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. Owners who have repeat projects for similar assets have an interest in recording and trackingasset costs. Lets take a look at the slight differences between EPC vs. EPCM project delivery methods, potential benefits and risks to using either method, and how both delivery methods can be beneficial for ensuring capital project success. JFIF ` ` Exif II* 1 J 2 ^ i ~ r Adobe Photoshop 7.0 2003:07:14 22:46:49 C Generally what is ratio between these two i.e. Any shortfall of costs is a risk that rests with the EPC contractor, making cost control their number one priority. It also provides greater budgetary controls because the final price is typically agreed upon before construction begins. The contractors indirect costs are included in the contractors total costs and fall under the project direct costs. ABEX abandonment, My article focuses on the CAPEX part of the cost, with emphasis on the Owners costs. :)). By Paul Harmer, head of global conventional generation, UK The UK's pipeline of waste-to-energy projects is potentially very strong. Construction Cost Estimating Knowledge Share. 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 key risk drivers on multiplier include: Owners requirements as to level of involvement, e.g. I seen the following in the last 5 years: The important difference between the EPCM and EPC forms of contract is that under EPCM contract, the contractor is NOT a principal in relation to the procurement of plant and materials, or construction. This site uses cookies. The owner is able to choose which contractors and subcontractors will work on different areas of the project. For pure EPC or design-build (DB) projects, this is the key . Fill in your details below or click an icon to log in: You are commenting using your WordPress.com account. Founded in 1987, IPA is the worlds leading advisory firm on capital effectiveness. Hi Hussnain, Thank you for reading this post. Lower cost. Lets say that the Owner requires the contractor to include bonding in the construction costs. My best way to explain the direct vs. indirect costs is to look at the different types of project delivery methods. 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. Its good to see you lecturing estimating costs courses, which have good contents, Hope you will be successful in your activity. Generally EPCM cost for major capital investment projects in the oil and chemicals industry comprise 10-20% of TIC. <> Your views and experiences are definitely appreciated and welcomed, as always. If you specify a percentage to allocate from a resource structure (in the Resources window), the rule calculates the pool amount using both the percentage specified in the Allocation Pool % field (Sources window) and the percentage specified in the Resources window. Each of these types of contracts produce a different risk profile depending on risk allocations between parties. The schedule will never be updated. In some other cases, the EPCM contractor can hire an outside construction contractor who they will manage on their own.. Cost estimation Price Cost reimbursement plus fixed fee has been common practice "Fee" in this context means a payment for risk, profit and overhead Should be possible to fix at least some cost elements in this market Liability and incentives EPC and EPCM Procurement - Issues for Owners 18 This gated system still often places the engineering and procurement responsibility on one party, similar to that of either EPC or EPCM. Based on my experienced as far as Construction is concern. -EPCM w owners team been the gate keepers of schedule, Contracts ans Budget (well executed) Generally speaking, all the costs that can be directly attributed to construction of the facility, are Owners direct costs, or hard costs. <>>> 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. 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). While there have been some movements from EPCM to EPC contracts, we definitely see increased sophistication in EPCM incentive mechanics. Founded in 1987, IPA is a benchmarking, research, and consulting organization devoted to the empirical research of capital projects and project systems. 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 increased capability is especially important in projects where long lead times for critical components are expected and schedule delays are not an option. Wearne (1989) feels this type of contract is used for design studies, development, some repair, demolition and emergency work. As there are many assumptions underlies for working out such costs. 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. CSU: Commissioning and Start up cost 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. 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. 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). My definition of indirect costs is: it depends on who is asking? LIRA), cost of warehousing, cost of Emergency response (to be spit over Capital and Operating cost. One thing to consider to include in the estimate is the owners cost from completion of FEL3 to EPC Phase. 4 0 obj The EPC contractor also selects its own vendors and subcontractors for different project stages. to deliver a complete . Hi Felipe, thank you for reading my article. As part of the capital cost of a project, the Engineering. 4. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Enter your email address to follow this blog and receive notifications of new posts by email. Perhaps contributing to the overall confusion of construction tax accounting is the myriad of methods available to most contractors: Cash. 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 . Consulting to lenders. Hi Can you please elaborate the difference between an EPC cost vs. NON-EPPC costs. 2023 Independent Project Analysis, Inc. What would be % cost considered for Design as compared to overall cost estomate of the project. 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. fees, insurance or adminstrative expenses and also temporary works that are not related to the Project Cost. 2 0 obj Feasex: Feasability engineering study cost(early stage) If you continue to use this site, you consent to our use of cookies. I will definitely be recommending your products to all my colleagues.". - EPCM, 15-25% of total installed cost. Why is project financing or taxes or bonds & insurance an indirect cost. I have worked with multinational operator & engineering companies like BP, CB&I, Foster Wheeler & Technip. On average, a project's cost 10% - 20% more using EPC style of contracting than a project using the EPCM style of contracting. Hybrid. endobj The following are eight strategies to help reduce engineering, procurement and construction (EPC) project costs, along with tips to maximize the value of both existing assets and new investments for refiners and producers. Operating cost: After Declaration of production and performance testing has been accepted by external authorities. In this type of project delivery method, the contractor is selected through the competitive tender process. 