accurate capex for industrial projects

BILFINGER TEBODIN

ACCURATE CAPEX FORINDUSTRIAL PROJECTSSmart decisions and effective cost tracking

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Introduction

Smart investment is a way to embracecurrent global economic challenges and turnthem into opportunities. Bilfinger Tebodinhelps clients predict project costs and futureoperational expenses. Our experts useindustry-leading data and insights from over10 years of constant analysis.

In the end, the investor should focus on afew cost factors that have a significantimpact on the overall project budget. Usingthat data, asset investors and owners get achance to focus on their capital growth,rather than hesitating to invest due topotential risks.

To help you make smart decisions, BilfingerTebodin annually summarizes its knowledgeof costs on the market across a variety ofsectors, focusing on industrial projects thatthe company executes worldwide. Thisunique analysis is based on an internationalcost database created from 2008-2020while working on hundreds of projects fromstart to finish and based on the actual pricesfrom various national markets.

To help you make smart decisions, Bilfinger Tebodin annually summarizes its knowledge of costs on theCentral & Eastern European market across a variety of sectors, focusing on industrial projects.

Bilfinger Tebodin

Note: Information provided in this brochure is not intended toserve a basis for the investment decision, as each case shouldbe approached individually. However, it describes factors, thatshape total CAPEX and their volume in the overall project cost.All data and information is provided by Bilfinger Tebodin costmanagers in CEE countries.

Project stages

Each project is unique,so there is no commonformula for executionsuccess that appliesacross the board.Nevertheless, projectstages are similar.

PROJECT STARTMarket researchBusiness planFinancing PROJECT STRATEGY

ManagementCooperation with licensors

LAND PLOTLand plot selectionAuditRegistration

COMMISSIONINGAND OPERATION START

Start upHiring of staffRegistration

OBTAINING INITIAL PERMITSENGINEERING SURVEY

EXPERT ASSESSMENT OF DESIGNDOCUMENTATION & CONSTRUCTION PERMIT

OBTAININGCONSTRUCTION PERMIT

DESIGN

CONSTRUCTION CAPEX varies depending on the project type. For theindustrial projects with main buildings area of more than10,000 m², cost breakdown would look like this:

Land plot – 0.01-10 %

Design – up to 6 %

Project management,including procurement – up to 10 %

Construction – up to 70-80 %

Other costs – < 5 %

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Project Management:choosing the rightapproach

With the EPC approach, one contractor isselected with consolidated responsibility tothe investor. The scope includes design,procurement and construction.

With the EPCM approach, the investorchooses a partner for design, procurementand construction management, while theconstruction and installation works arecarried out directly by a third partyor a number of companies selectedfor the project.


When implementing industrialprojects, two types of strategiesare most often used: EPC andEPCM.

EPCM EPCOWNER CONTRACT OWNER CONTRACT

EPCM COMPANY- Engineering- Procurement- Construction

Management

PROJECTMANAGEMENTFOR THE OWNER

- EPC contractor- Engineering- Procurement- Construction

GENERALCONTRACTORorMULTIPLECONTRACTORS

How a specific type oftechnology dictatesthe project approach


Is process technology wellknown and proven on anindustrial scale?

Are suppliers of keyequipment known to theinvestor?

Are the technologieslicensed?

Is the investor familiar withthe selected processtechnology and itsoperational aspects?

Are there EPC companies onthe market with referencesto build such technology in asimilar size?

Is the project a ‘very brownfield’, with a lot ofinteraction with already builttechnology / objects?

YES YES

YES YES

YES YES

NO NO

NO NO

NO NO

1 2

3 4

5 6

EPCMEPCTEPC

EPCMEPCTEPC

EPCMEPCTEPC

EPCMEPCTEPC

EPCMEPCTEPC

EPCMEPCTEPC

EPCMEPCTEPC

EPCMEPCTEPC

EPCMEPCTEPC

EPCMEPCTEPC

EPCMEPCTEPC

EPCMEPCTEPC

Based on our available experience,when choosing a strategy for theimplementation of an industrialproject, one should make thechoice based on the answersto the following questions:

*TEPC – EPC contractor as technology owner

Land plot


More alternatives forsite selection

A land plot of required sizeand shape can be found

Maximum design flexibility(design to fit the budget)

