AspenTech : Engineering & Construction
  • Updated on July 6, 2017
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  • Ron Beck

The Art of the Deal: Capital Project Estimating

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At OPTIMIZE 2017, the largest global process industry players—both owners and contractors in upstream oil, downstream oil and chemicals—signaled their determination to change the equation on collaboration to improve industry competitiveness and profitability. On both sides, key players indicated they are open to, and in fact have already started to exchange estimating information on large capital projects. This is made possible, they stated, by the comprehensive Aspen Capital Cost Estimator (ACCE) software, which enables electronic and transparent collaboration industry-wide.

As the industry grapples with how to solve the perennial over-runs in large capital projects, communication during estimating between client and contractor is an important focus.

A truly interesting group spawned this unexpectedly significant and meaningful discussion during the last week of April. There were about sixty people on hand, representing leading estimating teams from major industry players. So here’s a brief account, in hopes that the broader estimating community worldwide gets the benefit of the significant ideas laid out to that audience.

Six master estimators and capital project planners, representing six leading companies in the process industries, took the stage in Houston. This truly “blue ribbon” panel of experts were gathered at AspenTech’s OPTIMIZE 2017. Representatives from ExxonMobil (Don Victory), Technip (Waymon Lofton), The Dow Chemical Company (Larry Roberts), KBR (Art Byram), Linde Engineering USA (Jason Stevens), and Jim Leatherwood (formerly of LyondellBasell) all talked with an audience that included Saudi Aramco, Reliance Industries, Flint Hills, Jacobs Engineering and about 40 other leading companies.

The topic: Better estimates, better projects, better collaboration, and increased communication between owners and contractors during early project stages. As the industry grapples with how to solve the perennial over-runs in large capital projects, communication during estimating between client and contractor is an important focus.

The largest capital project sponsors are beginning to urge earlier, broader and more complete sharing of estimating data between owners and contractors—during bidding, pre-FEED, and project execution.

The benefits outweigh the pitfalls, these leading practitioners agreed during the lively panel session. Here are some of the main insights these companies shared with the audience:

Surprisingly, both sides uniformly see many benefits and few drawbacks in sharing estimates between the owner and contractor organizations. No one, including the audience, indicated any major barriers.

Both owner and contractor have the same goal. Both organizations win if the project goes forward.

THE WIN-WIN EQUATION: The speakers pointed out that both owner and contractor have the same goal. Both organizations win if the project goes forward. To make the project go forward the estimate needs to be right. For the estimate to be right, the organizations need to openly communicate. If the estimate is too high, the project economics won’t work and projects will be postponed or cancelled. If the estimate is too low, the project will be in trouble, with the project leadership on both sides under fire. A good estimate will result from good agreement on scope and on the real costs.

All of the panels emphasized that transparency in the estimating tools is a key enabler of collaboration, so that all team members can see the basis for the scope and for the estimate itself. AspenTech’s Aspen Capital Cost Estimator (ACCE) software was lauded by the panelists as an ideal platform for collaboration, transparency, agreeing and understanding scope, and explaining an estimate to management.

THE ESTIMATE PLAN: There was considerable discussion of the importance of communication among all parties (including owner and contractor) at the beginning, the importance of a written estimating plan to govern the work, expectations and collaboration. Panelists emphasized the importance of setting the expectation with owners as to what costing and technology information is proprietary and what can be shared. On the owner side, ExxonMobil’s Don Victory emphasized that the owners respect and don’t want the contractors to turn over any proprietary information. That’s not what’s needed for successful projects and collaboration. There was a lot of discussion of the challenge of getting people to READ and FOLLOW a plan.

PROTECTING INTELLECTUAL PROPERTY: Art Byram described the way in which a large Saudi megaproject was developed involving two owners and three contractors, where information was fully shared but each organization’s proprietary information was protected. He explained how the contractor can strip out its proprietary cost indexing and purchasing arrangements, while still very effectively conveying the scope and costing approach within ACCE. This ability to completely protect a company’s estimating, costing and procurement “secret sauce,” while still effectively communicating scope, is a key benefit when both sides employ the ACCE system.

PEOPLE ARE A KEY COMPONENT: The six panelists, representing decades of estimating wisdom, emphasized that while estimating software tools are fantastic enablers, the people are a crucial component. Companies must ensure proper training of new estimators and project teams need to understand the key parameters and decisions of the estimate. Senior executives who are exerting heavy pressure on estimators to find ways to reduce costs are often part of this people challenge.

THE TIME CRUNCH: The panelists emphasized the Damocles sword that the estimate deadline represents. As stated by Technip’s Waymon Lofton, the estimate deadline rarely moves. It is usually tied to a Board of Directors’ timetable or other senior management budgeting process. The estimators are often caught in the squeeze when engineering disciplines produce information late or inadequately. This is where the ability to electronically transfer data between disciplines can help, though it is not a substitute for good planning and execution.

THE STRATEGIC IMPORTANCE OF KEEPING MOMENTUM IN THIS AREA: After the formal presentation, several of the leading global owners present talked about their strategic commitment to this pathway, as well as the importance of engaging contractors in the use of common systems for estimating. This is critical to driving down industry CAPEX costs and improving project performance.

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