18 Plant Design and Cost Russell T. Roane 1.0 INTRODUCTION TO THE CAPITAL PROJECT LIFE CYCLE Capital cost projects begin when a need is defined that cannot be satisfied in existing facilities. Thus begins the life cycle of a capital project (Fig. 1). Once started, the project will progress through all of the following phases or be canceled. It all starts with the recognition of a need that will require capital plant. In the conceptual phase of the project, multiple approaches will be evaluated and one or more plans will be evaluated for meeting these needs. The conceptual plan, if a process plant, will be defined in plant configuration drawings and process flow diagrams; if an architec- tural project, by plant configuration and programming documentation. If it is a process plant, then a process flow scheme must be generated and a configuration for the facility conceived including any support requirements that must be included for the operation to function. Ifan architectural project, then all the spaces must be defined and the programming completed to a stage that assures that all required building functions are provided. Most times this phase is concluded with an order of magnitude estimate that is used to assess the economic viability of the project. 759 760 Fermentation and Biochemical Engineering Handbook CAPITAL PROJECT LIFE CYCLE CONCEPTUAL DESIGN PRELIMINARY DESIGN DETAILED DESIGN CONSTRUCTION FULL OPERATION START-UP Figure 1. The life cycle of a capital project. The second phase is normally calledpreliminary engineering and its objective is normally two fold: sufficient engineering to achieve overall definition of scope for the project and establish a firm budget for completion of the project. The estimate prepared at this point is normally called the authorization estimate. With this information, the decision is made on whether the project is to be completed. To get to this point usually takes between 15 and 30% ofthe total design cost. Some will call this the definition phase of the project. Next is the main design phase of the project, normally called detailed engineering. During this phase of the project, the design of the facility is completed and the procurement for the project begins. The equipment is specified and purchased. All required design documentation is prepared and assembled into bid packages preparatory to construction. Somewhere during detailed engineering, the authorization estimate may be updated to become what some call the control estimate or, in an effort to more tightly control cost, this may bemanaged by continual tracking ofthe authorization estimate. The project is then taken to thefield. This is the construction phase of the project. This phase of the project can be managed with several types of organizations. In construction management form, the engineer, architect, or owner, puts together a construction management team. The work to be executed is then specified in subcontracts. Each subcontract contains the work centered around one craft or construction trade. The construction management team is then responsible for seeing that the work is completed on time, as specified (of acceptable quality), and that field costs are controlled Plant Design and Cost 761 to budget. In direct hire form, the construction management team is expanded to allow direct supervision ofthe craft workmen on the project and the responsibility for performance ofthe subcontracts is not delegated. As the name implies, the craft workmen are directly hired. In the third form, general contracting, amulticrafted or key contractor is hired and he then becomes the responsible party for execution of the work. He will perform the project utilizing his own employees and subcontracting the craft work not common to his work force. In this form, quality oversight must be accounted for and performed. Construction’s normal objective is what is termed mechanical completion. Mechanical completion is normally defined as a plant that is fully assembled and has been checked for operability, but has not been performance tested. An agreed level of clean out is part of mechanical completion. The project is ready for start-up, not operation. Start-up is a transition phase between mechanical completion and dedication to full operation. It includes performance testing, final clean out, trial production phase, and the first full scale operations. Water batching is a common means of achieving both clean out and testing. Where water batching is not appropriate, solvent testing may be used, or selected as a second step, to achieve dry out and testing. The objective of either is to test the plant and prepare it for trial operation. Trial operation will be planned to risk a minimum amount of materials to performance-test the operation. It can take many forms, Le., reduced operation through low flows, smaller batches, or utilization of substitute materials. The start-up phase is best shared between the designers, the constructors, and the plant operators. The designers contribute how the plant was designed to operate, the constructors do the required mechanical work, removing and replacing items of temporary installation, assisting with commissioning of specialty equipment, mechani- cal adjustments, and other corrections that appear as the start-up progresses, and the operating people learn how to operate their plant. Start-ups are best managed by the operations people with assistance by the other support groups. It is important to consider the people as well as the equipment in planning the start-up. Overstaffing can lead to methods