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As global demand for power generation continues to grow, there is a growing shift in both the pricing and costing methodologies employed by turnkey contractors. This is largely due to the client wishing to ensure that all (or most) of the risk exposure is to be borne by the main contractor. In response to this, EPC contractors have adjusted the costings of their offerings in an attempt to have project budget to deal with these risks should they manifest. Preparation of a cost estimate for any project in general, is a complex process as the cost estimate is based on various factors.
While there are many factors, here are the 6 key factors which affect the construction cost estimate:
- Construction Material Costs
- Construction Site Conditions
- Inflation Factor
- Regulatory Requirements
- Location of Construction
- Engineering Review
Construction Material Costs
While calculating construction material costs, this involves material cost, raw material costs, shipping and taxes charges. As prices are always changing, it is key that you take into account the latest prices for a more accurate cost estimate.
Construction Site Conditions
Conducting a thorough site investigation to examine the site conditions helps to provide a more accurate cost estimate. As project site conditions can increase construction costs, here are some to take note of: poor soil conditions, wetlands, contaminated materials, conflicting utilities (buried pipe, cables, overhead lines) and environmentally sensitivity areas. All these factors can increase the project cost during construction phase if these variations are not considered during estimation.
A construction project can continue for years before completion. During the construction period, the cost of materials, tools, labours and equipment may vary from time to time. These variation in the prices should be considered during cost estimation process. Also take note of the changing market conditions which would most likely affect inflation rates as well.
Approvals from regulatory agencies can sometimes be costly. These costs also need to be considered during cost estimate. Examples of regulatory requirements include pollution control and emissions compliance.
Location of Construction
When the location is far away from available resources, it increases the project cost through increased transportation and logistics costs.
Sometimes it is necessary to carry out technical review of construction project to make sure the project will serve the required purpose with optimum operational and maintenance cost. This review cost shall also be added to the project cost.
Understanding Contractor Costing in the International Power Generation Industry is a 3-day course held from 29-31 July 2019 (Kuala Lumpur). The course aims to increase the awareness of the key features and contractual provisions of an EPC contract, have a greater understanding of the dynamic nature of contractual provisions and some of the consequences that arise as a result of them within the commercial world. Delegates will also grasp the fundamentally important aspects of managing and allocating risk in an EPC contract.