So what is the definition of indirect costs? 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. Great suggestion for further assessment on the number count between the two contracting strategies and their performance, both time and cost. Typical CM type. EPCM contracting offers potential savings on project cost. 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 common types of contracts are below. The Owner costs are project indirect costs. 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. Owners cost: Pre-Operating cost (not captured under Capex) For over three decades, we have provided best-in-class capital project management services to Energy and Chemical industries through our proven EPC approach. 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. Exploration and appraisal The contractual relationship is Owner-CM, Owner-Vendors, and Owner-Subcontractors. Owners costs include EPC contract costs (i.e. Shared services: e.g. Copyright 2023 Emerald Group All Rights Reserved. The CPM formula is quite simple: CPM = (total ad spend/ total ad impressions) x 1000 impressions. 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. 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. On a lump sum contract, it is harder to get credit back for work . 1 step: divide total ad spend by total impressions. 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). AREA EPC EPCM Cost q Final project costs are, with the exception of valid Owner scope change, included in the contractors lump sum budget. The project delivery is the process by which all the aspects required for a complete project are put together, and the contractual relationships required. 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). 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. 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. It is essentially the same as what is known (especially in the U.S.) as a cost-plus contract. Define EPCM Liability Limit for Defective Work. This is due in large part to the project's risk being more evenly distributed between the Owner and contracts / suppliers. 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. Even capital project owners who have already been through a myriad of DBB project deliveries can benefit from working with an EPC contractor. It also provides greater budgetary controls because the final price is typically agreed upon before construction begins. 1 0 obj I know its not that simple as it is a complex working but still if things can be shared for learning and developing the cost for such projects. 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. Thanks. 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. In EPCM cost reimbursables, its quite common to apply a model with a single multiplier on the bare (actual) labor rates. 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. Thanks again! The EPCM costs, as a whole, are project indirect costs. The views expressed in this article are those of Pedram Danesh-Mand and do not reflect or represent the official policy, position or recommendation of the KPMG Australia, Engineers Australia (EA) or Risk Engineering Society (RES). Thank you for reading this article. In the following paragraphs, we will break down the costs in more detail. As with cost overruns, any liability for delay will generally be capped as a percentage of the contractor's fee. 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 . By using this site, you agree with our use of cookies. The increased capability is especially important in projects where long lead times for critical components are expected and schedule delays are not an option. A distinction should be always made between project direct and indirect costs and the contractors indirect costs. Subsequently, the (re-)estimation of the project cost is repeated on an ongoing basis to account for more detailed information or changes to the scope or . 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The engaged engineering consultants also manage the procurement process. 4 0 obj 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!). <>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 595.32 842.04] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> We maximize business value by helping clients develop strategies for risk management, owner team structure & staffing, contracting & procurement, and project delivery. The initials EPCM are also encountered frequently on international projects, but this is very different from EPC. There is a question that comes up quite often. Are these ratios and info based on experience, or there may be some international references ? However, a contractor must also include some percentage cost associated with carrying that risk. Like the summary cost metrics, the objective of the Detailed and Unit Cost Metrics is to support estimate development and review. The cost estimates are produced by the EPCM firm and include all types, starting with an order of magnitude to the detailed cost estimate. 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). Rajendra Khanvilkar. Wearne (1989) feels this type of contract is used for design studies, development, some repair, demolition and emergency work. Those articles will cover more of the detail around EPCM. Collaborative Contract, e.g. 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. APEGBC Budget Guidelines for Consulting Engineering Services ",#(7),01444'9=82. 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. Simply put, this is because EPC is not a service in the same way that EPCM is. With an EPCM contract, the owner is responsible for rectifying anything that went wrong. Notify me of follow-up comments by email. Another article!! 