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106R-19: Development of Cost Estimate Basis – As Applied in Engineering, Procurement, and Construction for the Process Industries

106R-19: Development of Cost Estimate Basis – As Applied in Engineering, Procurement, and Construction for the Process Industries
AACE International, October 14, 2019

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This recommended practice (RP) is a guideline for the development of cost estimate basis for engineering, procurement and construction (EPC) projects for the process industries. For the purposes of this document, the term process industries is assumed to include firms involved with the manufacturing and production of chemicals, petrochemicals, hydrocarbon, and wastewater processing. The common thread among these industries (for the purpose of estimate classification) is their reliance on process flow diagrams (PFDs) and piping and instrument diagrams (P&IDs) as primary scope defining documents. This estimating methodology is also suitable for other equipment-centric industries such as mining process plants, power generation, pumping stations etc.

The main body of this document refers to deterministic (Class 3, 2, and 1) estimates. Conceptual (Class 5 and 4) estimates require a very different approach and are defined in Appendix A and B. These sections provide basic guidelines for the development of a basis of estimate for some of the more common methodologies used in the development of these classes of estimate. Conceptual estimating is a highly creative process, and these sections do not reflect the wide variety of possible methodologies.

The Total Cost Management (TCM) Framework section 7.3.4.4, Outputs from Cost Estimating and Budgeting highlights the need to develop a basis of estimate (BOE) document. This document addresses the need to develop effective estimate basis and addresses the steps before and after the Outputs from Cost Estimating and Budgeting step to the extent necessary for an effective estimate basis. A key principle is that the reader is able clearly understand the underlying basis behind the estimate, including any deficiencies in estimate preparation that may impact the estimate.

This recommended practice (RP) is intended to provide a guideline (i.e. not a standard) for establishing and communicating how to prepare, review and approve an estimate basis. After estimate completion the estimate plan is transformed into the basis of estimate. The basis of estimate is prepared by the estimate provider in alignment with the approved estimate plan and estimate requirements document.

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