Cost Estimation Considerations for Technology

Assessment and Selection

Peter Breen

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

Introduction

• 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

Cost Estimation Considerations for Technology Assessment and Selection - Questions

Part 1:

Cost Estimation

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.

What is an 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

Why estimate?

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

Classifications of Estimates

10 20 30 40 50 60 70 80 90 100

Level of Project Definition (%)

100

80

60

40

20

0

-20

-40

-60

-80

-100

Est

imate

Expect

ed A

ccura

cy (

%) Class 5

Class 4

Class 3 Class 2

Class 1

Conceptual Feasibility

Budgetary Control

Check

Estimate Categories

From standard by AACE, Association for the Advancement of Cost Engineering

Project Definition – Estimate Accuracy D

Estimate

Accuracy

Design Completion

± 50%

± 25%

± 10%

± 5%

3% 15% 35% 100%

Estimate based on benchmarking, early information

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

Estimate based on equipment fixed quotes, take offs, schedule, execution strategy, contractor prices

Detailed Design

FEED

Concept

MP

FEED = Front End Engineering Definition

MP = Master Planning

Initial Funding

Interim Funding

Final Funding

Construction

65%

Stages of Estimate Development

Estimate Master Planning

Pre-Conceptual

Conceptual

Preliminary

Option Selection Definition Installation

Purpose Concept Screening Feasibility Budget

Authorisation

Control Check Price

Basis Sketches

Proposed site

Reference to

existing facilities

Early drawings and

scope descriptions.

Basic schedule

Preliminary Design All tender packages

developed

Final fabrication

details available

% Design

Complete

3% 15% 35% 50% 100%

Accuracy L: -20% to -50%

H: +20% to +50%

L: -15% to -30%

H: +20% to +50%

L: -10% to -20%

H: +10% to +30%

L: -5% to -15%

H: +5% to +20%

L: -3% to -10%

H: +3% to +10%

Estimating Method Capacity factored,

parametric,

judgement

Equipment factored

and parametric

model

Possible tenders for

major equipment.

Quantification.

Some approximate

estimating

Contracts for major

equipment. Detailed

quantities

Based on bids,

variations, final

quantities

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

COM

Design Certification

Site Specific Engineering

Full Capital Authorisation

Construction

Site Prep

Site Prep

UNIT 1

UNIT 2

Construction

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

COM

72 Months

48 Months

18 months 42 Months

18 Months 42 Months

8 Months

7 Months

Ground Breaking

First Concrete

Fuel Load COD

Ground Breaking

First Concrete

Fuel Load

COD

Estimates

Initiate

Technology Procurement

Design Certification

Concept Feasibility Preliminary Sanction Installation

• 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

Benchmarking

•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

Quantification

Typical Estimate Summary

CONSTRUCTION COSTS

Site Preparation

Site Platform

Off site infrastructure Costs

Temporary Construction Services ( set up)

Planning Application Conditions

Nuclear Construction & Commissioning

Civils

Nuclear Steam Supply System

Turbine / Generation

Balance of Plant

Grid Reinforcement

Temporary Construction Services ( maintain)

Architect Engineer

Owners Management

Owners Scope Costs

Start up

Operational Licence

Operator Recruitment, Training and Staffing

Start up purchases inc Spares

Owner Management & Engineering Support

Strategic Spares

DEVELOPMENT COSTS

Management & General Items

Owners Project Management Team

Engineering & Consultant Support

Delivery Partner Costs Pre-Construction

Long Lead Equipment Early Payments

Land Purchases

PR / Communications

Corporate Responsibility Costs

Generic Authorisations & Licences

Generic Design Assessment

Site Specific Authorisations & Licences

Site Specific Design

Site Specific Investigations

Environmental Impact Statement

Planning Application

Nuclear Site Licence

ALLOWANCES

Escalation

Risk

ANNUAL OPERATIONAL COSTS

Operator / Staffing Costs

Materials & Services

Centralised Functions Costs

Sustaining Capex

Outages

General Items inc. Business Rates & Taxes

T&D

Grid Charges

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

22.221.3.31 22 221 3 31

Reactor pressure vessel supports, brackets, sealings, pipe supports or others, including shielding materials if they are integral parts of the support

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 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

Estimating Best Practices Explored

Part 2:

Technology

Assessment

& 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

Technology Procurement and Selection

Challenges

Business Case / Best

Deal

Site(s) Specifics External

Influences

Managing Procurement

Strategic Drivers

Vendors / Delivery Teams

Develop an Assessment process that recognises challenges

• 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

Basis of Technology Assessment and Selection

• Limited number of available technologies / Vendors

• Vendors order book / backlog

• Owner’s 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...

Technology Assessment Considerations

Vendor Evaluation Criteria

• Capital Cost based on NPV

• Operating costs including fuel over time

• Decommissioning Costs

• Compliance with the Specification - Yes or No

• Cash Flow

Factual Evidence for Decision

Whole Life Costs

• 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)

Assessment of Risks to be included in decision

The selection of the technology is largely dependent of the approach taken to risk by the Owner and Vendor

Risk Assessment

Identification Quantification Management

Project Documentation Specialist Input

Objectives Workshops Risk Groups Risk Datable Previous Experience WBS

IDENTIFY

Risk Reporting Historic Risk Data Risk Management Plan

MINIMISE Prioritised Risks

Risk Categories Risk Classifications

CLASSIFY Risks

Probability Analysis key Sensitivities Key Criticalities

QUANTIFY Classified Risks

Risk Probability Impact Analysis

GRADE Quantified Risks

AVOID

Project Execution Strategy Risk Limitation Strategy

Key Performance Indicators Control

Contingency Provision

REVIEW

• 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

Reactor Costs

Indicative Roadmap to Evidence Based Decision

Procurement Planning

Request for Information

Dialogue

Negotiation

Request for Quotation

Early Design / Works Agreement

Revised Offer(s)

Final Negotiations

Contract Award

How many bidders? Selection of Preferred Bidder(s) How many EDA or EWA?

Part 3:

Lessons Learnt

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

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 Owner’s 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.

Learning to date continued..

• 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.

Summary Considerations

Thank You