ofoperation that are expeditious, but not sustainable for the plant to be profitable. The plant staff is best supported by staff that plans to leave the project. When the plant proves itself capable of full operation by unaugmented staff, it can be declared out of start-up and dedicated to plant operations. These are the phases that a capital project passes through from inception to dedication. Overlapping of the phases and compression of schedule is commonly achieved through an approach calledfast trachng. It 762 Fermentation and Biochemical Engineering Handbook comes to the fore any time where the benefits of early completion outweigh the added costs. Some will argue that there is no added cost since fixed costs are reduced to offset the limited inefficiency of redo required. What can be agreed upon is that there is an optimum balance for each project, and time spent finding it will help to assure that the project will be a success. 2.0 CONCEPTUAL PHASE The conceptualphase of a project starts before there is a project. This phase of the project is where a plan for satisfying a need will be conceived (Fig. 2). Definition of the need will start the process. A method of satisfying the need will be the result. The need may be for increased capacity, new product, elimination of bottlenecks in existing facilities, modernization, meeting new regulations, energy efficiency, and waste minimization, to name a few. CONCEPTUAL PHASE A NEED MUST BE FILLED THE FIRST SOLUTION Figure 2. The conceptual phase. One good approach at this time is to prepare multiple solutions and hope to find an optimum solution. Realize that this is the phase where the optimum solution can be found most economically, beyond this phase the solution chosen can be optimized, but to change the chosen solution will require return and restart at this phase with a large portion ofthe work of later phases discarded. The most important element at this phase of the project is that the project team shall have a varied experience base, Le., creating plans to satisfy needs is easily facilitated. Success comes with a team strong in three ways. (i) experience in the industry, (ii) experience in the various skills required for the project, and (iii) experience in this creative period of a project. Plant Design and Cost 763 This phase of a project is best guided by the statement of the need. Example: “The sales projections for our product exceed our production capacity starting the middle of next year”. Start with the statement and collect ideas for solutions. Next, evaluate the solutions and select the ones with the most favorable features for further evaluation. As part of the evaluation procedure, determine the “must have” features and the “would like” to have features. The final selections should have all the musts and as many of the high ranked wants as can be accommodated. Some of the ideas will be found unsuitable as their development begins. Take the three or five best ideas and develop them with the objective of finding out their space requirements and their equipment requirements. Develop them sufficiently to produce a first order cost comparison. In this phase of the project, the objective is to do sufficient development so that two things are established: (i) which solution you have uncovered best satisfies the need at a justifiable cost, and (ii) what is the first order estimate ofthat cost. Warning: The most overlooked items are not core to the process, but are required as support for the project, i.e., facilities to produce utilities at the capacity required; sufficient laboratory, warehouse, waste disposal, or in- process storage. Each solution must be given an overall evaluation for hazards that impact safety and potential monetary loss. This need not be an itemized, comprehensive review but it should encompass hazards to the employees and the environment, loss due to fire, or unplanned equipment failure, and most important, release of hazardous raw material, intermediate, or product. This phase of the project is complete when a cost-effective means of fulfilling the deked need has been identified and estimated. Cost estimates at this stage in the project are not very accurate; plus or minus 50% is the norm. It is the basis for the decision whether to go ahead with additional effort to firm up the project’s budget. Many projects are underfimded and not viewed as a success if the estimate produced at this stage is used to fund the project. 3.0 PRELIMINARY DESIGN PHASE The preliminary design phase is where sufficient work is done to estimate the cost of the project to an accuracy that is consistent with the sponsoring organization’s requirements for funding of a project. Estimating accuracy will be related to the percentage of total design cost spent. Estimating accuracy is usually in the range of 2 15% to +30%. A frequently 764 Fermentation and Biochemical Engineering Handbook experienced case is that of a +25% estimate with +30% of design cost expended. The preliminary design phase is also where sufficient design work is done to assure operability of the project without additional scope. The first step is to evaluate what work must be done to assure that the required scope is comprehensive for the project: what work must be done, to what detail, to achieve the required accuracy of the estimate (Fig. 3). If a conceptual estimate has been made, a quick study of it shows which are its largest accounts and then focus can be on the improvement of their accuracy. A second review that is painfully forgotten is the evaluation of the project for overall