What are the Owner’s Costs in an EPC Capital Project?
This is a question that comes up quite often in capital cost estimating. So, I thought I would share my point of view and experience on this subject.
Generally speaking, I would say that the Owner’s costs are all the costs required to bring a project to commercially operable status, less the cost of the EPC contract. This is a very high-level observation of what constitutes the owner’s costs. In the following paragraphs, we will break down the costs in more detail.
EPC – What is in the name?
As part of the capital cost of a project, the Engineering and Construction (EPC) include all costs to deliver a turnkey facility that is ready to go.
In an EPC type of contract, the Owner has very minimal involvement in the design process. The EPC contract usually stipulates the design requirements in the form of performance requirements, which will constitute the basis for the design development performed by the EPC contractor.
The EPC contractor is responsible for the design, procurement, construction, and commissioning & start-up. The risk is transferred from the owner to the EPC contractor in an EPC project delivery format. This project delivery method tends to attract higher project costs than the EPCM (Engineering, Procurement and Construction Management) method.
Project capital cost breakdown
The best way to explain what constitutes the Owner’s costs is to break down the project capital costs from the top down. The most common way to break down the capital cost of a project with the EPC element in it is:
- Direct Costs
- Indirect Costs
The Direct Costs are all the costs included in the EPC contract:
- Detailed design
- Site investigations
- Procurement
- Contractor’s direct and indirect construction costs
- Commissioning & Start-up
- Contractor’s overhead and fees
All costs shown above are in base-year currency.
The Indirect Costs are:
- Project contingency
- Owner’s costs
Owner’s Costs
All costs, in addition to the EPC costs and project contingency, can be labelled as the Owner’s costs. Depending on the type of project and the Owner’s requirements, the following list is a comprehensive account of possible Owner’s costs.
- Pre-production costs
- Inventory capital
- Land costs
- Financing costs
- Preliminary feasibility studies
- Front-end engineering design study
- Community support
- Site development outside of project boundaries
- Camp and housing facilities
- Temporary site services and facilities
- Insurance
- Freight for Owner’s supplied equipment (if any)
- Currency exchange
- Legal fees
- Permitting and permits
- Owner’s engineer
- Owner’s Project Management
- Owner’s contingency (Owner’s reserve)
- Taxes
- Escalation during the capital expenditure period
- Interest on debt during the capital expenditure period
Interesting to note is that some Owners might require a specific Owner’s costs breakdown based on their internal code of accounts and accounting for capital expenditures requirements. In such cases, it is common for the Owner to supply the cost consulting firm with their cost breakdown requirements and code of accounts. Owners who have repeat projects for similar assets have an interest in recording and tracking asset costs.
I hope you found this article useful. Please leave your comments below. I am interested to know about your experience with the Owner’s costs in capital cost estimating. If you have questions, please write them below, and I will try to give you my best answer.
