Capital Cost Estimating
Q&A
Note to Reader

This presentation was prepared for the
purposes of answering e-mail questions
from the prior year. This years version
may look substantially different.
Question 1

“What exactly is a ‘factored equipment
estimate’ ?“
What’s a “base cost”, “bare module
cost” and what’s included in the latter?
 What factors are applied to get a total
estimate of the plant?
 What do these factors take into account?

•Equipment Cost
•bulk
materials
& labour
 Tanks
and (DFL)
Vessels
Direct
Field Labour
Equipment
Factor
Equipment Purchase
Price
Equipment
Factor
“Off Sites” Cost
Direct Field Labour (DFL)
Direct Field Cost (DFC)
0.25 x DFC
1.0 to 1.6 x DFL
Indirect Field Cost (IFC)
Home Office Engineering
Allowances
Total Project Cost (ITC)
to install
Direct Field Cost (DFC)
0.25 x DFC
 Columns
and racks,
Trays rail spurs …)
•off-sites (pipe
TOTAL
 Pumps and
PROJECT
x Factors
•INDIRECT
FIELDCompressors
COSTS
Indirect Field Cost (IFC)
COST
1.0 to 1.6 x DFL
 Exchangers
•engineering, freight, insurance,
overhead
 Heaters
•CONTINGENCY AND FEES
•
Home Office Engineering
•firstOff
fill of
plant,
Plus
Sites
, ietaxes, duties
Piperacks,Rail
AllowancesSpurs,
•escalation
Tank Farms etc
Direct Field
Total Project Cost (ITC)
Cost
0.25 x
DFC
Equipment Purchase
Estimate
From Equipment
Price Price
•DIRECT FIELD
to COSTS
DFC
“Off Sites” Cost
Estimate
•DIRECT FIELD COSTS
•Equipment Cost
•bulk materials (piping, valves,
instruments) & labour to install
•off-sites (pipe racks, rail spurs …)
•INDIRECT FIELD COSTS
•engineering, freight, insurance,
overhead, const supervision
•CONTINGENCY AND FEES
•first fill of plant, taxes, duties
•escalation
TOTAL
PROJECT
(CAPITAL)
COST
Method 1: Lang Factored
Estimate
Total Capital Cost = Flang * (Sum Of Purchased
Cost of Equipment)
Flang = 4.74 for fluid processing plant
Method 2: Equipment Cost Factor
Equipment Purchase
Price
“Off Sites” Cost
Direct Field Labour (DFL)
0.25 x DFC
1.0 to 1.6 x DFL
X
Equipment
Factor
Direct Field Cost (DFC)
Indirect Field Cost (IFC)
Home Office Engineering
Allowances
1.18 x
Total Project Cost (ITC)
“Off Sites” Cost
Direct Field Labour (DFL)
0.25 x DFC
1.0 to 1.6 x DFL
X
Equipment
Factor
Direct Field Cost (DFC)
Indirect Field Cost (IFC)
Home Office Engineering





•
Tanks and Vessels
Columns and Trays
Pumps and Compressors
Exchangers
Heaters
Plus Off Sites, ie
Piperacks,Rail Spurs,
Tank Farms etc
Allowances
1.18 x
Total Project Cost (ITC)
x Factors
Direct Field
Cost
0.25 x
DFC
From Equipment Price
to “Direct Field Cost”
Equipment Purchase
Price
Rail Car Loading
“Off Sites” Cost
Direct Field Labour (DFL)
0.25 x DFC
1.0 to 1.6 x DFL
Cooling
Tower
X
Equipment
Factor
Direct Field Cost (DFC)
Indirect Field Cost (IFC)
Home Office Engineering
Allowances
1.18 x
Total Project Cost (ITC)
Rail Spurs
Fire Water
Sys
Steam
Boilers
Pipe Racks
Inside
Battery Limits
Nitrogen
Plant
Office Bldg
0.25 x
DFC
“Off Sites”
Equipment Purchase
Price
Equipment Purchase
Price
“Off Sites” Cost
0.25 x DFC
1.0 to 1.6 x DFL
Indirect Field Cost (IFC)
Home Office Engineering
Allowances
1.18 x
EQUIPMENT
FACTOR
PURCHASE COST
Direct Field Cost (DFC)
MODULE
COST
Total Project Cost (ITC)
0.25 x
DFC
Equipment Factor
Direct Field Labour (DFL)
X
Equipment
Factor
Equipment Purchase
Price
“Off Sites” Cost
Equipment Factors
1.0 to 1.6 x DFL
Shop Fab. Vessels
 Compressors
 Exchangers
 Fired Heaters
 Pumps
 Material Handling
Equipment
Direct Field Cost (DFC)
Indirect Field Cost (IFC)
Home Office Engineering
Allowances

