I
E. ROY SWEET Singmaster & Breyer, 420 Lexington Ave., New York 17, N. Y.
Factors Affecting the Cost of Engineering Engineering, normally, represents one of the largest elements of cost of construction
WHILE spoken on the
A GREAT DEAL has been written or subject of capital cost estimating, very little mention has been made of the cost of engineering-one of the largest elements of cost of the facility. There has been a reluctance on the part of qualified people to discuss this subject because of the confidential nature with which this information has been regarded heretofore by the major engineering companies. Some of the factors which have a significant effect on the cost of engineering, and an empirical method of estimating the cost of engineering as a percentage of the estimated capital cost will be discussed.
design that three different processes were designed, engineered, and constructed simultaneously to ensure that at least one of the plants would operate successfully. I n this case, therefore, the normal engineering cost was multiplied threefold. Also there were times when engineering of a given step was halted until a concurrent research and development program could supply the answer to a major question. The maintenance of a n idle or partially idle engineering staff obviously increases engineering costs. A well defined process can reduce engineering costs by as much as 30% while a poorly defined process can increase costs by
50%. Factors Relating to Plant and Process
The state of knowledge of the process can vary from 0 to 99%. An excellent example of the latter is a contact sulfuric acid plant. So well known are all data that some engineering companies can literally take most of the drawings from the drawer, except those which are determined by site conditions. In such a case, the actual cost of engineering to the engineering company is very low. The engineering price for the purchaser is a reflection of knowhow, profit, and royalties and bears little relationship to the actual cost. At the opposite end of the scale the original units built for the concentration of uranium-235 represented plants that were built upon a minimum of data. So great were the gaps in the knowledge necessary for a sure plant
All other things being equal (the state of knowledge being the same) a more complex process or facility will cost more to engineer than a simple one. As an example of a relatively simple process, take a recently designed nitric acid recovery unit wherein low concentrations of nitrogen oxides were compressed and absorbed in water. I n addition, a weak nitric acid was concentrated under vacuum to an acid of higher concentration. T h e little plant was strictly defined geographically and all services, utilities, and the like were brought to the battery limits by others. Therefore, the problems, once these extraneous conditions had been defined, were confined strictly to the processing area. Compare this to a facility consisting of several complicated process units, the utilities generation units, the auxiliary facilities, interplant connections, and the like. The factors resulting in an increased engineering cost
are twofold. The cost of coordinating and engineering the interplant connections is disporportionately greater than the construction cost of thrse connections. Also, the engineering of a complex process step involves a mow rigorous treatment. Simple processes can decrease costs by 20% while complicated processes can increase these costs by 40% or even more. The capacity of a plant is usually proportional to the capital cost. Within limits, however, the engineering cost is roughly constant. As an example, consider a plant for the manufacture of chlorine and caustic by the electrolysis of a saturated solution of sodium chloride. The capacity of the plant is directly proportional to the number of cells in the cell house and, as far as the cell house is concerned, its cost is proportional to the number of cells. A s long as the number of cells can be housed in one building, however, the cost of engineering will not vary. In a large plant, the engineering cost can be halved while in a small plant it can be doubled over the cost of an average sized unit. Another factor which has a significant effect on the relative cost of engineering has to d o with the materials of construction used in a plant. In the little nitric acid recovery unit mentioned before, all the equipment and process piping were of 316L stainless steel. If this plant had been built of mild carbon steel: its cost Jvould have been less than half, and yet the engineering would have been almost the same. This plant represents an extreme because most plants will have some equipment of mild steel as well as some alloy equipVOL. 51, NO. 9
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Furthermore, if the engineering
of auxiliary facilities such as labs, warehouses, and the like is included, the effect of the alloy materials on plant costs is less significant. I n the extreme case of the nitric acid plant the engineering, on a percentage basis, was about one third what it would have been if the plant had been 100% mild steel. Therefore, as contrasted with an average plant containing some alloy materials as well as carbon steel, the engineering cost, on a percentage basis, of an all alloy plant can be as low as one half, while the cost of an all mild steel plant can be as much as 50% more. Another cost factor is the multitude of problems involved in expanding or revamping a plant in an existing facility-this as contrasted with a strictly defined battery limits plant or a “grass roots” facility. I n the latter case, there are few inhibitions placed upon the engineering, but this is scarcely the situation in the former case. The establishment of a great number of field dimensions may be necessar) , to verify the existence and location of underground facilities. It is necessary to schedule engineering and construction so as to provide a minimum of interference with existing operaLions. Depending upon the extent of the problems involved in a revamp or expansion, the cost of engineering may be increased by as much as 25%. The evaluation of these tangible factors is not quite mechanical, but an experienced engineer with good judgment can be quite accurate in assigning quantitative effects to each of them.
