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Procedures Used by Federal Agencies to Prepare Budget Estimates for Construction (1987)

Chapter: Construction Project Budget Estimating in the Department of Energy

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Suggested Citation:"Construction Project Budget Estimating in the Department of Energy." National Research Council. 1987. Procedures Used by Federal Agencies to Prepare Budget Estimates for Construction. Washington, DC: The National Academies Press. doi: 10.17226/19184.
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Page 9
Suggested Citation:"Construction Project Budget Estimating in the Department of Energy." National Research Council. 1987. Procedures Used by Federal Agencies to Prepare Budget Estimates for Construction. Washington, DC: The National Academies Press. doi: 10.17226/19184.
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Page 10
Suggested Citation:"Construction Project Budget Estimating in the Department of Energy." National Research Council. 1987. Procedures Used by Federal Agencies to Prepare Budget Estimates for Construction. Washington, DC: The National Academies Press. doi: 10.17226/19184.
×
Page 11
Suggested Citation:"Construction Project Budget Estimating in the Department of Energy." National Research Council. 1987. Procedures Used by Federal Agencies to Prepare Budget Estimates for Construction. Washington, DC: The National Academies Press. doi: 10.17226/19184.
×
Page 12
Suggested Citation:"Construction Project Budget Estimating in the Department of Energy." National Research Council. 1987. Procedures Used by Federal Agencies to Prepare Budget Estimates for Construction. Washington, DC: The National Academies Press. doi: 10.17226/19184.
×
Page 13
Suggested Citation:"Construction Project Budget Estimating in the Department of Energy." National Research Council. 1987. Procedures Used by Federal Agencies to Prepare Budget Estimates for Construction. Washington, DC: The National Academies Press. doi: 10.17226/19184.
×
Page 14

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CONSTRUCTION PROJECT BUDGET ESTIMATING in the DEPARTMENT OF ENERGY Joseph Bozik Project and Facilities Management Department of Energy The construction projects managed by the Department of Energy (DoE) cover a tremendously broad range of sizes and types, from relatively low-cost conventional projects like warehouses, dormitories, and laboratories to high-cost projects involving such recent technologies as coal gasification, magnetic fusion, and laser isotope separation. DoE categorizes projects as "Major System Acquisitions," "Major Projects," or "Other Projects" on the basis of such factors as: a. Cost - (Projects Costing more than $200 million are usually classified as Major System Acquisitions; projects costing between $50 million and $200 million are usually classified as Major Projects; and projects costing less than $50 million are usually classified as Other Projects). b. Importance and visibility c. Size and complexity d. Degree of DoE control required e. Who has recommended them (e.g., the office of the Secretary of DoE, an assistant secretary for a major program, or a field office manager). The lower-cost projects generally are constructed with off-the-shelf equipment, materials and skills and are relatively simple to construct. However, the high-cost projects often are state-of-the-art, one-of-a-kind projects, and are relatively complex to construct. Most DoE projects require conventional construction and estimating methods; however, certain product-assembly-line items such as heliostat and gas

centrifuges require industrial and learning curve cost e s t ima ting me thods. Major planning decisions often are made prior to conceptual design when little design detail is available to support the estimate. Program and project managers need estimates for source evaluation, project baselining, budgeting, and project management and control. Planners need estimates in order to weigh the benefits of various technologies, programs, and projects and to establish DoE energy priorities. Seven general types of cost estimates are developed and used by DoE throughout the life of a construction project. Identification of an estimate by type denotes a certain level of accuracy and confidence in the estimate. Cost estimates are often compared to the actual cost of the project to judge the success of the management effort. The seven types of estimates are: Planning estimates Budget or conceptual design estimates Title I (preliminary design estimates) Title II (detailed design estimates) Government (architect-engineer) estimates Current working estimates Independent cost estimates As a project evolves from planning through conceptual design, and Title I and Title II design, more details are available and are used to prepare the estimate. The focus of this paper is the DoE planning estimate, which is the earliest estimate that puts constraints on the ultimate size, design, and cost of a project. A planning (feasibility study) estimate is normally prepared either by one of DoE's Operations Offices (which are staffed with government personnel) or by a DoE operating contractor. It is usually prepared for a proposed project prior to the accomplishment of conceptual design. Planning estimates are used for scoping studies and for preparing preliminary budget estimates of total project costs. Planning estimates for construction projects are presented on a Short Form Data Sheet. (Figure 1 is a sample.) A planning estimate is an order-of-magnitude estimate. It can be given in terms of dollars per square foot, per linear foot, per cubic yard, per kilowatt, or some other unit. On many projects, the available data 10

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may be minimal, and the criteria provided can range from the functional/operational requirements to a brief description. This description may be supplemented with a sketch, briefings, a tour of the proposed project site, or references to similar projects that already exist. Planning estimates are based on the following: • Past cost experience with similar facilities if available. (DoE's Operations Offices and DoE operating contractors normally rely on their own historical data to develop the planning estimates.) • Order-of-magnitude estimates in the absence of previous cost experience. • Parametric estimating (cost estimating relation- ships) when program definition is vague or incomplete or as a doublecheck against another estimate. Engineering costs in planning estimates generally are based on a percentage of estimated construction costs, and consideration is given to the complexity of the project in establishing the percentage to be used. Similarly, an allowance for contingency is included in the total project estimate using a percentage of total engineering and construction costs established on the basis of complexity and uncertainties of the component parts of the project. DoE provides its Operations Offices the following guides to assist in estimate preparation: • Cost Estimating Manual--a compilation of cost estimating procedures • Cost Guides--in 6 volumes, as follows Volume 1. Economic Analysis: Methods, Procedures, Life-Cycle Costing, and Cost Reviewing/Validating Volume 2. Standard Procedures for Determining Revenue Requirements (Product Cost) Volume 3. Cost Factors: Capital and Operations and Maintenance Factors of Representative Energy Systems and Facilities Volume 4. Cost Data and Cost Estimating Relationships: Process Equipment, Bulk Materials, Facilities and Packaged Units Volume 5. How to Construct and Use Economic Escalation Indices Volume 6. Cost Estimating Methods and Techniques 13

• Cost Estimating Guide for the Application of Contingency • Guidelines for Defining and Accounting for Engineering, Design and Inspection Costs • Economic Escalation Rates for DoE Construction Projects The following additional tools are used by some of DoE's operating contractors: • Computer cost programs such as the Dodge Design Estimator and the Freiman Analysis of Systems Technique (FAST) • Estimating manuals such as Dodge, Means and Richardson Separate planning estimates for engineering, construction, and contingency costs are shown on the Short Form Data Sheet. Field offices prepare these sheets for identified projects and submit them to the appropriate DoE Headquarters program office for review. The headquarters program office selects those projects that will be supported in the budget requests for funding for the performance of conceptual design work. Thus, the Short Form Data Sheet for each project also must include an estimate of funds required and a schedule for the performance of conceptual design. 14

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