0.25 x DFC
2.0 - 2.5
1.5 - 2.5
1.7 - 2.5
1.7 - 2.5
2.5 - 3.5
1.5 - 3.0
1.18 x
Total Project Cost (ITC)
0.25 x
DFC
Direct Field Labour (DFL)
X
Equipment
Factor
Equipment Purchase
Price
“Off Sites” Cost
Direct Field Labour (DFL)
0.25 x DFC
1.0 to 1.6 x DFL
X
Equipment
Factor
Direct Field Cost (DFC)
Indirect Field Cost (IFC)
Home Office Engineering
Allowances
1.18 x
Total Project Cost (ITC)
Method 3: The CAPCOST Approach
Equipment Parameters (Pressure, MOC, Size, Hp …)
“Base Cost” = Purchase Cost of Equipment
- in Carbon Steel and 0 barg
Bare Module Factor = f (Factorpressure, Factormaterial)
BARE MODULE COST (Directs and Indirects)
Which
One
Do We
Want?
- installed equipment in actual materials and actual pressure
Module Factor = 1.18
MODULE COST OF PLANT
- for expansion to an existing Plant -contingency 15%, fees 3%
Grass Roots Factor = 1.30
GRASS ROOTS COST OF PLANT
- infrastruction (utilities, off-sites aux. Buildings, product storage,
loading and unloading facilities ...)
CHEE
470 Stops
Here
Determine Equipment Cost
Note: Price for Carbon Steel Construction and 0 Bar(g)
Fixed Tube
exch with
28 m2 =
$6500
Convert To
Today’s $’s
using the
CEPCI
value
Factor to Today’s Cost
$6500 * (1999 CECPI / 1996 CECPI) = today’s cost
$6500 x (390.6 / 381.7) = $6650 in 1999
Pressure Factor (Fp)
Pressure Factor
Fp = 1.14
Material Factor (Fm)
Bare Module Factor FBM
Fp Fm
1.14 x 3
= 3.42
Therefore FBM = 7
Bare Module Cost
= Base Cost x FBM
= $6650 x 7
= $46,550
Nowhere is the purchased
cost of the equipment (at
design press and materials)
Module Cost Of Plant
Add Contingency and Fees (building permits,
environmental permits etc.)
Module Cost = 1.18
for all equipment)
S (of Bare Module Cost
Module Cost = 1.18 x $46,550 = $ 54,900
Question 2

What is a capital cost?
Capital Cost

What’s “Capital ?”
– Capital is the money required to build a
plant or facility

It’s separated from “Expense” money
because of the Tax implications imposed
by Revenue Canada, IRS, etc.
Facility Timeline
Facility Creation
Conceptual
Engineering
Expense
$
Detailed Engineering
& Construction
Capital
$
Capital Cost
Facility Operation
Start-up
Expense
$
Expense $
- Operating
Expenses
-Depreciation
Capital vs Expense

Once the plant is running ‘Expenses’ are
small items or costs which are incurred
yearly, or have about a 1 year life.
– i.e. Software, Office supplies, wages,
advertising, heat, lighting, ...

