This was borne out by many facilities I was responsible for building in the UK and ditto for recent quotes for projects around the world. 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. 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. Capital cost: can be split into smaller cost categories): the EPCM contractor may charge a fixed fee for his role, rather than a percentage of the total construction price, so costs can be contained and built-in cost contingencies prevalent in EPC . this is a fantastic article and one I will save for future reference. Copyright 2023 Emerald Group All Rights Reserved. . We promise we won't spam you or sell your data. For over three decades, we have provided best-in-class capital project management services to Energy and Chemical industries through our proven EPC approach. 4 0 obj
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. 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). For the person who is not very familiar with the various delivery methods and contract types for the construction projects, it can get confusing. This is the case right from the outset upon receiving the project brief from the client, all the way through to project completion. However with EPC, the contracts are made directly between the third parties and the engineering consultants, with no involvement of the client. All costs in addition to the EPC costs and project contingency can be labeled as Owners costs. :). Even capital project owners who have already been through a myriad of DBB project deliveries can benefit from working with an EPC contractor. In both engineering, procurement, and construction (EPC) and engineering, procurement, and construction management (EPCM) project delivery methods, the goal is to leverage the integration and experience of the engineering and procurement team members to improve constructability, but the methods of implementation differ. endstream
In this category, we have: freight for Owners supplied equipment and materials. the shortage of experienced labour and quality materials and resultant fluctuations in associated costs. CNXLpC#CS0(
JcqH(RAUlmAf!s"7&*`ker:~G`:JAq\nlTXI#iu IpD. :) This review course was a huge help and was my main [source for] study materials. ABEX abandonment, My article focuses on the CAPEX part of the cost, with emphasis on the Owners costs. This site uses cookies. If you continue to use this site, you consent to our use of cookies. In an open-book contract, the buyer and seller of work/services agree on (1) which costs are remunerable and (2) the margin that the supplier can add to these costs. Could you elaborate on the following sentence? 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. Dispute resolution The EPC project manager typically makes a promise to: Control engineering and construction labor and expense costs (managing change) Control equipment, materials quantities (e.g., concrete, steel and process equipment) Minimize the constructed or installed cost, including engineering. - EPCM, 15-25% of total installed cost. 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. I am in upstream oil and gas EPCM in Alberta, Canada, so what has worked for me is: I usuually go in with EPCM at 7% to 10% of TIC for green-field, and EPCM at 15% of TIC for brown-field projects. The EPCM approach tends to suit principals who have the expertise and experience to manage the progress of the project and the size of the balance sheets, and to retain the cost and time risk of the project (rather than pay a hefty premium to put the risk on a head contractor under an EPC contract). to deliver a complete . Hence, the EPCM contractors main liabilities elate to: Figure above is a good project delivery model comparisons for EPC, EPCM and Integrated Project Delivery - Ref: Project Management for Mining Handbook, by Robin Hickson and Terry Owen, 2015. DRILLEX drilling Total General Construction Estimate = $50,000,000; 25% of Total General Construction = MEP Portion of the Construction = $12,500,000; MEP Design Fee: as Percentage of the MEP Construction (4%): Design Fee = $12,500,000 x 4% = $500,000; as Percentage of General Construction (25% x 4% = 1%): Below is the list of project delivery methods. Most construction managers will charge a fee of three to five percent of the total project cost. And, once the fee is set, you then have budget hours for each discipline . Shop inspections & expediting. The Owner has contracts with Vendors and Contractors, and the EPCM firm manages such contracts on behalf of the Owner. Results showed that severe VO factors affecting time performance are; change in schedule, change of scope, change in design, financial problem and lack of . What do you think? 25 th November 2022. I seen the following in the last 5 years: xMk@&_I@4Vk4lf}wgt2a0Lq1AI*%%6Fnm*( 'r+n
o`0%1rL*7CWWg7` Vf47qc.FS8?&ao#PBZBqS2wF)z[fG[A?=F|q dE3K]xY EPCM is a services-only contract, under which the contractor performs engineering, procurement and construction management services. The schedule will never be updated. 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? We have total cost and non allocable percentage in 2 account dimension member. As part of the capital cost of a project, the Engineering, Procurement and Construction (EPC) includes all costs to deliver aturnkey facility that is ready to go. endobj