completeness of the scope. Questions to ask at this point are: Are emissions suitable for permitting with the current design? Are treatment solids also disposable? Are there previous commitments that become part of this Are utilities sufficient and available where required? Are utility systems suitable for permitting at the increased Are the following sufficient: Offices? Laboratories? Solid? Liquid? Gas? project? rates? Warehouse? Roadway? Site drainage? Security? Phone system? Fire protection? Are current operations impacted (Le., grandfathering re- moved)? Buildings? Processes? Other planed services? Is building construction compatible with the need? Fin- ishes? Seismic? Height? Relief requirements? Have all plant hmiture and vehicles been included? PRELIMINARY DESIGN IS THE SOLUTION FEASIBLE? IS THE SOLUTION COMPLETE? IS THE ESTIMATE SUITABLE? Figure 3. The preliminary design phase. Plant Design and Cost 765 Here is but a partial list ofthe questions to be asked so that unestimated scope does not enlarge the project beyond its estimated accuracy and interfere with its profitability. At some point in preliminary design, a project logic meeting is in order where the sole focus is uncovering potential flaws in the project’s logic. A blend of those most knowledgeable about the project and seasoned evaluators less immediately involved with the project can best perform this effort. If the project has sizable architectural considerations, it is important they be properly estimated. Those dollars per square foot numbers that are so useful early in the project need to be firmed up. For the biotech and dosage pharmaceutical projects of today, it is as important that the building costs be as accurate as the equipment costs. Sometimes an account-by-account evaluation for estimating accuracy is in order to see if sufficient work has been done to assure the validity of the overall estimates accuracy. 4.0 DETAIL DESIGN PHASE The detail design phase of a project is where most of the cost of a project is committed. During this phase of the project, the design work is completed and most of the equipment purchased. The focus for this phase of a project is to turn all of the plans developed to date into a purchasable and buildable set of documentation (Fig. 4). To expedite the schedule, the construction contract may be let as this phase is being completed. Changes made during this phase of a project tend to be very costly as they result in the discarding of work and materials for which recovery will be minimal. For this reason, it is important in controlling costs to make the transition into this phase of the project with the scope approved and complete. If items are yet to be decided, it is important that they be clearly defined as undecided items so that when the decisions are made work need not be repeated. DETAIL DESIGN IS THE DESIGN COMPLETE? CAN THE DESIGN BE CONSTRUCTED? Figure 4. The detail design phase. 766 Fermentation and Biochemical Engineering Handbook During this phase of the design work the scope established in the preliminary phase of the project is divided into work packages for award as subcontracts or, ifthe construction is done on a direct hire basis, they become the work packages for the various crafts. Some discussion is in order at this point to differentiate between what are called the architectural and engineering approaches to detailed design and construction. Most projects in the food, pharmaceutical, and biotech industries require a blend of these two techniques of design. In the architectural approach, detailed design is completed by mechanical design subcontract or inclusion in construction subcontracts. With the engineering approach, the detailed design is completed as part of one engineering effort. The architectural approach passes on the engineering by written functional specifications describing how the installation is to function, not how that function is to be achieved. The engineering approach details how each function is to be achieved. Each approach has its proponents and its detractors. By looking at only the cost of the primary design work, the architectural approach will appear less expensive. It is the writer’s opinion that the architectural approach is very good for designs where utilization of repeated, well-understood elements is a major component of the work, (i.e., the building part ofthe project). The engineering approach is better where a process is being installed (the process design). The disadvantage in utilizing the engineering approach to the building is that, many times, it does not allow completion to occur with mixes and matches of materials that lower final installed cost. A secondary disadvantage is that the tendency in engineering approach is for unique design elements that restrict competitive bidding to reduce cost. The disadvantage to the architectural approach is that the design work can more easily slip into the hands ofthose who do not fully understand the functionality of what they are being asked to achieve. Also, design documentation required for regulatory review and compliance becomes available later. Because the engineering approach allows an estimate in better detail at an earlier point in the project, it allows better budget and schedule control. In summary, if this is an all-process building, use the engineering approach ; if just offices and laboratories, use the architectural approach; and, if a blend (as are most projects in this industry), use a blended approach to cost effectively achieve your objectives. Remember that, when organizing for the detail