When Calculating Yearly Income
Subtract your Expenses From Your
Income
Capital vs Expense

‘Capital’ are expensive items or items
which have more than a year of life.
– i.e. House, lawnmower, TV, computer,
chemical plant equip, first fill of chemicals

Revenue Canada etc. only allow you to
subtract a % of the Capital every year
to account for the wearing out of the
facility (depreciation).
– This is called the “Capital Cost Allowance”
Capital vs Expense

Capital Cost Allowance ( CCA )
– Works Like a Bank Account
– Revenue Canada allow a % of the
remaining asset value to be claimed
Remaining
Asset
Value
Time (years)
CCA Classes
Taxable Income

Income That’s Taxable (Net Income)
Taxable Income = Income - Expenses
- CCA
Can’t use CCA if Expenses are greater
than Income (can’t use CCA to claim a
loss)
CCA can be ‘banked’ for later years where
profit is occurring
Small Business Tax- Revenue
Small Business Tax - Expenses
CCA
Capital - The Point
Capital is only allowed to be
‘depreciated’ over years and thus it’s
ability to minimize taxable income is
limited.
 Expenses are claimed in the year
they’re paid. They’re better for
minimizing your taxes.


The Games People play
The Capital Cost Estimate
The tax implications of Capital money
requires that you know how much
Capital was spent on any asset.
 The business financial analysis (NPV
etc.) requires that you know the Capital
Cost and the Operating Cost well ahead
of actually spending any significant
amounts of money.

Capital Cost Estimate

Summary:
The cost to initially build the facility which
will be depreciated over time.
Question 3 -CAPCOST arrggh!

“When our tube/shell design pressures
are below those which CAPCOST
recognizes, do we simply take the
minimum CAPCOST pressure and size
on that basis?”
Off The Shelf Items
Piping, Valves, Pumps and most
equipment have been standarized in
design pressures of the connecting
Flange
 Standards are called 150, 300, 600,
900, 1500, 2500 “lb” flange ratings.
– A 150lb rating  150 psig rating,

temperature is important in the ultimate
strength of the item
– Along with standard flanges are standard
pipe wall thickness (Sch 40, Sch 80 etc.)
Flange Rating
Max Pressure vs Temp
1600
Pressure (psig)
1400
1200
150 lb Rating
1000
300 lb Rating
800
600 lb Rating
600
300 lb 304 SS
400
600 lb 304 SS
200
0
0
500
Temp (°F)
1000
Heat Exchanger Standards

TEMA - Tubular Exchanger
Manufacturers Association
– dictates minimum requirements for
exchanger mechanical design

Legislation does not require TEMA
standards be used.
ASME- Pressure Vessel
Standards

ASME Code
– It started in Chicago after a major
explosion in a shoe factory that had a
boiler. The boiler explosion caused the
government to start regulating pressure
vessels (including boilers).
– A tool for regulating manufacturers of
pressure vessels, heating exchangers, and
piping, not pumps, not compressors (no
rotating equipment)
ASME- Pressure Vessel
Standards
– Since the explosion in Chicago codes were
developed for the guidance in the
calculation of pressure vessels, tables of
metal strength vs temp
– Safety factor of 4 has historically been
applied to the mechanical strength of
metal, recently (this year) it was reduced
to 3.5
ASME Code Sections
I - Power Boilers
II - Materials (properties i.e. allowable stresses)
III - Nuclear Power Plants
IV - Heating Boilers
V - Non Destructive Examination
VII - Guidelines for the Care and Operation of
Heating Boilers
IX - Welding and Brazing Qualifications
X - Fiber-Reinforced Plastic Pressure Vessels
XI - Rules for Inservice Inspection of Nuclear Power
Plant Components
Minimum Design and
CAPCOST

Allowing CAPCOST to choose a
minimum makes sense since the
manufacturer would do the same.
Question 4 - Unknown Equipment

To size the reactor cooling jacket do we
send you our data? Is there significant
expense in the jacket?
•Jacket cost is about $35,000 for the reactor.
CAPCOST - User Added Eq.
Treat as an
additional
piece of
equipment
 Bare
Module
factor is
irrelevant

Question 5 - Storage Tanks

How do you do the costing for the cone
roof storage tanks?
User Added - Storage Tanks
$239,000
Multiply by
2 to get
“bare
module cost”
Adding Storage Tank
Question 5 -Agitator

“How can we account for the agitator
(shaft, seal + motor) cost in our
estimate?”
Reactor Diagram
Agitator Costs
$65,000
Multiply by
3.0 to get
“bare
module cost”
in
CAPCOST
The Final Screen