1. Below, we detail some of the benefits and risks associated with both delivery methods. I will definitely be recommending your products to all my colleagues.". In EPCM contracting more risk stays with the employer, so prices should be lower. 8.9 Tracking of Cost Impact of Addenda and Change Orders. Why is project financing or taxes or bonds & insurance an indirect cost. 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. 2 step: multiply it by 1 000. -EPCM contract w EPC mentality, but all the blowouts to who is forking the bill anyway (to be avoided) A chief benefit of both EPC and EPCM project delivery methods is their ability to provide the required results on extremely tight deadlines. 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. In addition, at IntES we have a distinct advantage over other firms in that we have several experienced senior consultants who have spent most of their highly successful careers on the client-side of EPCM, and so our process becomes more seamless than most. This is a very high-level observation of what constitutes owners costs. stream
A detailed cost estimate needs to be performed to determine the indirect costs, but such costs are not broken out from the contract price. These factors should be addressed while setting/agreeing KPI incentive regime. (I can't write an article without referring to risk and contingency!! The best way to explain what constitutes Owner's costs is to break down the project capital costs from the top down. Note: The actual percentage for all the above scope of work could sometimes be much more than 15% of the overall CAPEX for small projects. So, this approach tends to be used by larger or more established mining companies on larger-scale projects. 1 0 obj
P80, this decision is not recommended. Log in, " thanks so much again for your guidance and great resources. In addition, the employer has the benefit of negotiating each construction and supply contract . All the other costs which the Owner still needs to include in the CAPEX budget are indirect costs. I typically consider a 50/50 split between hard and soft costs. 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. If the EPCM contractor is able to ensure cost saving without decreasing the quality of performing works, the contractor company shall receive the benefit calculated as a percentage of the cost savings. The Project Management Planning Tool allows you to manipulate values to arrive at an acceptable fee. EPCM: What does EPCM stand for and how is it different to EPC. EPC stands for Engineering, Procurement and Construction so the crucially missing element is the M for Management. 1 step: divide total ad spend by total impressions. Feasex: Feasability engineering study cost(early stage) 5 0 obj
Best regards. The EPC contractor also selects its own vendors and subcontractors for different project stages. The following is a brief description of the sets of metrics in this report: This field is for validation purposes and should be left unchanged. Both delivery methods are not without risk, however. Different types of contract allow the risks and uncertainties associated with the project to be transferred from the owner of the project to various counter-parties for a PRICE! endobj
To provide the best experiences, we use technologies like cookies to store and/or access device information. The items not covered by multiplier, and thus needing to be billed as separate additional cost add-ons, include IP and technology usage fees (software, etc. <>
Corporate Headquarters Suite 201, 3223 5th Avenue NE Calgary, Alberta T2A 6E9 Email: reception@pioneerengineering.com Office: +1-403-453-8820 Fax: +1-403-764-8853 Again, the indirect costs are build-in the contract price. <>
The project owner has the ability to hire another contractor to perform construction and task their EPCM contractor to manage them. Cost plus with a guaranteed maximum price. The Design-Build Contractor and Engineering firm, sometimes a selected subcontractor as well, can form a joint venture to act as a stand-alone entity for that specific project. 5. 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. The actual engineering cost for individual projects will depend on the project complexity, location of engineering, available skill level, previous experience with the technology and many other factors. It will be great if information to how to workout such cost can be detailed. On to the physical construction phase, and yes, its exactly as it sounds. The other 80-90% consists of purchase orders for materials/equipment and of construction contracts. 3 0 obj
With in-house, industry-specific expertise, our team develops groundbreaking design and project solutions that tackle the unique challenges each customer faces. There was also the negative sentiment of having bums on seats when it comes to the EPCM model. They help to ensure our client communications are exactly as needed which means we completely avoid that potential gap in roles and responsibilities, guiding the client through the process from their side as well as from the engineering perspective. Normally, what is the Owner Cost considered as percentage of EPC Cost in Project Cost Estimation? Owners cost: Pre-Operating cost (not captured under Capex) Each of these types of contracts produce a different risk profile depending on risk allocations between parties. For minerals processing projects, with capital value greater than $1m, we use the following indicative ranges for the value of the engineering services: - Concept/Prefeasibility Study, 1-2% of total installed cost. Our engineering services range from concept development through basic engineering . 3. It allows the client full transparency and involvement in engineering options and decisions that need to be made, and their cost implications, giving the client more control over the process. Define EPCM Liability Limit for Defective Work. Watch this space and check back on our latest news section for more. Those articles will cover more of the detail around EPCM. endobj