design phase of a project, the design will be a complex and detailed undertaking. Be sure that sufficient documentation takes place to ensure that those who turn it into a completed operating facility have sufficient information to properly under- stand what they are to achieve. Plant Design and Cost 767 5.0 CONSTRUCTION PHASE The construction phase (Fig. 5 .) of a project can be accomplished in three main ways-construction management, general contractor, and con- struction by direct hire. CONSTRUCTION WHERE DESIGN BECOMES REALITY Figure 5. The construction phase. The construction management approach utilizes a construction man- ager or a management team to manage and control the project, depending on project size. The project management can be from a group on staff with the owner, individuals hired for the duration of the project, or a contracted effort from a firm that specializes in these abilities. This project management team is responsible for the budget, schedule, and quality of installation. They have sufficient people on their team to assure that the work is proceeding on time, within budget, and is being constructed according to specifications. The physical work is accomplished through subcontracts awarded to individual companies to complete separated scopes of work that are within there acknowledged skills. These skills most often parallel those of the design discipline engineers: electrical, mechanical, civil, structural, etc. The general contractor approach gives the responsibility for construc- tion management to a construction contractor. Most often this contractor will be the one who will also hold the largest subcontract on the project. The major advantage of the arrangement is lower cost. It does not, however, come without price. The contractor selected may not have the qualified people to control the parts of the job in which he has no expertise, he may add parts of the project to his work scope that he is not qualified for, and the work he self- performs will not have the advantage of checks and balances on its quality. The direct hire approach is used by those calling themselves construc- tors to gain the advantages of construction management in a way that competes with the cost of the general contractor approach. In this approach, 768 Fermentation and Biochemical Engineering Handbook the construction management team is expanded to include craft supervisors and the work force is assembled by moving in a cadre of permanent workers with the constructor and expanding that cadre with local hires from the craft work pools in the area. This approach allows the project to be done by a top flight construction management team, controlling cost and schedule, without the costly layering ofmanagement that occur in the construction management approach. This approach can gain the best of both worlds ifthe owner assures himself that the constructor has a strong quality management program that allows no compromises on quality in the construction of the facility. If you reread the above, keeping in mind what was said about the architectural and engineering approaches in the section on detail design, you will realize that the negatives of the general contractor approach are minimized if the project lends itself to the architectural approach, and are maximized on a project that needs the engineering approach. An agreed-upon condition on the completion date is an important project decision that should be made prior to award of construction contracts and should be made a written part of them. In the past, this was called mechanical completion, which was generally meant that all equipment was tested and ran in a mechanically approved manner and proper tests had been conducted to confirm tightness and pressure rating of system. Only necessary material for testing the system would be introduced. Today the requirements for cleanliness and proofing of tests as part of validation require that the definition of condition for turnover to start-up must be developed in much more detail. The questions to be asked when developing the completion plan are: What part of validation Installation Qualification (IQ’s) will be completed as part of the construction effort? What will be the condition ofthe document control files on completion? Is water batching or some related form of process simu- lation without real materials to be included? What part of validation Operational Qualification (OQ’s) will be completed as part of the construction effort? What will be the condition ofthe spare parts that may have been ordered as part of the project purchases? What help and checking will the owner supply or exercise as part of the construction effort? Plant Design and Cost 769 7 What systems and in what sequence will the plant be completed and turned over to the owner? 8 What continuing effort are the construction forces to supply to the start-up effort? 9 Is vendor assistance to be coordinated by the construction personnel or by the owner’s personnel? 10 Does the owner want access to parts of the facility prior to completion that will interfere with completion? These are but a few of the issues to be addressed if the completion of construction and the start of operations is to be accomplished on a smooth and efficient schedule. 