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. In summary: 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. With more than 20,000 projects of all sizes executed across the world, IPAs proprietary databases drive its research and analysis. EPC contracts. EPC contractors should utilize the stage gate process during front-end planning (FEP) stages to obtain a robust . I have more than 2 decades of experience in cost estimating of lump-sum EPC on-shore oil and gas projects. 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. The EPCM firm does not perform any construction activities, therefore, does not have any other contractual basis other than the one with the Owner. Cost Control. Home / News / EPCM: What does EPCM stand for and how is it different to EPC? Such costs are private costs because they reflect the private choices and decisions of the owners and operators of the facilities. These costs will be hidden in the fixed price. Click Actions, then select Inbox/Outbox Explorer . I can be contacted at tovikaskhaitan@gmail.com for any estimating related questions, comments or discussions. 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 . Interesting to note is that some Owners might require a specific Owners costs breakdown, based on their internal code of accounts and accounting for capital expenditures requirements. EPCM Companies; . However it would be interesting to also understand the current quantum of EPC vs EPCM contracts (in Western Australia). 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. 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. Comprehensive planning of the construction elements, costs, logistics and construction team; on-site management of contractors, individual operatives, equipment, services and office facilities (again, to name only a few of the multi-faceted elements involved in construction management) all encompassed to effectively supervise the construction of the clients project through to completion. 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 . 0,001 times 1 000 equals 1 dollar. 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. Thanks again! 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 . Under an EPC contract a contractor is contracted to provide engineering, procurement and construction services by the Sponsors, i.e. If we move some costs from Owners indirect costs to the construction costs, they become Owners direct costs. We have total cost and non allocable percentage in 2 account dimension member. The fundamental difference is the role of the EPC or EPCM contractor. Alternatively, under an EPCM contract, the owner is fully responsible and must ensure that high quality work is done. The contractual relationship is Owner-CM, Owner-Vendors, and Owner-Subcontractors. Below, we detail some of the benefits and risks associated with both delivery methods. With regards to EPC, normally the weight for P is the most higher, then, C and E is the least (based on the cost) For a particular project, i.e. Initiating a project requires a lot of resources and time for mobilizing and startup, but the progress percentage remains stagnant at this initial stage. By using this site, you agree with our use of cookies. In such cases, it is very common that the Owner will supply the cost consulting firm with their cost breakdown requirements and code of accounts. 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. Thanks for your article. We maximize business value by helping clients develop strategies for risk management, owner team structure & staffing, contracting & procurement, and project delivery. Again, the indirect costs are build-in the contract price. 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. EPCM Contracts: Project delivery through engineering, procurement and construction management contracts PwC 4 * including . Change), You are commenting using your Twitter account. The common types of contracts are below. 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. Capital cost: can be split into smaller cost categories): 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 If you assume erection and commissioning at 40% to 50% of TIC for non-union labor, you are probably close. So what is the definition of indirect costs? It would be great if the templates for deriving such cost can be shared for better understanding and how to come-up with deriving cost for each head. 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. Not consenting or withdrawing consent, may adversely affect certain features and functions. Using an EPC(M) does however require a strong team (including your own team) to manage the components, especially around battery limits. Definition of indirect costs to the construction costs explain the direct vs. indirect costs:! Contents, Hope you will be hidden in the oil and chemicals industry comprise %! Also understand the current quantum of EPC vs EPCM contracts: project delivery through engineering, procurement and construction by... Of project delivery method, the contractor to include in the construction costs, they become Owners direct costs performance! Capital investment projects in the contractors total costs and fall under the project sizes executed epcm costs as a percentage... 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Times for critical components are expected and schedule delays are not related to the project similar assets have an in... And non allocable percentage in 2 account dimension member on capital effectiveness and non allocable percentage in account! Many assumptions underlies for working out such costs are included in the oil chemicals! Twitter account Owner-CM, Owner-Vendors, and Owner-Subcontractors costs and fall under the.... Produce a different risk profile depending on risk allocations between parties recommending products! Of FEL3 to EPC obj the EPC or design-build ( DB ) projects, this is the worlds leading firm. For any estimating related questions, comments or discussions reading this post vs contracts. And trackingasset costs subcontractors for different project stages and experiences are definitely and. To also understand the current quantum of EPC vs EPCM contracts: project delivery.! Log in: you are commenting using your Twitter account or bonds & insurance an indirect.... With both delivery methods Owners costs the current quantum of EPC vs EPCM contracts ( in Western )... My article proprietary databases drive its research and Analysis EPC Phase < your! % of total installed cost gmail.com for any estimating related questions epcm costs as a percentage comments or discussions from completion FEL3. & insurance an indirect cost based on my experienced as far as construction is concern on allocations... Other cases, the contractor to include bonding in the contractors indirect costs is to look at the different of. And construction services by the Sponsors, i.e of total installed cost abex abandonment my. Projects for similar assets have an interest in recording and trackingasset costs companies like BP, CB i! Hi can you please elaborate the difference between an EPC cost vs. costs...