BP-GL-ON-PC-2501

Estimates
Classes of Estimates

A.

Approved by: G. L. Minicone

Effective Date: 15 SEP 03
Revision: 02

PURPOSE OF THIS PRACTICE

To describe the guidelines for the preparation of all types of estimates.

B.

SCOPE
Onshore Product Line .

C.

REVISION SUMMARY
Since the last issue dated 21 APR 97, this procedure was revised in its entirety to reflect
current business practice and nomenclature.

D.

DEFINITIONS
1.

ACCURACY An indication of the degree to which the final cost outcome for a
given project will vary from the estimated cost. Accuracy is traditionally
expressed as a +/- percentage range around the estimate value after the
application of contingency.

2.

AS-SOLD BASIS (ASB) - The initially agreed to budget between KBR

Management and the client. The ASB may become the Original Budget if there
are no subsequent changes prior to Award or Effective Date of Contract.

3.

BASE ESTIMATE CHANGE NOTICE (BECN) - A type of estimate that identifies

and communicates additions/changes in the period between the Proposal
Estimate (after sign-off) and agreement to the Original Budget.

4.

BUYDOWN An amount of money, usually recommended by Procurement

(equipment and materials) or Construction (subcontracts) that is taken as a
reduction to a supplier or subcontractor quoted estimate cost. The value is
based on experience of what project materials, equipment and subcontracts will
actually be bought for. It is a result of suppliers and subcontractors reducing
their quote in order to be competitive during the actual procurement/subcontract
bidding process. Buydown may also be taken for items that are based on
average or in-house costing.

5.

CLASSES OF ESTIMATES - KBR Onshore prepares four different Classes of

Estimates. They are as follows:
a.
b.
c.
d.

Order of Magnitude,
Factored Estimate,
Conceptual Defined,
Definitive Estimate.

For more detailed information, see attached Figure 5-1 KBR Classes of
Estimates .

BP-GL-ON-PC-2501
Estimates
Classes of Estimates

Approved by: G. L. Minicone

Effective Date: 15 SEP 03
Revision: 02

6.

CONSTRUCTION EQUIPMENT - All manner of powered equipment used in the

Construction process to move and erect material, including earthmoving
equipment, cranes, etc. Small Tools are also included.

7.

CONSTRUCTION OVERHEAD & INDIRECT COSTS. Company field

supervision staff and field office staff assigned to a construction site to manage
and administer the field labor, subcontracts, materials and equipment. Does not
include foreman level supervision, which is included in Direct Cost. It also
includes temporary facilities (field office costs, construction trailers, laydown,
temporary roads, camp, catering, temporary power, water, etc.), services
(security, janitorial, accounting, etc.), workman supplies, safety supplies, gasses,
communications, travel, etc.

8.

CONSTRUCTION PRACTICES ALLOWANCE A material cost allowance

included in the estimate for the normal waste due to normal construction
practices. (i. e. Concrete overpour, Drops of Conduit and Cable, etc.)

9.

CONTINGENCY See Business Practice BP-GL-ON-PC-2503 Risk Analysis

and Contingency Development.

10.

COST vs. PRICE Operations establishes the Cost of executing the project
(see Direct Cost vs. Indirect Cost vs. Other Costs). The Pricing Committee will
decide the Selling Price, including contractual mark-ups, G&A, funded liability,
fees, and profit.

11.

CURRENT COST - The market cost for Materials and Labor in effect at the
moment.

12.

DESIGN ALLOWANCE An allowance for the normal growth of equipment and

bulk materials as design evolves based on the completeness of the estimate
quantification method.
It includes the associated labor, materials, and
subcontract costs. Design allowance is typically consumed on a project. This
allowance also incorporates growth and take-off as part of the percentage.

13.

DIRECT COST vs. INDIRECT COST vs. OTHER COST

Direct Cost Includes direct materials which are defined as bulks (including
formwork and scaffolding) and process equipment that become an integral part of
the facility; all craft labor to install these materials including heavy equipment
operators and General Foreman; and subcontracts that provide and install direct
materials.
Indirect Cost Includes construction management and supervision above the
General Forman level; labor not installing direct materials such as mechanics
and layout crews; construction equipment including rental cost, fuel, oil, and
grease; temporary facilities and lay-down area development cost; consumables,
PPE, field office supplies, etc.

BP-GL-ON-PC-2501
Estimates
Classes of Estimates

Approved by: G. L. Minicone

Effective Date: 15 SEP 03
Revision: 02

Other Cost All cost not included as a Direct or Indirect cost such as Home
Office cost, Bonds, Project Completion, Builders Risk Insurance, Contractors
Contingency, etc.
14.

