Cost Estimation Considerations for Technology

Assessment and Selection

Peter Breen
 Introduction

Peter Breen: Consultant

Nuclear experience with NNB, HNP, BNG, Centrica and Exelon

Procurement & Commercial experience e.g. Olympics, EPC, AE,

International experience of major regulated projects

Faithful+Gould Board Director
F+G is part of Atkins Group of Companies

n.triple.a - The Nuclear Atkins Assystem Alliance

 Cost Estimation Considerations for Technology Assessment
and Selection - Questions
What you would like to know when embarking on a new project?

What should be the estimating strategy for the programme?

Is there a link between reactor choice and the overall costs?

Does it make any difference which technology is chosen?

Should we consider overnight costs or whole life cost approach?

How do we compare different technologies, commercial offers and execution

plans?

What lessons have been learnt by others from their experience to date?

Answer in 3 Parts: Estimating, Technology Assessment and Lessons

 Part 1:
Cost Estimation
What is an Estimate?

A genuine assessment of outturn

costs based upon the best
information available, and the
experience and knowledge of the
project team to fill the gaps where
complete information is absent.
 Why estimate?

Provides the Budget for Business Case

Selects the right Project

Sets the Baseline

Establishes Resources Requirement and

helps validate schedule

Baseline for Risk and Opportunity Analysis

Allows Challenge of Vendors bid

Allows performance measurement against

the baseline

Manages expectations and encourages

Cost Certainty
 Classifications of Estimates

Estimate
Estimates are produced at various stages throughout the life of a project or program for a variety of purposes.

The type of estimate to be prepared as well as the methodology used is dependent on what estimate will be used

for and how well the scope is defined.

This presentation will describe typical estimate types and their relationship to scope development and appropriate
estimating methodologies to be used for each stage.
The descriptions are not all-inclusive, but provide enough examples to illustrate the concept of the evolution of

estimating together with the development of scope.

Scope Development and Estimating

It is important to understand the stages of scope development when preparing or reviewing an estimate. All
projects, whether they are conventional capital, decommissioning or operations, evolve through a series of stages
related to scope development.
The level of design definition (% Complete) can be different for the various components
The estimates that support this scope development can be classified into broad categories in line with industry

practices
Estimate Categories

100 Class 5
Estimate Expected Accuracy (%)
From standard by AACE,
Association for the Advancement of
80
Cost Engineering
Class 4
60
Class 3
40 Class 2
Class 1
20
0 Check
Control
-20 Budgetary
Feasibility
-40 Conceptual
-60
-80 10 20 30 40 50 60 70 80 90 100
-100 Level of Project Definition (%)
 D Project Definition Estimate Accuracy
Estimate FEED = Front End Engineering Definition
Accuracy
MP = Master Planning
Initial Funding
Interim Funding
Estimate based on benchmarking, early information
50% Final Funding

25% Estimate based on early equipment quotes, approximate quantities, outline schedule

Detailed Design

Estimate based on equipment fixed quotes, take offs, schedule, execution

FEED
10% strategy, contractor prices
Concept
5%
MP
Construction
3% 15% 35% 65% 100%
Design Completion
 Stages of Estimate Development

Estimate Master Planning Conceptual Option Selection Definition Installation

Pre-Conceptual Preliminary

Purpose Concept Screening Feasibility Budget Control Check Price

Authorisation
Basis Sketches Early drawings and Preliminary Design All tender packages Final fabrication
scope descriptions. developed details available
Proposed site Basic schedule

Reference to
existing facilities

% Design 3% 15% 35% 50% 100%

Complete
Accuracy L: -20% to -50% L: -15% to -30% L: -10% to -20% L: -5% to -15% L: -3% to -10%

H: +20% to +50% H: +20% to +50% H: +10% to +30% H: +5% to +20% H: +3% to +10%

Estimating Method Capacity factored, Equipment factored Possible tenders for Contracts for major Based on bids,
parametric, and parametric major equipment. equipment. Detailed variations, final
judgement model Quantification. quantities quantities
Some approximate
estimating
Top down Top Down Bottom Up Bottom up Bottom up
AACE Class Class 5 Class 4 Class 3 Class 2 Class 1
 Typical Preliminary Schedule Overview

Initiate

Technology Procurement

Design Certification

72 Months
Full Capital
Site Specific Engineering Authorisation

48 Months
Ground First Fuel
Breaking Concrete UNIT 1 Load COD

Site Construction COM

Prep

18 months 42 Months 8 Months

Ground First Fuel
Breaking Concrete COD
UNIT 2 Load

Site Construction COM

Prep

Estimates 18 Months 42 Months

7 Months

Concept Feasibility Preliminary Sanction Installation

01 02 03 04 05 06 07 08 09 10 11 12
Benchmarking

Are benchmarks appropriate to this project?

