WHITE PAPER

Ways to Improve the Bid and

FEED Phases of Capital Projects
by Ron Beck, Industry Marketing Director, Aspen Technology, Inc.
Executive Summary
The capital projects market is intensely
competitive for EPCs. Owners, especially in
the exploration and production arena, are
concerned with improving lifecycle project
economics and are consequently
putting pressure on the EPC
community to “sharpen their
pencils.” How does an EPC adapt
itself to win in this competitive
market? In the midst of uncertainty,
there is strong opportunity for those
EPC organizations who are positioned
to be agile, flexible and creative. In particular,
several breakthrough software technologies
present a key opportunity to power the agile
and flexible organization towards a competitive
edge.
One strategic software area is advanced
estimating software. Model-based estimating
leads to increased estimate accuracy,
consistency and productivity. The productivity
gains are attributable to the engineering know-
how, methods and automation contained in the
software system, as well as with a more effective
work flow that it enables. This contributes to
success through increased ability to achieve
speed, efficiency and quality on the bidding
and proposal side and also to controlling and
managing costs throughout project execution.
Also, highly integrated software offers significant
opportunities to redefine the timeframes and
work processes during proposals, feasibility
studies and conceptual design. More efficient
work processes will enable optimizing designs
during the proposal phase to save the client
CAPEX and OPEX and give a proposal team an
edge over competitive bids. But it will require
lateral thinking for an EPC’s leadership to make
the organizational and work style changes
that are an essential component to seizing this
opportunity and becoming one of the leaders and
success stories in this uncertain environment.
2 Ways to Improve the Bid and FEED Phases of Capital Projects ©2015 Aspen Technology Inc. 11-7047-0715
FEED execution tools are a third key enabler.
On the project execution side, there are
significant opportunities for improvement in
the engineering workflow and deliverables
processes. Overbudget and behind schedule
projects can frequently have their difficulties
traced back to lack of definition of scope during
Front End Loading (FEL), rushed Front End Design
(FEED), and proceeding with detailed design
without full access to FEED deliverables. (1)
Integrated process engineering workflows have
already achieved proven benefits to leading E&C
organizations. Burns and McDonnell saved one
owner 20% CAPEX on a gas-to-liquids (GTL)
plant expansion, by reducing capital equipment
counts by 75% (2). Model-based-estimating has
also gained several organizations a competitive
edge. S&B Engineers have achieved a 5:1
productivity gain on estimating during the FEL1
and 2 phases through adoption of model-based
estimating (3). On the SADARA Petro Chemical
Mega Project, preFEED estimates were able to
be completed nine months faster than expected
and the project, currently under construction, is
tracking on budget relative to the FEED estimate.
Rigorous feed delivery solutions have benefitted
project execution, saving Technip Stone &
Webster Process Technology 10% time on
repeatable design projects. A profitability model
developed by AspenTech suggests that the
available benefits across the industry are in the
tens of billions of dollars and the positive impact
on project risk is even greater.
Burns and McDonnell saved one
owner 20% CAPEX on a
gas-to-liquids (GTL) plant expansion,
by reducing capital equipment
75%
counts by
Alignment on Project Scope and Risk
While a number of factors have driven many
recent capital projects to run overbudget
and behind schedule, let’s focus on one of
the current issues that is most frequently
discussed, namely project scope definition.
EPCs are broadly concerned about their ability
to gain alignment, with respect to project
scope, with their clients; and at the same time
with the level of corporate risk imposed by the
owners pressure to bid lower, perform more
engineering during bidding, and towards lump
sum contracting. Owners also recognize this
issue. The September 2014 ECC (Engineering
Construction Contractors) Forum, consequently,
had as a theme, “Aligning the Stars,” (4) in which
this topic was extensively discussed. In a mid-
conference audience poll, involving an even split
of executives representing owners and EPCs,
lack of communication regarding project scope
during bidding and FEED, was identified as a
key issue. A Fall 2014 EY report (1) provided an
analysis that conveyed contributing issues such
as “over-optimistic” capital estimates, lack of
agreement on project scope during Front End
Loading (FEL), rushed Front End Design (FEED),
and proceeding with detailed design without
full access to FEED deliverables (see Figure 1).
During the winter of 2014 – 15, individual global
EPCs confirmed with AspenTech that these
issues are all recognized as key concerns.