6.0 START-UP PHASE Start-up is the transition from completion of construction to full operation and it impacts both construction and operations (Fig. 6). Many times, projects have construction scheduled to be completed simultaneously in all areas. This is neither accurate or the real world. Both construction and start-up personnel must think in terms of a phased completion because construction will not have sufficient people to complete every thing at once and start-up will not have sufficient people, or fimctionality, to start-up the facility all at once. The sequence of completion needs to be agreed upon early in the construction effort so that construction focuses on completion in the agreed sequence and start-up gains availability to start in a logical sequence. If the last item on the construction schedule is to set the main electrical transformer andconnect the plant power, no transition to start-up is possible. There are many more subtle constraints in a construction schedule that can be prevented with proper planning. START-UP MAKING IT WORK 1 DOES IT FUNCTION AS DESIGNED? Figure 6. The start-up phase. 770 Fermentation and Biochemical Engineering Handbook The stages of start-up are water batching, followed by low-risk production, and then, finally, into full production. The last construction activity is usually mechanical checkout. Pressure testing, rotational testing, and other testing can be accomplished without the total system being operational. Water-batching for most plants is simply to make the equipment operate using water, or another suitable medium, to simulate the operation. The water batching may be coordinated with and combined with the completion of clean-out ofthe system. The next phase will vary with the type of operation that is being started. It can be part-sized batches, running without the expensive ingredients, or just batching, with only solvents and water present. Again, planning well in advance will take most of the stress out of this phase of a project and keep it on schedule. One of the items to be covered in start-up is manpower planning: what skills will be required, who will supply them, and what are the quantities? Operator manning levels tend to justie themselves, so it is not agood practice to just add more operators for start-up, but rather, to supplement with people who will not stay with the project once it accomplishes fill operation. 7.0 THE FAST TRACK CONCEPT Fast-tracking is a much used, but not universally defined approach to expediting the completion date of a project (Fig. 7). Fast-tracking, in its simplest definition, is starting construction before the design effort is complete, in an effort to shorten schedule. FAST TRACK AN OPTIMUM SEQUENCE SCHEDULE DON’T FORGET VALIDATION DON’T FORGET START-UP? Figure 7. Fast-tracking. Plant Design and Cost 771 It has value, if planned properly, as a method for improving schedule and reducing capital cost. A thorough planning effort is necessary if the advantages are to be gained without increasing the overall cost. Certain of the costs of a capital project are time rather than effort related and these costs are saved when the schedule is shortened. Examples are interest on moneys expended, supervision at all levels, field rental expenses. These savings do not come without some loss of efficiency in all of the activities that are the result of proceeding with incomplete information which results in work being repeated. Each project has its optimum schedule, balancing cost with schedule. The ultimate fast track approach plans detailed design, construction, start-up, and validation, as one coordinated effort. The key components of the plan are the decisions made on the sequences of completion. This sequence determines the priorities of construction and start-uphalidation. Construction then determines the sequence for detailed design and a critical path determines the overall schedule. The critical path can then be optimized, using negotiations among the various groups to shorten key critical path item schedules. The planning for this effort is not insignificant, but ifplanned and done in this manner, it does pay dividends in reduced cost and shorter schedules. 8.0 THE IMPACT OF VALIDATION Today’s biotech, pharmaceutical, or fermentation project, requires that a validafion effort be completed prior to producing saleable product (Fig. 8). Looking at the validation activity as an afterthought is not being cost or schedule effective. An effective way to think about validation is the following: is the project suitable for validation? A validation study during conceptual engineering will answer that question. The magnitude and the specific steps for validating the facility are addressed by a preliminary master plan produced during preliminary engineering. The master plan is finalized during detail engineering. The protocols prepared (IQ’s, OQ’s and PQ’s) and the validation files started during construction. The IQ’s (Installation Qualifications) are performable as construction is completing and can be completed by the constructor under supervision. The OQ’s (Operational Qualifications) can be performed during the earlier parts of start-up as verification of mechanical completion. The PQ’s (Process Qualifications) are performed as start-up completes and continue through the operating life of the plant. For maximum schedule 772 Fermentation and Biochemical Engineering Handbook efficiency, the validation schedule should be part ofthe overall project and not be considered as a separate effort. VALIDATION PLAN IT IN REVIEW BEFORE PRELIMINARY MASTER PLAN BEFORE DETAIL PROTOCOLS WITH CONSTRUCTION IQ’S FINISH CONSTRUCTION OQ’S FINISH START-UP PQ’s INTO FULL OPERATION Figure 8. Validation 9.0 INTRODUCTION TO THE COSTING OF A CAPITAL PROJECT As a project progresses, there are many demands put on the costing effort that proceeds with a project (Fig. 9). The