ESCALATION - The allowance for the anticipated increase (inflation) in current

labor, material, and subcontract costs based on the project schedule.

15.

ESTIMATE RE-CAST For lump-sum, fixed price contracts the As Sold cost is
the basis for controlling the project. Often these estimates are not in the proper
format or broken down in sufficient detail for cost analysis. A re-cast of the As
Sold cost estimate, re-organizes the estimate in proper format and sufficient
detail to be utilized as the control base line.

16.

ESTIMATE-TO-COMPLETE (ETC) - An estimate of cost for remaining work,

based on the best information available at the time of the estimate. This may
include MTOs from IFC drawings, construction labor trends and firm material
pricing in place.

17.

ESTIMATE TURN-OVER MEETING A meeting that takes place after each

estimate (bid estimate, FCE, PCE, etc.) that takes the execution team through
the details of the final Basis of Estimate.

18.

FIRST CHECK ESTIMATE (FCE) A mandatory Conceptually Defined

estimate prepared for each EPC project after P&ID Issue IFD and approval of the
Plot Plan, usually when engineering is about 30% complete. This estimate is
executed in sufficient detail to establish a quantity baseline for Field Operations
as well as re-quantify elements of risk. The FCE is used to confirm the current
forecast.

19.

FIXED COST (LUMP SUM) A contract type where KBR is paid a fixed amount
of money for a fixed scope of work.

20.

FUNDED LIABILITY An amount of money approved by the Pricing Committee

to cover commercial issues such as Liquidated Damages for Schedule Risk, Cost
of Money, Financial Risks, Currency Issues, Warrantees and other Contractual
Risks. Funded liability is reviewed by Operations but is not part of the signed-off
operations cost.

21.

KBR BASIS vs. CLIENT BASIS KBR Basis is true internal cost using internal
mark-ups (not contractual or client mark-ups). Client Basis is project revenue
based on contractual mark-ups as well as funded liability, G&A and profit.

22.

PRODUCTION CHECK ESTIMATE (PCE) A mandatory Definitive estimate

prepared on each EPC project when Engineering is about 70% complete. The
PCE utilizes available actual cost information including subcontracts that have
been awarded and actual purchase orders that are in place. Quantities and other
deliverables are based on Construction Issue information to the extent available.
The PCE becomes the new forecast for the project and quantities are typically
loaded into ACLS.

BP-GL-ON-PC-2501
Estimates
Classes of Estimates

E.

Approved by: G. L. Minicone

Effective Date: 15 SEP 03
Revision: 02

23.

PROJECT CODE of ACCOUNT (PCoA) - A structured set of codes, identifying

the responsible Work Group or Craft as well as the specific work operation being
performed. It includes labor and any material resource costs used during
performance of that operation.

24.

PROJECT COMPLETION An allowance of money to perform final punch-list

work and necessary corrections in preparation for start-up.

25.

REIMBURSABLE COST (OPEN COST) - A Contract type where costs incurred

are reimbursed by the client. This may include billing rates, where reimbursement
for certain elements of cost are accomplished by means of a billing rate, in place
of the actual expense incurred.

26.

SUBCONTRACTOR CLAIMS ALLOWANCE An estimate allowance added for

potential claims and additional expenses submitted by a subcontractor due to
delays, changes, unavailable access to parts of the site, late drawings and
information, etc. that they believe KBR or the client is responsible for. It is
included as part of the subcontractor direct cost in the estimate.

GUIDELINES FOR USES OF ESTIMATES

1.

2.

Proposal Estimates
a.

May utilize FACTORED, CONCEPTUALLY DEFINED and/or DEFINITIVE

class of estimates.

b.

May be submitted for Lump Sum or Reimbursable (Open Cost) jobs.

(The proposal estimate may need to be re-cast to support control systems
if successful on proposal. This establishes the original budget and a turnover meeting is conducted).

Check Estimates
a.

The estimate development process is progressive as the engineering

work phases are completed and the necessary information becomes
available. The Check Estimate plans indicate the timing of the process
and how it will proceed based on the requirements of the specific project.
Estimates may be completed by area, plant section, material code, cost
category, etc. to provide earlier information for cost trending and cost
predictions.

b.

The costs detailed in check estimates are derived from the best available
pricing information. In descending order, "best available information" is
defined as:
(1)

Actual Cost

(2)

Committed Cost

BP-GL-ON-PC-2501
Estimates
Classes of Estimates

Approved by: G. L. Minicone

Effective Date: 15 SEP 03
Revision: 02

(3)

Supplier-quoted Cost

(4)

Estimated Cost

c.