Figure 1: EY analyzes reasons for overruns on 365 $1 Billion-plus projects

Portfolio and Project Project Project Regulatory Geopolitical

Commercial Context Development Delivery Challenges Challenges

Inadequate
JV Conflictand Ineffective P
 roject HSE Risk and Local Diplomatic and
Planning Overly
Relationship Challenges Management Content Security Issues
Aggressive Forecast

JV Conflict
PoorProcurement Regulatory D
 elay And Financial and Supplier
Access to F unding and Relationship
of Contractors PolicyUncertainty Market Uncertainty
Challenges

Poor Portfolio
AggressiveEstimates JV Conflict and Inadequate Civil andWork Force
Management and
and Optimism Bias RelationshipChallenges Infrastructure Disruption
 hanging Risk Appetite
C

INTERNAL FACTORS EXTERNAL FACTORS

3 Ways to Improve the Bid and FEED Phases of Capital Projects ©2015 Aspen Technology Inc. 11-7047-0715
Project Scope
What Do We Mean When We Say Align on Project Scope?
It is generally agreed that the process flow diagram (PFD) and the associated supporting items,
the utilities flow diagram (UFD) and materials selection diagram (MSD), are at the core of
understanding, reviewing and agreeing on project scope. These documents both serve as a key
handover point between the process engineering function and other engineering disciplines, and as
a key communication point between the lead designers, the project managers, the estimators, and
the clients. Complementing this key deliverable are equipment lists and line lists. The equipment
list represents the key designed elements at enough detail to fully represent what the process
engineer has in mind, allowing the estimator to turn the concept into a deliverable, costable plant.
The equipment list is also a key communication point between the estimator and the engineering
disciplines to reach agreement on the “estimated scope” and also should be the key communication
point between the EPC and the owner.

It is generally agreed that the process flow diagram (PFD) and associated
supporting items, the utilities flow diagram (UFD) and materials selection
diagram (MSD) are at the core of understanding, reviewing and agreeing
on project scope.

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The issues typically arise in the alignment on project scope when time,
resource constraints (availability of key experts at the right time) and
organizational barriers are put into the equation. Some of the key
issues that the industry is grappling with are:

1
Process Engineering, Modeling and PFDs: Process Engineers who develop the
conceptual design, including the process model and the process schema, are typically
averse to drafting. They need to be able to quickly and effectively produce, and most
importantly change and modify, a PFD under the deadlines of bid and proposal work and early
conceptual design, but without the right tools they are often delegating this PFD task to a drafter.
This causes delays in PFD production, especially when changes are made, and the availability of a
final PFD at times of discussion and negotiations with owners.

2
Dynamic Owner Requirements: With the dynamic economic, business and even political
conditions impacting project goals and definitions, owner requirements are frequently
changing. This requires the process engineering team to make frequent changes and
modifications, which has cascading impacts on deliverables such as PFDs, equipment lists, and
estimates, squeezing timeframes and impacting rigor and quality. The frequent solution, which is to
rush through FEED, is to keep the project schedules intact, which has a negative impact on project
changes during detailed design and ultimately on project cost and schedule. In this environment,
structured and collaborative FEED solutions such as Aspen Basic Engineering are a key tool.

3
Shortages of Key Experts at Crucial Times: Across the process industry, short supply of
experienced technical experts is a growing issue. During the bidding and project definition
phases, experienced process designers and estimators are a critical component on both
the EPC and owner side. Especially with the dynamic nature of projects, with frequent changes,
experienced generalists who can quickly and effectively review the scope, resourcing risk,
constructability, operability and ultimate risk of a project are keys to success. Software tools and
methods, such as Aspen HYSYS® and Aspen Plus®, Increase the productivity and effectiveness of
these experts and are crucial resources for reducing project risk.

4
Transparency and Owner Review: Due to the size and complexity of many current process
industry projects, it is essential that the owners fully understand the project definition, scope,
constraints, cost estimate, and cost risks. This requires complete transparency between the
owner and the EPC concerning the project scope and estimate, as well as software tools that will
enable the owner’s reviewer to understand at a detailed project and discipline level what is contained
in the estimate. A crucial tool for owners to successfully manage their contractor relationships and
projects is a transparent and flexible estimating system, such as the Aspen Capital Cost Estimator
model-based system, which looks at the scope and total installed cost.

