Procedure 2504 KBR

Estimates
Operations Review

Approved by: G. L. Minicone

Effective Date: 11JUL03
Revision: 03

A. PURPOSE OF THIS STATEMENT/SCOPE

1. To describe the guidelines for conducting an Operations Review which
is the final step in the estimating process.
B. AFFECTS
1. All Company Operations.
C. REVISION SUMMARY
Since the last issue dated 15SEP00, this procedure was revised in its entirety
to reflect current business practice and nomenclature.
D. DEFINITIONS
1. OPERATIONS REVIEW - Final analysis of the total proposal/project
estimate to provide management with a detailed and precise overview
of the operations cost, including home office services, direct materials,
construction, pre-commissioning, commissioning, other plant services,
and recommended operation contingency, as applicable.
2. Refer to Procedure 2602 - Cost Management/Glossary of Terms, for
other definitions.
E. OBJECTIVES OF THE REVIEW
1. Update management on the scope of the project.
2. Demonstrate the competitiveness and completeness of the estimate.
3. Obtain management's approval of the estimate.
4. Establish the operations contingency necessary to cover the assessed
risk.
5. Review contract risk.
F. KEY INFORMATION PRESENTED
1. Project Overview.
2. Scope of Work.
3. Key Milestone Dates.
4. Competition.
5. Project Viability.
6. Contract Summary.
7. Summary of the Proposal/Project Strategy.
8. Project Execution.
9. Estimate Philosophy and Methodology.
10. Basis of Estimate
11. Estimate Review including Comparative Data from similar projects.
12. Contingency Recommendation.
13. Commercial Issues (Cashflow, Currency, for presentation only, not
sign-off).
14. Contract Risk including Funded Liability (for presentation only, not
sign-off).
G. KEY ESTIMATE DATA PRESENTED
As a minimum, the following estimate data is included:
1. Estimate Description
a. Scope of Work including Summary of Changes since last
estimate
b. Type, Use, and Accuracy of the Estimate
c. Cost Basis

d. Special/Client format and WBS requirements

e. Special/Contractual requirements
2. Basis of Estimate
a. Documentation Basis
(1) Equipment List
(2) Plot Plan
(3) Process Flow Diagram
(4) P&ID's
(5) Electrical One Line Diagram
(6) Materials of Construction
(7) Project Master Schedule
(8) Work Group Plans
b. Materials
(1) Equipment
(a) Extent of Quotes, Estimates, etc.
(b) Major items contributing to cost
(c) Historical Growth
(2) Bulks
(a) Extent of MTO's and Unit Pricing, Estimates, etc.
(b) Major Items Contributing to Cost
(c)

Design Development (Material Growth and Take Off

Allowances) with Comparative Data from recent
projects/proposals

(3) Material Related

(a) Sales and Use Tax
(b) Export and Shipping Costs
(c) Third Party Services
(d) Spares
h. Construction Subcontracts (Material and Labor)
i. Home Office/Expatriate
(1) Special Salary Rates
(2) Direct Costs, such as use of 3D CADD
(3)
j.

Special Mark-ups

Construction Field Costs

(1) Execution basis-open shop, union, subcontract
(2) Special requirements
(3) Revamp considerations
(4) Construction productivity factors, costing level, etc.
(5) Construction OH & I - Construction equipment, Expatriate
requirements
(6)

Tools-own, Third Party, etc.

(7) Indirect Material

(8)

Supplier Representatives

k. Commissioning/Operations and Maintenance

l. Other Costs
(1) Insurance
(2) Project Completion Costs
(3) License Fees and Royalties

(4) Currency Exchange Protection

(5)

Cash flow / Cost of money

m. Project Schedule
3. Estimate Support Information
a. Overall Estimate Summary Sheet
b. Analysis of Estimate/Comparison to past projects
(1) Materials-Equipment, Bulks, Material Related, Subcontracts
(2)

Construction Field Costs

(3) Home Office

(4) Commissioning/Operations and Maintenance
(5) Other Costs
c. Estimate Risk Memo
d. Operations Contingency Analysis/Recommendations
e. Liabilities
f. Costs to Date - On check estimates, the latest predictors are
budgeted and compared to the check estimate costs.
g. Escalation analysis and recommendation
H. PROCEDURE FOR CONDUCTING REVIEW
1. The estimate and all supporting documentation shall be reviewed and
approved by the Principal Estimator, Estimating Manager, and
Proposal/Project Manager before the Operations Review meeting.
2. Proposal/Project Manager
a. Schedules and conducts the Operations Review. OPs reviews
should be scheduled by Friday of the week prior to the
Tuesday/Thursday review.
b. Notifies the attendees as soon as practical, but no less than 48
hours before the scheduled Review date.
NOTE: Management is asked to reserve Tuesday and Thursday
afternoons from 1-5pm for OP's Reviews.
c. Issues an agenda, with the following key estimate information,
to all attendees 24 hours in advance of the meeting.
Distribution of key estimate information shall be limited to
those who are to participate in the review.
(1) Transmittal memo covering proposal/project highlights,
scope of supply and list of data being transmitted
(2) Project fact sheet
(3) Guarantee philosophy statement
(4) Proposal/Project Manager's risk analysis, operations
contingency recommendation memo
(5) Assessment of contract risk
(6) Proposal/Project schedule
(7) Alternatives and exceptions being proposed
NOTE: No cost figures should be issued.
3. Attendance, depending on the type and value of the estimate as
defined by the Estimate Review Levels (refer to Section I), should
include:
a. Proposal/Project Manager
b. Project Controls Manager/Management
c. Principal Estimator
d. Appropriate Vice President, Project Management

e.
f.
g.
h.