Relationship between Engineer and O w n e r
Those factors involving the intangible relationships between engineer and oivner can best be evaluated by the practice of hindsight rather than foresigh[. First and perhaps most important in this category is the scope of work, which normally would include the preparation of: process and engineering flow diagrams, and the necessary calculations ; equipment specifications ; construction drawings; detailed specifications for piping and insulation; construction specifications; construction contract documents; and purchasing and expediting of equipment. Occasionally pre-engineering services are required: preparation of technical and economic evaluation reports; preparation of capital and operating cost estimates; site survey studies; and soil loading tests. h third group ol services are normall!. amilable during the construction and start-up phases of a program: manage-
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ment of construction or of supplying resident engineers during construction ; preparation of “as built” drawings; start up and acceptance rests; and training of plant operators. I n the case of ”job shops” where onlldesign and drafting are done, the cost of these services may be only a quarter of the cost of the normal group of engineering services. T o perform all the services enumerated above might increase the cost of the normal engineering services by lOOyc:. The second factor in this group is the freedom of the engineer to control the work and the schedule. \\‘hen the client requires approval of flow diagrams, or drawings, or purchase orders, the engineering group must anticipate the time required to make the changes-occasional or frequent-that may be required by the client. The right of client to request these various changes will have been determined by the contract between the engincer and thr client. Where the client makes a rare or infrequent request for a change, the cost of engineering can be reduced by 257, and where the opposite is the case, the cost can be increased by an equal 257,. Very closely related to the freedom of the engineer to control the job is the complexity of the procedural relationship between the engineer and the client. Complex procedures can increase cost by lo%, while highly simplified procedures may decrease these costs by a similar amount. A fourth factor in this group is the schedule allowed for engineering and construction. \\’here the engineering must be done on a crash basis it is usually necessary to have men ready and waiting to execute each step of the engineering work. Furthermore, the manpower does not operate at maximum efficiency and consequently the engineering cost will rise. Where the construction must be performed on a crash basis, it is necessary to prepare additional engineering data such as material take-off of pipes, valves, and fittings to expedite the construction. This again will increase engineering cost. The scheduling of a job can alter engineering costs by j=15yG. The contractual basis for construction work determines the degree of completeness of the engineering \vhich obviously determines engineering cost. When construction is to be handled on a competitive lump sum basis, the engineering must be substantially complete (say 9570) before the work can be let for bid. At the other end of the scale, if the engineering firm were also to do the construction on a cost plus basis, the close relationship between engineering office and field construction office permits of a much less rigorously defined engineering job. The nature of the contracting basis can alter the engineering cost by plus or minus 20%.
INDUSTRIAL AND ENGINEERING CHEMISTRY
A final factor in this category is a subtle one-the occasional existence of certain arbitrary restrictions which necessitate redoing engineering. Consider the case where the client imposes an inflexible limit on the capital available for the project. When the engineering design has been sufficiently well defined and a definitive capital estimate has been prepared, it may-and often does-develop that the estimate exceeds the available funds. Then it may be necessary to rework the engineering so that the capital cost estimate is reduced to the allowable limit. In this reworking it also becomes necessary to evaluate these capital cost reductions in terms of changes in operating costs. operability, maintenance, and safety. This reworking costs time as well as money, and might increase engineering costs by 10%. If this situation arises when the engineering is well advanced. then the effecr can be materially greater.
Miscellaneous Factors
In times when engineering manpower is tight, it may be necessary to hire personnel of a lower caliber than usual or one may not be able to place the optimum number of people on the job. -41~0,when engineering personnel is unavailable, the engineering firms are busy and can charge reasonably good fees and overhead rates. Conversely, when the level of activity of these firms is low, the engineering companies will cut their overhead and fee rates so that the quoted engineering price may bear only a vague relationship to the actual cost. There are several other factors in this group such as the experience of the particular firm in the area of technology and the quality of the personnel assigned to the project, but these factors do not lend themselves to a quantitative approach. For a n average job and assuming an average scope of work as previously defined, the base cost of engineering will be about 8%. This figure can then be multiplied by a series of percentages-each percentage is a quantitative measure of the factors previously discussed. The resulting figure is a rough estimate of the cost of engineerin? expressed as a percentage of construction cost including engineering.
RECEIVED for review April 17, 1 9 3 9 .ACCEPTED April 27, 1959
Division of Industrial and En inerrme Chemistry, Symposium on Plant 8 m t s and Economics in the Chemical Process Industry, 135th Meeting, ACS, Boston. hfass.. .April 1959.