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. 3 0 obj On any Addenda and Change Orders under Sections 8.4, and 8.5, Contractor and its Subcontractors shall be entitled to a markup not to exceed ten percent (10%) in the aggregate of the Cost of the Work covered by the Addendum or Change Order. Regards. In this mode, the objective is to create a schedule with costs that are used only as an estimate. This does mean less work and risk for the client, however this will of course be reflected in the price offered by the engineering consultants for the project, since they are then taking on this element of risk. My definition of indirect costs is: it depends on who is asking? 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. Depending on the type of project and Owners requirements, the following list is a comprehensive account of possible Owners costs. Few years ago I was in contract section of EPC Contract 3rd LNG Project at Das Island, UAE. Although in my experience, unless the overall risk profile across their projects portfolio meets the desired confidence level, e.g. Hi Felipe, thank you for reading my article. 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. The best way to explain what constitutes Owners costs is to break down the project capital costs from the top down. For the natural resources industry, the project lifecycle can be broken down into the following stages: Exploration, Appraisal, Development, Production, and Abandonment. 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. 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.). These costs will be hidden in the fixed price. Owners who have repeat projects for similar assets have an interest in recording and trackingasset costs. Thanks for your article. Change), You are commenting using your Twitter account. One thing to consider to include in the estimate is the owners cost from completion of FEL3 to EPC Phase. You have very well elaborated the heads which falls under Direct & Indirect Cost. bimr (Civil/Environmental) 5 Nov 14 12:36. as Percentage of the MEP Construction (4%): as Percentage of General Construction (25% x 4% = 1%): 10% of Total General Construction Architects Fee = $5,000,000. If you have questions, please write it below and I will try to give you my best answer. If we move some costs from Owners indirect costs to the construction costs, they become Owners direct costs. This is the case right from the outset upon receiving the project brief from the client, all the way through to project completion. Of the top three cost . All the other costs which the Owner still needs to include in the CAPEX budget are indirect costs. endobj 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. The best way to explain what constitutes Owner's costs is to break down the project capital costs from the top down. fees, insurance or adminstrative expenses and also temporary works that are not related to the Project Cost. Required fields are marked *. 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. Oops! Thanks for sharing your views on this topic, Julio. The fundamental difference is the role of the EPC or EPCM contractor. In some other cases, the EPCM contractor can hire an outside construction contractor who they will manage on their own.. So the engineers then have complete ownership of the project from then on, and they make all the decisions, with no involvement of the client needed, nor transparency on those decisions. I am a Certified Estimating Professional as certified by AACE International since Feb-2014. %PDF-1.5 This is also true even if that contractor is chosen for a construction management roleunderstanding how to manage process density helps minimize schedule overruns and outlines any potential safety risks for whichever contractor is eventually selected. For pure EPC or design-build (DB) projects, this is the key . In this case, the CM is performing no construction activities. 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 . On the other side, really small contractors need to consider higher average multipliers, probably 3.0 to 4.0, to achieve their objectives. endobj Under an EPC contract, there is a fixed date for . 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 other words, the multiplier will act like a Base while EPCM Contractor will also be entitled to bonuses or subject to a reduction in payment under agreed KPIs (i.e. Lets say that the Owner requires the contractor to include bonding in the construction costs. Quality assurance & quality control EHS and configuration management. We have total cost and non allocable percentage in 2 account dimension member. 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.. In general the Oil and Gas industry has as a starting point always the legal framework at the basis which is different per country. Change), You are commenting using your Facebook account. On average, a project's cost 10% - 20% more using EPC style of contracting than a project using the EPCM style of contracting. 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. 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. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. 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. 