The timing of check estimates is determined during project schedule

development by the project team to optimize the engineering effort, as
required by the type of contract, project philosophy or specific project
requirements. The decision to begin the check estimate should be based
on the proper deliverables available (see sections E.2.e. (1) and (2)
below), however the FCE must take place in the 25% to 35% complete
range and the PCE in the 65% to 75% complete range.

d.

Additional check estimates are prepared only if, in the opinion of the
Project Manager, continuing developments have made previous cost
estimates unreliable. Revamps may require several interim check
estimates.

e.

Two check estimates are mandatory on each project if more than

engineering is involved, unless otherwise approved by the responsible
Vice President, and documented in the Project Plan.
(1)

First Check Estimate (FCE) - Prepared after Issue IFD (Issue for
Design) of the P&ID's and an approved plot plan (should be at
about the 30% complete point).
(a.)

Is often used as the updated control estimate and

therefore requires proper breakdown and detail as well as
a check on cost.

(b.)

The costs and quantities, plus subsequent authorized

change notices, serve as budgets for the applicable work
groups to monitor and control their cost and progress.

(c.)

The input documents become the control documents and

are identified in the current control basis.

(d.)

Development with less than the inputs defined in the

Estimating FCE Responsibility Matrix requires the written
approval of the responsible Executive Sponsor.

(e.)

The FCE is usually prepared using the Conceptually

Defined Class of Estimate.

(f.)

A new risk assessment on a remaining to complete basis

should be performed and another turn-over meeting
conducted.

BP-GL-ON-PC-2501
Estimates
Classes of Estimates

Approved by: G. L. Minicone

Effective Date: 15 SEP 03
Revision: 02

(2)

F.

Production Check Estimate (PCE) Prepared after Issue IFC

(Issued for Construction) of the P&IDs and approved plot plan
(should be at about the 70% complete point).
(a.)

Is usually used to update the forecast.

(b.)

Based on issue for construction drawings to the extent

possible.

(c.)

Major engineering design activities that have large cost

impacts (e.g., piping quantities) should be completed.

(d.)

Committed and/or actual costs should be utilized.

(e.)

Must be in the proper breakdown and format.

(f.)

The PCE is usually prepared using the Definitive Class of

Estimate.

(g.)

A new risk assessment on a remaining to complete basis

should be conducted as well as another turn-over meeting.

ESTIMATES REVIEW AND APPROVAL

1.

All estimates must:

a.

Follow the proper review cycle. It is a critical element of the estimate and
the following list elaborates on the type of review and order of occurrence
for a typical estimate. Note that while Order of Magnitude and
Factored/Schematic estimates must go through this same cycle just as
Conceptually Defined and Definitive estimates do, their nature of not
being detailed, allows for modification to approach and duration.
(1) Engineering Review reviews quantities and scope with the

engineering workgroups.
(2) Chief Estimator/Estimating Manager Review this internal review

is conducted by the Manager of Estimating and actually completes

the estimate, benchmarks the costs and provides quality checks.
(3) Construction Review a review of construction direct and indirect

costs including productivity and wage rate analysis.

(4) Project Team Review this review is led by the Proposal/Project

Manager and is the primary review before Operations Review.

This review examines all aspects of the cost including
Procurement, Risk Analysis, Below lines, etc.

BP-GL-ON-PC-2501
Estimates
Classes of Estimates

Approved by: G. L. Minicone

Effective Date: 15 SEP 03
Revision: 02

(5) Operations Review if required. (see BP-GL-ECD-PC-2504)

(6) Pricing Committee/Sales Review
(7) Client Review due to the nature of some contracts, intermediate

client reviews may be required.

2.

G.

b.

Be issued by the Project Manager.

c.

Meet all requirements in Business Practices BP-GL-ON-PC-2502, 2503,

and 2504.

The project team work group and management review, and approval
requirements for estimate plans, detail sheets, summaries, Operations Review
Report and cost estimate issue, are to be obtained from Estimating.
All
estimates are to be approved and signed off per BP-GL-ECD-PC-2504.

DISTRIBUTION OF ESTIMATES
Generally, Management, Engineering, Construction, Procurement and Project Controls
receive copies of the estimates.

H.

ROLES/RESPONSIBILITIES
Each project team work group member involved provides the estimator with specific
project data and information depending on the particular kind of estimate required. Key
to meeting estimate quality requirements is a complete listing of key documents to be
used in developing the estimate. This listing may be obtained from the Estimating
Website. In addition, a specific estimating plan will be issued outlining specific
responsibilities, documents and dates.