Have comparison projects been normalized?
Have deviations to the benchmark set been rationalized
/ explained
Does the comparison fit with project expectations /
charter
 Quantification

There is an unbreakable link between the scope, schedule, and execution methodology
with the estimate.

There is a fundamental need for quantification to help determine the cost and schedule be it
the design man-hours, volume of concrete, meters of pipes, electrical I/O points;

Standardised key units for benchmarking

Time related costs
Need for bottom up estimating
Validation of schedule thru required effort for activities
Productivity calculations for different locations

The site layout impacts the quantities in terms of civil works, mechanical and electrical
distribution

The extent to which shared facilities are already on site

The Quantification can be used to determine the target cost

 Typical Estimate Summary
DEVELOPMENT COSTS CONSTRUCTION COSTS ALLOWANCES

Management & General Items Site Preparation Escalation

Owners Project Management Team Site Platform Risk
Engineering & Consultant Support Off site infrastructure Costs
Delivery Partner Costs Pre-Construction Temporary Construction Services ( set up)
Long Lead Equipment Early Payments Planning Application Conditions
Land Purchases
PR / Communications Nuclear Construction & Commissioning
Corporate Responsibility Costs Civils
Nuclear Steam Supply System
Generic Authorisations & Licences Turbine / Generation
Balance of Plant
ANNUAL OPERATIONAL COSTS
Generic Design Assessment
Grid Reinforcement
Temporary Construction Services ( maintain) Operator / Staffing Costs
Site Specific Authorisations & Licences
Architect Engineer Materials & Services
Site Specific Design
Owners Management Centralised Functions Costs
Site Specific Investigations
Owners Scope Costs Sustaining Capex
Environmental Impact Statement
Outages
Planning Application
Start up General Items inc. Business Rates & Taxes
Nuclear Site Licence
Operational Licence
Operator Recruitment, Training and Staffing T&D
Start up purchases inc Spares Grid Charges
Owner Management & Engineering Support
Strategic Spares Fuel costs
First Fuel load
Fuel Costs - Front End
Fuel Cost - Back End
Decommissioning Fund
 Detailed estimate
22... 22 Reactor plant equipment
22.221.. 22 221 Reactor equipment
22.221.1. 22 221 1 Reactor vessel
22.221.1.11 22 221 1 11 Reactor vessel and accessories
22.221.1.12 22 221 1 12 Closure head and attachments
22.221.1.13 22 221 1 13 Studs, fasteners, seals and gaskets
22.221.1.14 22 221 1 14 Calandria tubes and fittings
22.221.1.15 22 221 1 15 Pressure tubes and fittings
22.221.1.16 22 221 1 16 Insulation
22.221.1.17 22 221 1 17 Tools (stud tensioning device), accessories and handling equipment
22.221.2. 22 221 2 Reactor vessel internals (excluding fuel assemblies, reflector materials, moderators and reactivity control components)
22.221.2.21 22 221 2 21 Core tank or barrel container or moderator tank
22.221.2.22 22 221 2 22 Core baffles, core shrouds, distributors, orifices, throttles and strainers
22.221.2.23 22 221 2 23 Upper core structure
22.221.2.24 22 221 2 24 Control rod guide assemblies
22.221.2.25 22 221 2 25 Feedwater distributor
22.221.2.26 22 221 2 26 Steam separators and driers
22.221.2.27 22 221 2 27 Guides, channels, holders, etc., for irradiation specimen
22.221.2.28 22 221 2 28 Tools, accessories, handling and storage equipment
22.221.3. 22 221 3 Reactor vessel support structures
Reactor pressure vessel supports, brackets, sealings, pipe supports or others, including shielding materials if they are integral parts of the support
22.221.3.31 22 221 3 31 structure
22.221.4. 22 221 4 Reactor control devices and other core installations
22.221.4.41 22 221 4 41 Control rod drive mechanism (magnetic, hydraulic, motor driven, others)
22.221.4.42 22 221 4 42 Control assemblies, drive shafts, etc.
22.221.4.43 22 221 4 43 In-core instrumentation (mechanical equipment)
22.221.4.44 22 221 4 44 Primary and secondary neutron sources
22.221.4.45 22 221 4 45 Burnable poison (if not an integral part of the fuel)
22.221.4.46 22 221 4 46 Boron fast shutdown system (for boric acid see account 27)
22.221.5. 22 221 5 Moderator system excluding moderator/reflector materials
22.221.5.51 22 221 5 51 Piping
22.221.5.52 22 221 5 52 Valves and fittings
22.221.5.53 22 221 5 53 Supports (piping related)
22.221.5.54 22 221 5 54 Insulation
22.221.5.55 22 221 5 55 Circulation pumps, including motors, supports, fixtures
22.221.5.56 22 221 5 56 Tanks, including supports, fixtures
22.221.5.57 22 221 5 57 Heat exchangers

