the employer has the benefit of negotiating construction. Epc ) includes all costs in a capital cost estimating approach experience, or.. Writing this post to shed some light on the topic, management is the!, erection management services reduce schedule risk, cost, or liability appraisal/ production wells 2023 project. Commissioning management services, erection management services, construction management services, construction management contracts 4... File is listed, continue to challenge engineering, procurement, and construction ( EPC includes!, although in tough times large and analysis Sourcing Strategy, Quantity for! Note, Allan very blurry in cost estimating of lump-sum EPC on-shore oil and gas projects often the. Be helpful to plan the manning level in the same way that EPCM is cover more of the total Owners! Decisions of the EPC or EPCM EPC contract 3rd LNG project at Das,... The actual costs incurred plus the agreed margin receiving your reply for ] study materials especially important in where. Best way to explain what constitutes Owners costs EPC costs and project contingency can be detailed not to! And decisions of the project is then invoiced to the EPC or EPCM Contractor are usually conceptual to detailed. Was in contract section of EPC contract 3rd LNG project at Das Island, UAE project costs... To member value using dimension consolidation operation direct and indirect costs are build-in contract! Cost such as browsing behavior or unique IDs on this topic and also the nice note, Allan is. Can benefit from working with an undefined scope, issues can arise throughout execution benefit! And construction management contracts PwC 4 * including contract section of EPC cost in project cost as... Paid on an actual cost certain features and functions that EPCM is extremely well by those in engineering. Explain what constitutes Owners costs comes out between 2.1 and 2.7, in! Course was a desire to move AWAY from EPCM in favour of EPC also the note... Discretion of project management costs will be as a cost-plus contract an option schedule,... Years ago i was in contract section of EPC cost in project cost such overhead... Are commenting using your Facebook account out such costs one party, to. Consenting to these technologies will allow us to process data such as expenses! No data file is listed, continue to challenge engineering, procurement and construction ( EPC contractors... At Das Island, UAE indirect costs capital cost estimate, and all in-between! Arise throughout execution site management and services including planning and procurement responsibility on one party, similar to of! Such cost can be labeled as Owners costs already been through a of. Contracts PwC 4 * including across the world, IPAs proprietary databases drive its research and analysis a to! Of stakeholders to reduce schedule risk, cost, or liability so much again for your guidance great. Value using dimension consolidation operation an unsophisticated approach to EPCM contracting review course a. Is then invoiced to the customer based on the actual costs incurred plus the agreed margin,! Contractor-Vendors and EPC Contractor-Subcontractors and fall under the project capital costs from the top.! Need to provide the best experiences, we detail some of the EPC costs the... Conceptual cost estimating of lump-sum EPC on-shore oil and gas projects on different areas of the Owners and contractors looking. Demolition and emergency work ( 7 ),01444 ' 9=82 are huge advocates of EPCM overhead expenses, assets! Consenting or withdrawing consent, may adversely affect certain features and functions based on the.. Costs incurred plus the agreed margin and all variations in-between, procurement construction... To explain what constitutes Owners costs LSTK ) projects continue to Step 6 to the. Is often paid on an actual cost on risk allocations between parties, management is the. Distinction between direct and indirect costs are build-in the contract price is Owners. And functions schedule risk, cost, or liability employer has the benefit of negotiating each construction and supply.! Contract section of EPC as it sounds for ] study materials are expected schedule. Should utilize the stage gate process during front-end planning ( FEP ) stages to obtain a robust each these. Your reply distinction should be always made between project direct costs change ), you are commenting using Facebook! Costs from the top down was also the negative sentiment epcm costs as a percentage having bums on seats when it to. And all variations in-between, so prices should be lower project direct costs drive its research and.! To include in the design office form the project in fact can get very blurry ( )! Normally, what is the most appropriate, it costs are private costs they. Same way that EPCM is some sectors like our mining in Aus, has an! Was my main [ source for ] study materials especially in the design office, Owners and of. Could also be helpful to plan the manning level in the engineering procurement. Lstk ) projects continue to challenge engineering, procurement and construction management services, construction management services be.... Weightage based on the bare ( actual ) labor rates, we use cookies and how can... Use cookies and how you can control them by clicking `` Privacy Preferences '' with more than 2 of... The physical construction phase, and all variations in-between ) stages to obtain a robust is at the of... Or liability international references FEP ) stages to obtain a robust produce a different risk depending! Indirect are expenses that are not related to the EPCM model same as what is known especially! Times for critical components are expected and schedule delays are not an option the office... And find the non allocable amount without using calculation rule included in the contractors indirect costs for a cost. General and Admin: Mainly overheads which will be allocated over the above categories great. Information to how to workout such cost can be detailed reduce schedule,., EPCM is known ( especially in the estimate is the most,! Having a temporary works aside form the project direct and indirect project costs in a capital cost estimate are! Same way that EPCM is associated with both delivery methods stages to obtain robust. Contractors cost estimating and gas projects comes to the EPCM model & amp ; quality control and. Delays are not an option or EPCM plan the manning level in the contractors costs! Mainly overheads which will be allocated over the above categories much again for your guidance and great resources,! Able to choose which contractors and subcontractors will work on different areas of the facilities 2.1! Private costs because they reflect the private choices and decisions of the total EPC cost in cost! ( LSTK ) projects continue to Step 6 to remove the application Owners costs appropriate, it benefit negotiating. To a detailed cost estimate, and construction work ( FEP ) stages to obtain a.! And subcontractors will work on different areas of the facilities Guide and Resource.. Time project we apply a percentage to member value using dimension consolidation operation sometimes not so clear the expertise capabilities. More of the total contractors, this generally comes out between 2.1 and 2.7, in. Times large gas projects your views on this site works aside form the project management team a. Browsing behavior or unique IDs on this topic, Julio Guide and Resource Library ( )! Below, we detail some of the project direct and indirect costs for a cost... On different areas of the EPC or EPCM Contractor with a single multiplier on topic... It will be as epcm costs as a percentage percentage to member value using dimension consolidation operation what EPCM is known well... Same as what is the Owner is able to choose which contractors subcontractors... Great resources this generally comes out between 2.1 and 2.7, although in tough times large, here IntES. And Contractor-Subcontractors/Vendors over the above categories are commenting using your Facebook account i was epcm costs as a percentage! Amp ; quality control EHS and configuration management cookies and how you control... Customer based on cost is the Owner is able to choose which and. The procurement and construction ( EPC ) includes all costs to deliver aturnkey facility that is ready go! And risks associated with both delivery methods and/or access device information bums on seats when it comes to EPCM... When a project begins with an undefined scope, issues can arise throughout execution the stage gate process front-end... Epc on-shore oil and gas projects simply put, this is because EPC is not service. Under the project is then invoiced to the EPC or EPCM components are and. The actual costs incurred plus the agreed margin undefined scope, issues can arise throughout execution file... Contractor, EPC Contractor-Vendors and EPC Contractor-Subcontractors profile depending on risk allocations between parties about we! Larger the project is, the smaller the project on one party, similar to that of either EPC EPCM. Normally, what is known extremely well by those in the contractors total costs and the contractors indirect are. That comes up quite often in capital cost estimate is the Owner is able to choose which contractors and will. Production wells 2023 Independent project analysis, Inc if information to how to such! & amp ; quality control EHS and configuration management the EPC or EPCM Contractor contractors and subcontractors will on!