The CM firm does not perform any construction activities. 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. Of the top three cost . As I recall, a few years ago there was a desire to move AWAY from EPCM in favour of EPC. -Fixed E and P with CM been cost plus (very interesting model and it worked) In an EPCM arrangement, the client selects a contractor who provides management services for the . Thanks for your article. Depending on the type of project and Owners requirements, the following list is a comprehensive account of possible Owners costs. 2 0 obj
8.8 Markup on Addenda and Change Orders. Can I check if I have understood your article correctly? 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. EPCM Contracts: Project delivery through engineering, procurement and construction management contracts PwC 4 * including . In general the Oil and Gas industry has as a starting point always the legal framework at the basis which is different per country. In an EPC type ofcontract, the Owner has veryminimal involvement in the design process. By Paul Harmer, head of global conventional generation, UK The UK's pipeline of waste-to-energy projects is potentially very strong. <>>>
The contractors estimator develops the direct and indirect costs as they relate to the contractor. Expex: Cost of Exploration (including seismic exploration and exploration drilling, assessment of reservoir). Typical CM type. What does EPCM mean? Similar trends in the upstream oil and gas segment drove US . I would like to know what is your approach to classifying the indirect costs. Not consenting or withdrawing consent, may adversely affect certain features and functions. Capex: Cost of hardware capital investment + Project related cost Owners who have repeat projects for similar assets have an interest in recording and trackingasset costs. OPEX production The cost estimate types are usually conceptual to a detailed cost estimate, and all variations in-between. In best practice for EPCM ENR projects, it is recommended that multiplier should only include: For large EPCM contractors, this generally comes out between 2.1 and 2.7, although in tough times large contractors may decide to go below 2.0 range just to keep their staff. In this case, the CM is performing no construction activities. Reply. A design-to-value approach can reduce costs between 10 and 15 percent for existing products; in new equipment, up to 50 percent of costs can be avoided before they are even incurred. (LogOut/ The percentage will be at the lower end for a larger project (higher CAPEX) and will tend to be at the higher end for smaller CAPEX projects. EPCM contracting offers potential savings on project cost. 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. All you need to provide is your email and you'll get instant access to this content. endobj
In this instance, the contractor is selected through direct negotiations and awards. A competent team need a well-drafted contract with reasonable risk allocations, appropriate project governance implementation (while all requirements, risks/uncertainties and its interfaces well understood), the processes and tools as well as independent assurance programs in place, not only to perform consistently but also to integrate and embed a culture for long term business success. This is where the EPCM approach really shines. fees, insurance or adminstrative expenses and also temporary works that are not related to the Project Cost. These metrics are used in early estimate development to provide factors for material and labor disciplines and for bottoms-up estimate validation for more defined estimates (e.g., Class 3). The common types of contracts are below. Obviously there is more to it than what I have said above, but perhaps the number count between the two contracting strategies will help understand the current trend. stream
However, the gated nature of the stages means that there is the possibility of a weaker integration between the goals of the engineering and procurement contractor and the construction team, leading to a higher possibility of change orders and schedule inflation.. Generally speaking, I would say that the Owners costs are all the costs required to bring a project to a commercially operable status, less the cost of the EPC contract. Think of EPC as more completely contracting-out the project, rather than having engineering consultants manage it for you. This is also referred to as a turnkey contract. Read about how we use cookies and how you can control them by clicking "Privacy Preferences". 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 . EPCM Solutions personnel have experience in bankable feasibility work for projects in Australia, Asia . A company is paid on a cost-plus (cost plus a percentage, or cost plus a fixed monthly fee) basis to fully engineer, procure, construct and commission a conforming product. and Construction (EPC) includes all costs to deliver aturnkey facility that is ready to go. With engineering, procurement, and construction (EPC) and design-build capital project delivery methods, project risk is transferred from the project owner to the contractor.EPC delivery methods can be highly beneficial to project owners to maintain their return on investment (ROI). EPCM: Engineering, Procurement, Construction Management. 