IAEA Economic Evaluation of Bids for Nuclear Power Plants 1999 Edition;
edited
Estimating Best Practices Explored

Estimating Behaviours

- Do not estimate in a vacuum

- Engage the project team

- Actively listen to the broader view

- Treat the development of the estimate as a team effort with

shared ownership

- Encourage fierce challenges

- Do not take it personally

 Part 2:
Technology
Assessment
& Selection
 Technology Procurement and Selection

What is being procured - NSSS, full power plant or component packages?

Who is providing the scope?

Overall Timescale is protracted

Need for a procurement strategy and roadmap

Consider early design / early works agreement / early vendor involvement

Consider impact on the Owner procurement / commercial team capability

Establish a clear mechanism for evaluation of offers at each offer

Expect differing offers in terms of Technology, Commercial and Execution

Consider a QRA to provide for risks in order to compare differences between bids
Develop an Assessment process that recognises challenges

Strategic
Drivers

Business
Case / Best Managing
Deal Procurement

Challenges

External
Site(s) Specifics
Influences
Vendors /
Delivery
Teams
 Basis of Technology Assessment and Selection

Overall Cost / NPV/ LUEC

Political Influences
Finance Influences including equity participation
Experience of a Technology / Vendor
Certainty of delivery (cost time quality) around the supply chain, the technology in the
individual location
Technical, Commercial and Execution aspects of options available
Certainty of operation including long term service capability, fuel supply, grid and
waste management considerations.
Overall capacity / output / availability / life
Programme deadlines
Objective is an evidence based decision
 Technology Assessment Considerations

Limited number of available technologies / Vendors

Vendors order book / backlog

Owners Project Delivery Strategy for the integration of NI, CI and BOP

The site specific layout

Schedule / Programme impacts of the choice of reactor on in country licensing

Familiarisation of the operator base

Extent of prefabrication to minimise construction programme

How the technology projects integrates into the overall programme eg Grid, fuel...
Vendor Evaluation Criteria
 Factual Evidence for Decision

Capital Cost based on NPV

Operating costs including fuel over time

Whole Life Costs
Decommissioning Costs

Compliance with the Specification - Yes or No

Cash Flow
 Assessment of Risks to be included in decision

Clear identification of the Parties, division of responsibilities, liabilities, capabilities

and capacity to deliver.

Availability of the plant over planned life / validation of vendor claims.

Net Output.

Life expectancy.

Exclusions from offer made by vendor become Owner responsibilities

Priced Risks

Cost risks retained by Owner and those shared with vendor

Schedule risk allowance (e.g. Design, Licences, Delivery)

 Risk Assessment

Identification Quantification Management

Project Documentation
Specialist Input

Risk Categories
Risk Classifications
Probability Analysis
IDENTIFY key Sensitivities
Key Criticalities

CLASSIFY Risk Probability

Risks Impact Analysis
Risk Reporting
Objectives QUANTIFY Historic Risk Data
Workshops Classified Risks Risk Management Plan
Risk Groups GRADE
Risk Datable Quantified Risks
Previous Experience
WBS MINIMISE
Prioritised Risks

Project Execution Strategy

Risk Limitation Strategy
Key Performance Indicators REVIEW AVOID
Control
Contingency Provision
 Reactor Costs

NSSS systems cost 20 30% of the total project costs

The NSSS also influences other aspects such as Balance of NI, BoP, fuel, number of

operators

The total cost of the NSSS will reflect the maturity of the technology and the extent of

design & licensing already complete. First of a kind has a premium price

Life expectancy may differ moving from 30 to 60 years

Claims made by the vendors should be verified and base assumptions understood
Indicative Roadmap to Evidence Based Decision

Procurement
Planning
How many bidders?
Request for
Information Selection of Preferred Bidder(s)

Dialogue How many EDA or EWA?