Easier to achieve high QHSEstandards

Potential for extensions

Adjustable maintenance costs

Greenfield

Adva

ntag

esDi

sadv

anta

ges

Brownfield Industrial parks /Special economic zones

Time and costly permittingand extra approval procedures

Land and town planninglimitations for construction

High costs for infrastructureand utilities connection

A long-term project

Infrastructure and utilitiesalready in place

Total project cost may be lower

Permitting process may be easier

Quick modification to a newproduction

Site selection possibilitiesare limited

Design adjustment couldbe required

High risk of hidden pitfalls

Background pollution of the area

In most cases, poor constructionquality

Limitations for extension

Higher maintenance costs

A land plot of required sizeand shape can be found

Design flexibility

Utilities and transport networksare available

Administration support froma professional company

Built-to-suit and built-to-rent options

Tax advantages for investors

Dependency on commonengineering infrastructure(limited utility capacities)

Environmental limitations (e.g.permitted sanitary class ofa facility, limitations dueto neighboring facilities)

Specific requirements to aninvestment project due toIndustrial Parks / Special EconomicZones memoranda

Design andengineering


Considering that a substantial portion of thecosts comes from design solutions, it makessense to be particularly careful whenselecting a design partner.

Experience

Check the track record, permanently updatedand large database built duringimplementation of investment projects.

Digital tools

Engineer’s advanced tools allow fasterexecution, increased quality, and minimizedconflicts in the design stage, while alsomitigating delays and cost overruns in theconstruction stage.

Quality control

Ensure implemented and live qualitymanagement system with audits and gatereviews, certified with ISO.

Staff

Ensure all required experienced and qualifiedspecialists are available to execute projectsin-house.

Professional project managers

The importance of PMI certified projectmanagers with strong management andcommunication skills, should not beunderestimated. These professionals takecontrol over the project strategy andcoordination of stakeholders (investor,designer, licensor/s, other parties).

Presence in the region whereyour project is located

Ideally, there should be a combination ofinternational experience and knowledge oflocal requirements and norms,communication and deliverables in boththe local language and English.

Legally and financially stable

Make sure the partner’s required guaranteesand insurance are in place.

Take note of the followingcapabilities:

Construction


During project execution, the investor is ableto get cost estimations with a necessarylevel of accuracy.

Advice: fix major cost segments, work themout in detail during project execution. Thiswill allow you to track the budget throughout

different project stages, and will provide anopportunity to influence the decisions andensure proper project control. Moreover,using a similar cost structure on differentprojects, is a good way to create a reliableinternal cost database.

One of the success factors for projectrealization is preparation of cost estimatesfor construction of the project. It’s extremelyimportant to foresee all required expenses,such as: main buildings and facilities, landplot networks, site improvement and off-sitenetworks.

Estimation accuracy

Project strategy,business plan,scouting phase

+/-50%

Conceptualdesign

+/-25-40%

Basicengineering+/-10-20%

Detailengineering

+/-5-10%

Construction+/-3-5%

Start-up/Commissioning

+/-3 - 0%

1) Projectmanagement

2) Land plot

3) Design

4) Construction

5) Other costs

Total - ___

1) Projectmanagement

2) Land plot

3) Design

4) Construction

- Buildings

- Facilities

- Infrastructure

- On site networks

- Outside networks

5) Other costs

Total - ___

1) Project management

2) Land plot

3) Design

4) Construction

5) Other costs

Total - ___

Unit prices are mainly based onprototype projects Unit prices are based on the quantities and vendors verification

Bill of Quantities (BoQ) form example:

Constructioncost ratio


The cost ratio shows the typical project costallocation in detail. Nevertheless, for eachsector a partially different cost ratio isapplicable, as well as for each type ofproduction.