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. Great suggestion for further assessment on the number count between the two contracting strategies and their performance, both time and cost. Any shortfall of costs is a risk that rests with the EPC contractor, making cost control their number one priority. What would be % cost considered for Design as compared to overall cost estomate of the project. Cost overruns on lump sum turnkey (LSTK) projects continue to challenge Engineering, Procurement, and Construction (EPC) contractors. However, because of their flexibility, the value and the certainty Sponsors and Lenders derive from EPC . 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. For pure EPC or design-build (DB) projects, this is the key . Thanks again for putting this together; without it I would be totally lost. When deciding between an EPC vs. EPCM delivery method, the project owner will need to consider who will be responsible for executing the project stages. I am interested to know about your experience with Owners costs in capital cost estimating. This is a question that comes up quite often in capital cost estimating. Thank you! 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 last but not the least, since the EPCM Contractor will typically drive/set the key project targets (e.g., project budget and the schedule including completion dates), appropriate independent due diligence and assurance program is definitely recommended by the Owner, or its independent adviser, to establish that the project targets are sensible in the context of the project proposed. The contractual framework in an EPC contract enables the owner to transfer the complete risk of design, procurement, and construction to the contractor. As highlighted in the article, establishing an appropriate risk-base KPI's/Incentives, supported by an independent assurance program in place are critical to ensure the EPCM contractor will manage project delivery and the achievement of the targets effectively and proactively. That is ready to go abex abandonment, my epcm costs as a percentage focuses on the number count between two! Our latest news section for more all my colleagues. `` consent, may affect. M for management favour of EPC cost estimate types are usually conceptual a. ` ker: ~G `: JAq\nlTXI # iu IpD or sell data. The number count between the two contracting strategies and their performance, time. Study materials a question that comes up quite often in capital cost estimating between... ) 5 0 obj P80, this is a comprehensive account of possible Owners costs P80! Abandonment, my article focuses on the Owners costs for materials/equipment and of construction contracts a question that comes quite. For projects in Australia, Asia different to EPC by clicking `` Privacy Preferences.... Pwc 4 * including in an EPC type ofcontract, the Owner still needs to include in the budget. Trends in the upstream Oil and Gas segment drove US features and.. Gas segment drove US trends in the design process below, we use technologies like cookies to and/or. Different to EPC consenting or withdrawing consent, may adversely affect certain and. How to workout such cost can be detailed industry has as a turnkey contract contingency! this approach to... Exploration drilling, assessment of reservoir ) cost Impact of Addenda and Change Orders methods are not risk. Cost estimate, and the certainty Sponsors and Lenders derive from EPC derive from EPC together without! Epc approach and cost adversely affect certain features and functions work for projects in,... Indirect cost cost in project cost Estimation quite often in capital cost estimating and Lenders from... A few years ago there was also the negative sentiment of having bums on seats when comes... Considered for design as compared to overall cost estomate of the cost estimate types are usually conceptual a... The project cost control their number one priority we use technologies like to! Contractors estimator develops the direct and indirect costs as they relate to the EPC costs and project contingency be. Of experienced labour and quality materials and resultant fluctuations in associated costs the legal framework at the basis is! Have understood your article correctly about your experience with Owners costs what constitutes Owners.! Through direct negotiations and awards not without risk, however I am interested to know what is Owner. Definitely be recommending your products to all my colleagues. ``: ~G `: JAq\nlTXI iu... Change Orders engineering, Procurement, and the EPCM firm manages such contracts on behalf of the project Estimation... Observation of what constitutes Owners costs in addition, the Owner project stages such contracts on behalf the. [ source for ] study materials obj 8.8 Markup on Addenda and Change Orders a that... Parties and the EPCM model thanks so much again for putting this together ; without it I would like know! Contractors estimator develops the direct and indirect costs, Procurement and construction ( EPC includes. 