first question is usually, is this a viable project? The quick, low accuracy estimate possible at the end of conceptual engineering is called an order of magnitude estimate and provides, with other business information, the answer of whether the project is likely to be profitable and should be continued, researched further to reduce cost, or cancelled as unprofitable. Based on the viability of the order-of- magnitude estimate, the work to proceed to the authorization estimate is committed. The authorization estimate is next and the work is dependent on the individual company’s requirements for authorization ofthe full budget for the project. The authorization estimate’s purpose is to secure funding for a project. A control estimate can be prepared near the end of engineering to achieve higher accuracy when almost all elements of the project have been quantified and the major ones bid. Plant Design and Cost 773 COSTING A CAPITAL PROJECT WILL THE PROJECT BE PROFITABLE? CORPORATE FUNDING LEVEL? BRING IT IN ON THE ESTIMATE Figure 9. Costing a capital project. If, as with most projects, your project is not overly funded or highly profitable, then the approach may be to trend the cost throughout the preliminary and detailed engineering. The reason for trending is to provide up-to-date information for any cost impact decision as the project progresses. Whether the formal step approach, or the trending approach with snap- shots is used, it is essential that a control estimate be created to be used during construction to control the cost of the constructed project. The result of shortchanging the estimating and cost control effort are a noncurrent cost reality and unhappy surprises as to final cost and schedule. One of the techniques of estimating is to add to the allowance for undefined sections of the project and then state higher levels of accuracy for the estimate. Example: add a 20% allowance to a +30% estimate and call it a 10% estimate. If your concern is not exceeding the estimate, it is possible to use this technique, but if you add 20% to a plus or minus 30% estimate and call it a 10% estimate, you really get a plus lo%, minus 50% estimate at the end, and you are much less likely to come in at the original estimate, for the reasons mentioned in dynamics of an estimate below. 10.0 ORDER OF MAGNITUDE ESTIMATE An order-ofmagnitude estimate is made using generalized assump- tions about the project to estimate its costs. The purpose of an order-of- magnitude estimate is to decide whether the cost of preliminary engineering is justified and, with business plan information, whether the project is profitable enough to continue (Fig. 10). Sometimes this combined effort is called a feasibility study. 774 Fermentation and Biochemical Engineering Handbook ORDER-OF-MAGNITUDE ESTIMATE MINIMUM DOLLARS TO FIRST DETERMINATION IS IT PROFITABLE TO CONTINUE THIS PROJECT? Figure 10. Order-of-magnitude estimation. The method used for the estimate should be developed by a skilled estimator and approved prior to preparation by those who will be responsible and present its conclusion. Normally these estimates are approached in two areas, process and architectural. The process and utility support installations will be estimated from preliminary pricing of equipment lists. Factors will then be applied for installation, piping, electrical, instrumentatiodautoma- tion, hidden scope/contingency, escalation, growth in equipment cost, and other minor equipment-related costs, such as paint and insulation. The factors only have significance to those who generated them as they are based only on related experience and a unique assignment of costs in the base data accumulation. The overall ratios are not even worth presenting because the vendor that previously supplied only equipment now packages many features on that equipment. Included may be sophisticated control packages with both electrical and instrumentation control features, connected auxiliary equip- ment, and interconnecting piping. The architectural portion of the estimate will include both the building and site costs. The building costs will be based on square feet under roof and then built up by adding costs per square foot for the improvements as they are added to the base price. Be carekl at this stage ofthe project and avoid using a single all-in gross square foot cost for the building. When dealing in the finished pharmaceuticalhiotech arena by this method, you may be an order of magnitude wrong in cost, 200 dollars per square foot may turnout easily to be 2000 dollars per square foot. Be sure to include in this section of the estimate the site relatedcosts, i.e., those costs that relate to the site rather than the building. Site costs are based on units of measure similar to those used forthe building estimate: cubic yards offill, square yards to be cleared, square yards to be paved, trees and shrubs to be planted by estimated count, and Plant Design and Cost 775 square yards of grass to be planted. Don’t overlook costs for disposal of materials to be removed from the site. Another issue not to be overlooked is site support costs. Do I need to pay for extension of the rail line, upgrade construction of the local street, extend sewer or water lines, modi@ electrical source connected to, are but a few to be considered. The only effective method of covering this adequately is to study the plant operations and list all the items it will consume or discharge and mentally walk them back to an adequate connection point. Beware of utilities that must be generated, the cost of supplies to, and the discharges from, the generating operation must be included in the estimate. Only when an in-depth effort is made to uncover hidden scope can it be uncovered in time to be included in the estimate. Whatever confidence you have in the estimate, it should not be higher than the confidence you have in those preparing it for you. The effort put into exposure of the total scope is equally as important as the estimate itself. No estimate can accurately reflect an item that was not included in the scope of the project. An item included, but estimatedpoorly, is better provided for than an unseen item you think you have provided for by an oversize contingency. 