I.

RELATED POLICIES, BUSINESS PRACTICES, AND INSTRUCTIONS

BP-GL-ON-PC-2602 - Cost Management/Glossary of Terms
Figure 5-1 KBR - Classes of Estimates

KBR Classes of Estimates

Class

Characteristics

Name

Expected Accuracy

Usage

Project Definition

+/- 30-50 %

Studies, viability evaluation

of alternate schemes, project
screening, long range
planning

Avg: 0-3 %

A) Utilizes a "stochastic" or "top down" approach

Order of Magnitude

B) Based on minimal information

Other names include:

C) Have a wide range of accuracy

Ballpark, Blue-sky, ROM, or

D) Minimal time and effort to prepare

Rule of Thumb

E) Cost breakdowns are unavailable

F) Contingency is difficult to assess and often already included in the

(FEL Phase: Conceptual)

base cost but must be addressed.

Cost Curves
(* HP&P)

Capacity Ratios

Revamp : +/-50 - 100 %

(* HP&P)

(Revamp curves not available)

FEL target: +/- 40%

FEL : 1%

A) Mostly utilizes a "stochastic" or "top down" approach

Factored / Schematic

B) Based on limited information and still has a wide range of accuracy

Other names include:

C) Equipment is preliminary, utilizing database pricing

Feasibility, Budget, or Pre-design

D) Bulks, construction, and home office are ratioed or factored

E) Design development (10-20%) and contingency (Level 3) are
assessed

(FEL Phase: Feasibility)

Equipment Factored

+/- 15- 30 %

(* HP&P ie Lang, Gutherie)

Parametric

Revamp : +/-30 - 50 %

(*HP&P- unit costs and ratios)

Volumetric Model

Strategic planning,
feasibility, budget approval,
comparisons, indicative
costs

Avg: 3-10 %

FEL target: +/- 25%

(Incl. ICARUS)

FEL target (revamp): +/- 40%

Detailed conceptual

+/- 10-15 %

FEL : 5%

A) Mostly utilizes a "deterministic" or "bottom up" approach

Conceptually Defined

B) Based on conceptual information with partial details

Other names include:

C) Equipment is identified and costed by phone quote

Semi-detailed, Preliminary, or

D) Bulks and construction are based on conceptual MTO

Development

E) Home office utilzes hours and average rates

(FEL Phase: Definition)

F) Design development (5-15%) and contingency (Level 2) are

assessed

(conceptual bulk MTO)

Historical Model

Revamp : +/-15 - 30 %

First check estimate, control

estimate to monitor costs,
bidding, funding

Avg: 10-50 %
FCE: 30% *

(bulk adjusted)
FEL target: +/- 10%

FEL : 20-30%

FEL target (revamp): +/- 20%

A) Based on a highly "deterministic" or "bottom up" approach

Definitive

B) Utilizes well-developed information with detailed breakdowns

Other names include:

C) Takes significant time and effort to prepare but is highly accurate

Full detailed or Forced detail

D) Equipment is based on firm quotes

E) Bulks, construction, and home office are well defined utilizing

Definitive

+/- 5- 10 %

(definitive bulk MTO)

Reference Design Model

Revamp : +/-10 - 15 %

(line item adjusted)

detailed rates
F) Design development (2-10%) and contingency (Level 1) are
assessed

Class:

Identification of the type of estimate to be prepared.

Name:

Identification of the different methods of preparing estimates.

Characteristics

Discusses approach, effort, and qualities of each class.

Expected Accuracy:

Typical low and high ranges after the application of contingency (if contingency is required to arrive at the most probable cost).

Production check estimate,

final control baseline,
bidding, bid checking,
supplier negotiation support,
claims and dispute
resolution

Avg: 50-100 %
PCE: 70% *
Note: Construction
0 to 50% complete

Ranges are based on the actual cost being between the bounds of these ranges (on 85% of the estimates).
Usage:

Typically (but not limited to) the end use of the estimate.

Project Definition:

This is expressed as a percentage and correlates to the percent of design that is typically complete based on deliverables produced.

HP&P:

Historical, Proprietary and /or Published data.

FEL

Front End Loading

FCE

First Check Estimate - * Normally done around 30% Engineering based on deliverables status.

PCE

Production Check Estimate - * Normally done around 70% Engineering based on deliverables status.

Note:

For information required to prepare each class, see the estimating website.
FIGURE

5-1