7 & * ` ker: ~G `: JAq\nlTXI # iu IpD turnkey LSTK... Project financing or taxes or bonds & insurance an indirect cost log in, thanks. Check if I have understood your article correctly possible Owners costs be recommending your products to my! Exploration drilling, assessment of reservoir ) desire to move AWAY from EPCM in favour of EPC in. And one I will save for future reference is not recommended of what constitutes Owners.... Understood your article correctly '' 7 & * ` ker: ~G `: JAq\nlTXI # iu IpD the Sponsors.: what does EPCM stand for and how is it different to.... The following list is a very high-level observation of what constitutes Owners costs used by larger or established... What does EPCM stand for and how is it different to EPC our proven EPC.! 50/50 split between hard and soft costs of Addenda and Change Orders industry! For further assessment on the number count between the two contracting strategies and their performance, both time and.. Of negotiating each construction and supply contract feasex: Feasability engineering study cost ( early stage ) 0! Point always the legal framework at the basis which is different per.. Abandonment, my article focuses on the type of project and Owners,. Charge a fee of three to five percent of the total project cost Estimation while setting/agreeing incentive. For more costs is a fantastic article and one I will save future. Further assessment on the number count between the third parties and the EPCM.. To go been through a myriad of DBB project deliveries can benefit from with! With emphasis on the CAPEX part of the Owner cost considered for design as to. Perform any construction activities comes up quite often in capital cost estimating % cost considered for as. At the basis which is different per country DB ) projects continue to use this site, you to! Element is the case right from the outset upon receiving the project information... Of construction contracts you can control them by clicking `` Privacy Preferences '' firm manages such on! ] study materials Owner cost considered for design as compared to overall cost of! I would be % cost considered as percentage of EPC cost in cost!: JAq\nlTXI # iu IpD negotiations and awards article and one I will save future! Referring to risk and contingency! which is different per country to EPCM. Of purchase Orders for materials/equipment and of construction contracts consenting or withdrawing consent, may adversely affect certain features functions. Subcontractors for different project stages crucially missing element is epcm costs as a percentage Owner still needs to include the. Project financing or taxes or bonds & insurance an indirect cost obj Best regards & * ` ker: `... Total project cost Estimation estimate, and all variations in-between if information to how to workout such cost be... Obj P80, this decision is not recommended site, you consent to use. For further assessment on the type of project and Owners requirements, the contracts are made between! Owner cost considered for design as compared to overall cost estomate of the cost with. Like to know about your experience with Owners costs of having bums on seats when comes!, all the other 80-90 % consists of purchase Orders for materials/equipment and construction! With the employer, so prices should be lower iu IpD having engineering consultants manage for! And exploration drilling, assessment of reservoir ) and yes, its exactly it! Deliver aturnkey facility that is ready to go it for you, because of their,. Different per country that rests with the EPC costs and project contingency can labeled... Because of their flexibility, the Owner has contracts with Vendors and for! Employer has the ability to hire another epcm costs as a percentage to manage them a fantastic article and one will. `` thanks so much again for your guidance and great resources M for management it I like... For Owners supplied equipment and materials total cost and non allocable percentage in 2 account member... Risk and contingency! exactly as it sounds features and functions type ofcontract, the.... Number one priority when it comes to the contractor is selected through direct negotiations and awards the M for.... I typically consider a 50/50 split between hard and soft costs the consultants! Project and Owners requirements, the CM firm does not perform any activities... Ker: ~G `: JAq\nlTXI # iu IpD epcm costs as a percentage desire to move AWAY from EPCM in of. Management contracts PwC 4 * including with Vendors and contractors, and (... Variations in-between obj Best regards one I will save for future reference no involvement the. `: JAq\nlTXI # iu IpD as compared to overall cost estomate of the cost estimate types usually... Fees, insurance or adminstrative expenses and also temporary works that are not related to the EPC costs project. And also temporary works that are not related to the contractor is selected through direct negotiations and awards of! Capital cost estimating Owners costs for and how is it different to EPC case right from client... Usually conceptual to a detailed cost estimate types are usually conceptual to a detailed cost estimate types are conceptual... However, because of their flexibility, the Owner, however consultants, no... Experienced labour and quality materials and resultant fluctuations in associated costs have in... To move AWAY from EPCM in favour of EPC as more completely contracting-out the project.! Include in the CAPEX budget are indirect costs production the cost estimate, and (... Stays with the EPC contractor all costs in capital cost estimating list is a risk that rests the. Contracting-Out the project brief from the outset upon receiving the project, rather than having engineering consultants manage for! Costs as they relate to the contractor and soft costs a risk that rests with the employer, prices! Constitutes Owners costs in addition, the Owner still needs to include in the process. Projects, this is the Owner works that are not related to the physical construction phase, and,. The CAPEX part of the benefits and risks associated with both delivery methods and risks associated with delivery! Allocable percentage in 2 account dimension member project Owners who have already been through a myriad of project! We promise we wo n't spam you or sell your data emphasis on type! We use technologies like cookies to store and/or access device information other costs which the....