Description CEE RUmin max min max

Productionbuilding costAutomotive 710 860 775 840Food & Beverage 1,160 1,680 787 1,428Pharma 1,160 1,680 1,258 1,798Chemical 940 1,310 674 1,179Agro 680 1,050 506 945Warehouse 450 820 438 506Offices (shell& core) 950 1,500 1,100 1,300Hotels 3* 1000 1500 700 1300Hotels 5* 1,400 2,200 1,600 2,100Retail 800 1,200 800 1,100

Office

Production

Warehouse

Projectcost ratio

Productionconstruction materials, mechanicalengineering, chemistry, agriculture

food and pharmaceutical industry

Architecture (basement, walls, partitions, doors, windows, gate, skylights, roofing system, finishing)

Structure (piles, fundations, floors, pits, reinforced-concrete and steel structures)

HVAC, water supply, water discharge, mechanical systems (equipment, piping, air ducts, connections)

Power supply and low voltage systems (equipment, boards, cables, connections, lamps)

Fire safety systems (equipment, cables, connections)

Main buildings

Architecture

StructureStructure

Structure

HVAC

HVAC

HVAC HVAC

Power Power

PowerPower

Fire

Fire Fire

Fire

Structure

Architecture

ArchitectureArchitecture

Facilities

Infrastructure

Land plot networks

70 %

10 %

39 %

25 %

18 %

47 % 35 %

23 %

21 %

18 %3 %

15 %

11 %

9 %

21 %

12 %3 % 3 %

14 %

14 %

52 %

17 %

15 %

5 %

Note: cost per square meter is based on GBA

Trends


Bilfinger Tebodin notes a slightdifference in the level of prices onthe construction market in Central& Eastern Europe.

Production building cost per sq.m(without building networks)

Country priceindices

In comparison with North-West Europe, the prices inCentral and Eastern Europe are still 20-50% lower.

Russia90 - 105 %

Poland100 - 105 %

Ukraine80 - 90 %

Hungary105 - 110 %

CzechRepublic

100 %

SlovakRepublic

100 %

Serbia85 - 90 %

Romania90 - 95 %

It is worth mentioning that a range ofparameters from the previous marketchanges of 2008 and 2014-2015, is alsoapplicable for the 2020 crisis, triggered by

the pandemic. So this experience will betaken into account when forecasting futureinvestments.

30.000

25.000

20.000

15.000

10.000

5.000

2007 2008 2009

Czech Republic, KC Czech Republic, USD Russia, USDRussia, RUB

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0

Trends


Analyzing the construction marketof 2020, Bilfinger Tebodin hasidentified several key specifics,that are likely to remain in 2021.

Timing

Projects that entered the constructionphase before April 2020 have continuedas planned.

Many investors with projects in the phaseof choosing contractors at the beginningof 2020, have postponed their decision tocontinue the project until the end of 2020,or the first quarter of 2021.

In January 2020 there was increasedactivity regarding both postponed andnew projects.

Extension of terms of delivery forimported materials and equipment.

Prices

Over 10% price increase for a range ofservices and materials during 2020.

A sharp increase in the price of metal ofover 20% worldwide in December 2020.

Materials and equipment delivery gapsduring March through May 2020 causedby lockdown and production delays.Dealers and suppliers were sellingavailable products from warehouses atMarch April prices. During the summerperiod, the delivery schedule wasstabilized, construction companies beganto closely monitor the supply of goodsfrom outside the country of where theproject was located. Later on, newsupplies appeared on the market withupdated price proposition, oftensignificantly higher.

The increase in the selling price wassignificant for those countries, wherenational currency depreciated.

Anti-pandemic measures are beingincluded in the project cost, creatingadditional costs.

Resources

Lack of local construction staff, especiallygeneral workers, due to inability toinvolve migrants in the face of closedborders.

Continuous decrease of skilled staff(welders, fitters, etc.) due to free flow toWestern European countries. Pandemicmay have stopped this trend for a whiledue to travel restrictions.

Design solutions turnaround towardslimiting imported materials andequipment.

Focus on digitalization: remote workopportunities, shared work and dataprocessing, BIM modeling, video calls,web-cams, 3D scans, drones.

Construction companies

The tendency for companies’consolidation continues, smaller playersare leaving the market.

Low workloads lead to personnelreductions and work suspension.

Investors tend to focus on companieswith a bigger staff, which are present inthe construction location or able toquickly move there if needed.

Bilfinger Tebodin

[email protected]

Link to construction management service page:

Your project is unique and can't be calculatedbased on average numbers. Contact ourexperienced and enthusiastic team for supportwith expert cost estimation or advice:

Maja CesljevicBusiness Development Director in CEEMobile: +381 63 281 [email protected]

accurate capex for industrial projects

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