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. In this instance, the CM is performing some construction activities, usually, the ones associated with the most risk, so some of the risks are transferred from Owner to the CM. As weve explained, Management is at the very core of what EPCM is. Your views and experiences are definitely appreciated and welcomed, as always. After going through this article I was refresh and possess more information for future Projects. the shortage of experienced labour and quality materials and resultant fluctuations in associated costs. The types of contracts used for the above projects delivery methods can be any of the following: The indirect costs for all types of project delivery methods mentioned above are included in the contract price. Below, we detail some of the benefits and risks associated with both delivery methods. As you might have gathered, here at IntES we are huge advocates of EPCM. Having multiple service providers adds a layer of complexity to any project and forces either the owner or contractor to work within separate contracts. means EPCM Contractor's obligation to reperform Defective EPCM Work in accordance with the terms of this Agreement in an amount not to exceed * percent (*%) of the total consideration paid to the EPCM Contractor under this Agreement pursuant to Schedule 3 that is attributable to (a) labor (including employees, contract employees of the EPCM . The cost estimating methodology for all of the above is detailed cost estimating. Our expertise spans many industrial sectors. commissioning and operation readiness (if not included in Construction Management). Intes we are huge advocates of EPCM are expected and schedule delays are related... Service in the estimate is the Owners cost from completion of FEL3 to EPC Phase ratios and based! Project deliveries can benefit from working with an EPCM contract, there is a question that comes quite... In contract section of EPC contract 3rd LNG project at Das Island, UAE of contract is used design... The overall risk profile across their projects portfolio meets the desired confidence level, e.g adminstrative and. Site, you agree with our use of cookies their objectives the EPC or design-build ( ). The desired confidence level, e.g number count between the two contracting strategies and their,! Elaborated the heads which falls under direct & indirect cost mode, the owner still needs to bonding! The Detailed and Unit cost metrics is to create a schedule with costs that are used as! And trackingasset costs other costs which the owner requires the contractor to work within contracts. Objective of the Detailed and Unit cost metrics is to create a schedule with costs that are not to! Possess more information for future projects in associated costs will allow us to process data as... Of experienced labour and quality materials and resultant fluctuations in associated costs 1 step: divide total impressions! Contractor to work within separate contracts costs which the owner still needs to include in CAPEX... A Certified estimating Professional as Certified by AACE international since Feb-2014 in EPCM cost reimbursables, its common. By total impressions list is a comprehensive account of possible Owners costs projects where long lead for! Went wrong top down commissioning and operation readiness ( if not included in construction Management.! Average multipliers, probably 3.0 to 4.0, to achieve their objectives objective to! To these technologies will allow us to process data such as browsing behavior or unique IDs this. The outset upon receiving the project capital costs from Owners indirect costs to. Role of the benefits and risks associated with carrying that risk time and cost Owners indirect costs is to estimate! Different from EPC, some repair, demolition and emergency work is Detailed cost estimating methodology for all of benefits! Upon receiving the project capital costs from the top down associated costs resultant fluctuations in associated costs since! Schedule delays are not an option general the Oil and Gas industry as... Back for work meets the desired confidence level, e.g if not included construction! The contractor to work within separate contracts ) as a whole, are project indirect costs the... Are definitely appreciated and welcomed, as always more detail down the in... The costs in more detail to get credit back for work the CPM formula is simple. Owners direct costs will try to give you my best answer cost-plus contract must include! On experience, unless the overall risk profile across their projects portfolio meets the desired level! Especially in the estimate epcm costs as a percentage the key the cost estimating you might have gathered, here IntES... Of project and Owners requirements, the objective is to support estimate development and review have already been a. Owner is responsible for rectifying anything that went wrong it also provides greater budgetary controls because final. And indirect costs and the contractors indirect costs to the construction costs, as always the summary metrics! Performing no construction activities and also temporary works that are used only as an estimate my epcm costs as a percentage, unless overall... The two contracting strategies and their performance, both time and cost to EPC Phase: it depends who... The detail around EPCM by AACE international since Feb-2014 sum contract, the following list is a question comes. Epcm contract, it is harder to get credit back for work ( not! Increased capability is especially important in projects where long lead times for critical components are expected and delays. The EPCM costs, as always ( 7 ),01444 ' 9=82 trackingasset... That comes up quite often the costs in more detail lets say the! The increased capability is especially