Engineering
Construction/Plant Services representative
Procurement
Technology Acquisition and Development representative, when
appropriate
i. Manager, Estimating
j. Proposals
k. Financial representative
l. Appropriate Vice President Operations/ Sr. Vice President
Operations, if required.
NOTE: Attendance and sign-off may be delegated to
appropriate senior people, if necessary.
4. A quorum of two Vice Presidents, including one Vice President from
Project Management, must be present all EPC proposals/projects.
Construction only proposals require a Construction Vice President
present. Home Office only proposals require an Engineering Vice
President.
5. Distribution of key information shall be limited on each estimate to
those who are to participate in the review. The estimate summaries
are presented during the meeting and are not distributed in advance.
The recommended operations contingency approved by the Principal
Estimator, Manager of Estimating, and the Proposal/Project Manager
following the Estimating Department and team review are shown on
the signed estimate summary sheet.
6. Attendees are responsible for review of assessment of risk and liability
exposure.
7. The Proposal/Project Manager is responsible for ensuring that on
conclusion of the meeting, all key information packages are collected
in the meeting room and shredded, except those issued to key
individuals, such as the Vice President, Contract Management; Vice
Presidents Project Management; Manager, Estimating; and the
Proposal/Project Manager.
8. The Proposal/Project Manager is responsible for follow up actions as
necessary.
9. Upon completion of the review(s), the Proposal/Project Manager shall
have the estimate summary signed-off. (Refer to Section I for estimate
review levels.) If revisions occur during the Operations Review, the
Proposal/Project Manager will have the revised estimate summary
sheet hand-carried for sign-off.
10. The signed-off original of the estimate summary shall be returned to
the Principal Estimator for Estimating's secure files.
I. ESTIMATE REVIEW AND APPROVAL LEVELS
Review and approvals including sign-off are required for any estimate above
the dollar amounts shown.
Proposal, Product
VP
VP Project
Project Technology Project
Operations
Manager
VP/Dir.
Mgmt.

Review
Levels
Proposal

(1)

and Project(2) Estimates

Reimbursable

All

(3)

Fixed Price

All

(3)

$250K(4)
All

(4)

(3)(5)(10)

$1MM
All

VP
Sr. VP
Sales/Director
Operations (Review Only)
(8)

Operations Review
Required (7)
$20MM(7)
$5MM

(7)

$40MM(7)

All

$20MM

All

(7)

(Lump Sum)
Non Binding /
Indicative
Capital Cost

All

All

(3)

(4)

All

$50MM(7)(11) $100MM(7)(11)

All

(9)

Project Change Notices

(6)

Reimbursable

All

$500K

(4)

$15MM

$25MM(11)

$50MM

Note

(12)

Fixed Price
(Lump Sum)

All

$250K

(4)

$5MM

$10MM(11)

$20MM

Note

(12)

NOTES:
(1)

Manager of Proposals signs off all "Major" Proposal Estimates (see

The Proposal Manager's Handbook for definition of a "Major"
proposal).

(2)

Project Estimates include Study Estimates, Feasibility Estimates,

First Check Estimates (FCE), and Production Check Estimates (PCE).

(3)

Manager of Estimating, and Principal Estimator approve and sign-off

all estimates and attend all Operations Reviews.

(4)

The appropriate Technology Vice President or Technology Director

will approve estimates involving technologies under the auspices of
Technology Acquisition and Development.

(5)

All estimates with special risks or liabilities should be reviewed by VP

Project Management. Note 2 on p. 11 of the KBR Management
Approval Matrix includes some additional Special Approval
Conditions that need additional approvals.

(6)

Project Manager approves all Change Notices. The Senior Project

Controls Representative or Principal Estimator shall also approve all
Change Notices. No Formal Operations Review is required at any
cost level (appropriate sign-off only). See p. 16, KBR Management
Approval Matrix.

(7)

Formal Operations Review Meeting is required. This is attended by

Proposal/Project Manager, Manager of Proposals, Manager of
Estimating, Principal Estimator, Financial representative, Direct of
Project Controls, Vice President Project Management, Vice President
Project Operations, Engineering, Construction, Procurement, Plant
Services, (if applicable), and Technology (if applicable). In addition,
at least two Vice Presidents are required for a quorum. Thresholds
apply to Home Office only as well as Construction only estimates.

(8)

Appropriate Area Sales Vice President/Director reviews all estimates

before presenting any preliminary cost/price information to clients.
See p. 11, KBR Management Approval Matrix for amounts to be
approved by Onshore PRC and Executive PRC.

(9)

Non-binding or indicative capital cost estimates that may result in a

fixed price or reimbursable bid at some point, should be handled the
same as Fixed Price estimates or Reimbursable estimates
respectively.

(10)

Fixed rate and Firm Unit Price Projects are considered Fixed Price
Projects (Not Reimbursable) for review thresholds.

(11)

Review may be waived by Vice President.

When no pricing basis is established in the contract of a project in

execution and a change order above $20MM is being prepared, the
change order must be approved by Onshore and Executive PRC.
I. RELATED POLICIES, PROCEDURES, AND INSTRUCTIONS
1. Procedure 2501 - Classes of Estimates.
2. Procedure 2502 - Estimate Plan and Basis of Estimate.
3. Procedure 2503 - Risk Analysis and Contingency Development.
4. Procedure 2602 - Cost Management/Glossary of Terms.
(12)