Request for
Quotation

Negotiation

Early Design /
Works Agreement

Revised Offer(s)

Final Contract Award

Negotiations
 Part 3:
Lessons Learnt
 Learning to Date

1. There needs to be a robust economic business case for developing new nuclear.
2. The cost to develop a scheme to full authorisation is expensive to the Owner.
3. Do not under estimate the impact on the Owner of resources needed to develop a scheme, select a
vendor while interfacing with Regulators, Grid, Decommissioning authority, Permits and
Government.
4. Owner resources need to be clear on their remit, process and procedures.
5. Owners need to have a clear decision making process between any JV companies.
6. Develop a clear procurement strategy with roadmap route to contract for Vendor.
7. Maintain competition between vendors for as long as possible.
8. Establish Early Contractor Involvement with the Preferred Bidders for site specific designs.
9. Clarify the in country regulatory requirements (particularly in respect of safety systems); site
specific issues, such as geology and Planning restrictions.
10. Selecting Most Economically Advantageous Tender needs to be underpinned with a strong risk
management process.
11. Consider establishing bid evaluation criteria that is based on cost and priced risks.
12. Contractors have more confidence in productivity on CI & BOP compared with the NI and BNI -
this is due to understanding of the regulator requirements in country.
 Learning to date continued..
13. Having robust contracting arrangements are essential as are those that adopt contracting
strategies that promote constructive relationships, rather than adversarial ones, between
parties.
14. Contractors willingness to take on Risk is limited.
15. Contract negotiations with vendors and delivery teams are protracted.
16. Agreement of pricing mechanism with escalation provision given term is a challenge.
17. The bidding costs are expensive to the supply chain who fear projects that do not go ahead.
18. Security of information is imperative.
19. Provide a central team location with good IT.
20. Owners need to take the lead - the costs of project risk rest with the Owner. Their
leadership is critical to success and it is Owners that should ensure that best practice is
used on their projects.
21. Use integrated project teams from the start of the project.
22. Allow sufficient time and resources for planning and engineering design and for appointing
contractors based primarily on competency. Supplement Owner team with industry experts.
23. Recognise the shortage of good supervisory staff and particular skilled staff welders,
planners, project managers and engineering designers develop proposals to mitigate.
24. Nuclear projects need early, proactive and collaborative action by Owners, vendors,
contractors, the workforce, unions and Governments
 Learning to date continued..

25. The Owners licensing manager arrangements need to be reflected in the contract.
26. The vendors need to understand the procurement process to commit to the bidding process.
27. The first estimate prepared is the most important one. Accuracy range should be stated.
28. Use career professionals to estimate.
29. Develop a clear set of assumptions addressing issues such as productivity levels, logistics,
local labour v travelling v accommodated personnel, economic conditions escalation.
30. Develop a Policy for Foreign Exchanges / Currency Hedging.
31. Adopt coding system before preparing estimating to allow for analysis.
32. Quantities drive prices.
33. Instil good behaviour and attitude within the project team to respect the budget.
34. Link the scope, schedule and estimate to the procurement strategy this is the basis for
control including change management. Control scope with change management.
35. Commissioning Costs & Start-up costs are considerable and should be capitalised.
36. Be aware that the benefit of a low cost on-shore base for some aspects can be out
weighted by expensive off-shore resources.
 Summary Considerations

Remember the cost differential between NSSS technologies may be a small part of the

overall programme and whole life cost.

Estimate at appropriate stages instigate a change management process and trend

estimate development

Consider linking the scope, schedule, budget and procurement contracts.

Consider seeking to increase the level of Certainty of the costs (ie reduce Risk) at

opportune stages of the project.

Always state the estimate accuracy.

Thank You