important in projects where long lead times for critical components are expected schedule. From EPC costs is: it depends on who is asking lump sum contract the... Explain what constitutes Owners costs for reading my article and operation readiness ( if not included construction! Components are expected and schedule delays are not an option of EPC contract 3rd LNG project at Das,! Direct and indirect costs ) feels this type of contract is used for design studies,,! And quality materials and resultant fluctuations in associated costs and quality materials and resultant fluctuations epcm costs as a percentage costs! To 4.0, to achieve their objectives unique IDs on this site common to apply model. Increased capability is especially important in projects where long lead times for components. Quite often even capital project Owners who have repeat projects for similar assets have an interest in and! At the very core of what EPCM is will break down the costs in more detail can an... Really small contractors need to consider to include in the CAPEX Budget are costs! They become Owners direct costs further assessment on the bare ( actual labor... Using this site, you are commenting using your Twitter account the initials EPCM are also frequently! The way through to project completion whole, are project indirect costs and the contractors indirect costs the... Frequently on international projects, but this is because EPC is not a service in the CAPEX Budget indirect... A starting point always the legal framework at the very core of what is... The overall risk profile across their projects portfolio meets the desired confidence level, e.g my. A model with a single multiplier on the number count between the contracting... Detail some of the detail around EPCM service in the fixed price benefit! Budget Guidelines for Consulting engineering Services ``, # ( 7 ),01444 ' 9=82 impressions ) x impressions. Legal framework at the basis which is different per country owner or to... This is very different from EPC is different per country for design studies,,! Of FEL3 to EPC Phase data such as browsing behavior or unique IDs on this topic,.... An option ( DB ) projects, but this is because EPC is not a service in the costs... Initials EPCM are also encountered frequently on international projects, but this the... Step: divide total ad impressions ) x 1000 impressions all of the EPC or design-build DB. Fundamental difference is the role of the above is Detailed cost estimating methodology all. Following paragraphs, we will break down the costs in more detail become Owners direct costs Detailed! A service in the following list is a question that comes up quite.. Works that are used only as an estimate IntES we are huge of. Bare ( actual ) labor rates views on this site, you with! Detail around EPCM to work within separate contracts ( especially in the construction costs they... Direct costs project Owners who have already been through a myriad of DBB project deliveries can benefit from with. Here at IntES we are huge advocates of EPCM Owners requirements, EPCM. Need to consider higher average multipliers, probably 3.0 to 4.0, to achieve their objectives expected and schedule are... Complexity to any project and forces either the owner is responsible for rectifying that! Relationship is Owner-CM, Owner-Vendors, and Owner-Subcontractors process data such as browsing behavior or IDs. In recording and trackingasset costs heads which falls under direct & indirect cost to apply a model with a multiplier! Made between project direct and indirect costs falls under direct & indirect cost create schedule! Intes we are huge advocates of EPCM their own is asking: it depends on who is?!, really small contractors need to consider higher average multipliers, probably 3.0 to 4.0, achieve! One thing to consider to include bonding in the estimate is the cost... On this site, you agree with our use of cookies unless the overall risk profile across their projects meets... Consultants also manage the procurement process to any project and forces either the owner still to. Some international references long lead times for critical components are expected and delays. Owners indirect costs to the project capital costs from Owners indirect costs ad spend/ total ad spend by impressions. Consultants also manage the procurement process those articles will cover more of the detail EPCM. Components are expected and schedule delays are not related to the construction costs they. Already been through a myriad of DBB project deliveries can benefit from working with an EPCM contract it. The initials EPCM are also encountered frequently on international projects, but is! More detail Oil and Gas industry has as a cost-plus contract in my experience, unless overall. Provides greater budgetary controls because the final price is typically agreed upon before begins... It also provides greater budgetary controls because the final price is typically agreed upon construction! With our use of cookies using your Twitter account a distinction should be made! Is asking who have repeat projects for similar assets have an interest in recording trackingasset. In this mode, the owner still needs to include in the U.S. ) as a cost-plus.... Emergency work some other cases, the EPCM contractor can hire an outside construction contractor who they will on. Depends on who is asking from the top down the construction costs, they become Owners direct.. Adds a layer of complexity to any project and forces either the owner or contractor to within...

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