11.0 APPROVAL GRADE ESTIMATE The approval-grade estimate is normally produced after spending one quarter to one third of the engineeringlarchitectural design dollars. It’s focus is twofold with the first being verification of the completeness of the project scope (Is all we will do in the estimate?). The second focus item is improved accuracy and detail to better function as the cost control document for the balance of the project (Fig. 11). APPROVAL-GRADE ESTIMATE ASKING FOR THE MONEY HOW MUCH? SUCCESS = FINISHING IN THE MONEY Figure 11. Approval-grade estimate. 776 Fermentation and Biochemical Engineering Handbook Additional engineering is used to remove factored values from the estimate by developing sufficient detail to allow the factored values to be replaced with estimated quantities and unit prices. Equipment purchases will be updated to reflect the input of quotations received for the equipment. The building details will be improved as well. The area sizes and layout will be firmed up. The building estimate will be improved in the same manner, since it will now be based on takeoff quantities. The building room sizes will be given a first level confirmation. The approval estimate is the most important to the reputations of the managing engineers for the project. A successful project is completed on time, in budget, and gains a reputation for smooth and efficient operation shortly after dedication. This is not likely to happen by accident. The decisions on what is necessary for the smooth and efficient operation are made during preliminary engineering and funded by approval of this estimate. If your company attitude, or the project’s justification, require a high level of assurance that the budget will not be exceeded, then the detail developed in preliminary engineering will require expenditure of more of your design dollars in the preliminary engineering stage of the project, but if properly managed, will not increase the overall design cost. 12.0 CONTROL ESTIMATE The control estimate is a final confirmation of the cost of the project (Fig. 12). It is adetailedpricingoftheproject fromtakeoffsofquantities and, in most cases, will reflect local bids for materials and construction labor. By the time this estimate is made, the project cost has been decided and this is done to form a control basis for the project as it proceeds through construc- tion. Two forces have combined to make this estimate obsolete as a separate estimate. One is the modern business need for more precise and up-to-date reporting of the capital cost of a project. The second is the change to lump- sum contracts for most of the construction performed on a project in the biotech/ pharmaceutical arena. The control estimate has been replaced by a procedure called trending, or estimate tracking, which is continuous cost estimate tracking leading directly into cost control as the project’s appropriation is spent. It is a much more time-responsive way of controlling costs on the project and a snapshot of the trended estimate can be published as the control estimate at any appropriate time. It is helpful in today’s world, where immediate Plant Design and Cost 777 explanations are the norm, to track the job cost from order-of-magnitude to job completion. Under the complete scenario of tracking, the always explainable improvement in estimate accuracy can be separated from those expansions of project scope, and upgrades in design can be separated from changes in unit costs. II CONTROL ESTIMATE I THE FINAL BUDGET LAST CHECK ON APPROPRIATION Figure 12. The control estimate 13.0 DYNAMICS OF AN ESTIMATE Estimates impact a job in more than the cost area. It is these indirect influences that luckily help to make the estimates the self-fulfilling prophesies they are meant to be. Estimates that have caused a project to be redefined and reestimated tend to return to the original estimate unless the effort at cost tracking (Fig. 13) is intense and finger-pointing. ESTIMATES DYNAMICS 1 CONTROL THE PROJECT, CONTROL THE BUDGET PERFORMANCE = BUDGET PROJECT ON TRACK Figure 13. The dynamics of an estimate. 778 Fermentation and Biochemicul Engineering Handbook The simple rules of contracting, no matter what the item, are the following. - Everyone will include an estimate for the work, a contin- gency for the unseen development, and a profit for doing the item. - Negotiations for change are easy when the put and take is from contingency, more difficult when you are asking sacrifice of profit, and impossible, or almost that, when you ask the supplier to take a loss. - Successful projects determine a fair price, including all three factors, and keep the performance of the work in phase one, where contingency is all that is being expended. - When below budget, other concerns on the project are likely to be given close scrutiny. When the project is running over budget, then the cost of all items will be scrutinized