5 Ways to Improve the Bid and FEED Phases of Capital Projects ©2015 Aspen Technology Inc. 11-7047-0715
Getting a Handle on the Estimating Process
With the estimate being a critical communication tool, let’s explore the processes typically
employed, the new technologies available, and the improvements that can be achieved. First,
let’s look at the traditional approach and its issues, followed by examples of new approaches and
strategies and how to arrive at them.

Traditional
Traditional estimating processes, namely “bottoms up”, spreadsheet-based approaches and factor-
based or parametric approaches present an organization with some serious deficiencies in light of
the project challenges discussed above. These approaches are highly dependent on assembling a
large team of estimators who are making calls, counting and entering information; are
dependent on the responsiveness and understanding of vendors in supplying cost
quotes, and are also dependent on the ability to reasonably extrapolate from
historical cost files.

Also, as projects become more dynamic, projects become larger in scale

and complexity and contracting structures become more involved. It is
increasingly difficult for one estimating manager or project manager to
visualize, assess, analyze and understand the entirety of the data set,
especially if it is a huge spreadsheet or series of spreadsheets.

Inherently, these methods require a higher percentage of the engineering to be

completed to achieve the requisite accuracy.

6 Ways to Improve the Bid and FEED Phases of Capital Projects ©2015 Aspen Technology Inc. 11-7047-0715
Model-Based
The model-based estimating approach addresses all of these issues by building up a total installed
cost estimate from “engineer-in-a-box” engineering first-principles models, which perform extremely
well when scaling a design, but are not dependent. The model automates the process of applying the
correct engineering standards, factors, sizing rules, and provisions.

Aspen Capital Cost Estimator (ACCE) (originally introduced into the market as “ICARUS”) is the
leading commercially developed, model-based system on the market. It contains a comprehensive
and broad library of equipment and component models, which include all related engineering rules,
material and fabrication costs, and construction resources required to specify and estimate the total
installed cost of that component. Simply by specifying an equipment type, size and materials of
construction, and location, the model will simulate construction of the equipment, and will identify
all associated bulks, instrumentation, civil, electrical, structural, indirects, and construction resources
required (see Figure 2).

Figure 2: From a column to a complete installed cost for the column using model approach

Conceptual Equipment Design

Shell Thickness Model Fabrication

Weight
Nozzles Equipment Costs Model Installation and Construction

Piping Complete Scope

Instrumentation
Foundations Power Distribution
Structures Control Systems
Contracting Site Development
Strategy Electrical
Project & Site Indirects

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Time and Consistency are Key Benefits of the Model-Based Approach
The estimating team and the executive details (which are never correct or important
confidence in the estimator and their numbers very early in the proposal process), the user of
are a crucial lynchpin in the bidding process. ACCE focuses instead on getting the project
Experienced estimators are among the scarcest scope correct and aligning the project scope
resources in the process industry today. When with the process definition. This will then place
time is not a critical factor, an E&C can partially the focus on getting major equipment items
substitute manual estimation for experience, and metallurgy correct from a process intent
but this usually only masks the importance and point of view, and determining the bulk details
value of estimating experience. At the bidding through statistical and experienced-based
and early engineering phases of a project, engineering approaches, built into the software.
time is a gating factor, and additionally the
judgement and ability to consider contingencies
of an experienced estimator are crucial.
The model-based approach frees up the
experienced estimator’s time to analyze the
overall project and anticipate issues and risk
factors.

A concept that Mike Monteith, founder

of Strategic Estimating Systems (SES),
has discussed extensively is that of,
“The right detail at the right time.” It is
a thought process, but interestingly the
selection of the right software systems
can be critical in engendering the
success of this approach. The temptation
of an estimating group, when put under
pressure, is to enumerate quantities,
filling in, very large “supercharged
spreadsheets”. Many of the assumptions are
hidden in formulas in the spreadsheet, and the
overwhelming size of these pages of data keeps
increasing. The difficulty with this enumeration
approach is that the full project scope is not at
all transparent, that it is a challenge to separate This approach has been demonstrated to
the important cost determinators from the improve overall predictability and variance of
less important detail, and that the flexibility to estimates, greatly reducing required estimating
explore scope and process alternatives is lost. manpower, and improving the transparency
The much more sophisticated and transparent of the estimate in communicating between
approach represented by ACCE is fortunately estimators and the executive team and
available. Instead of focusing on enumerating proposal manager.

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Proof Points
Over a sustained period of time, the results
demonstrating the value of the ACCE model-
based estimating, have been reported by several
global organizations. PEMEX benchmarked
30 major refinery capital projects estimated
using ACCE. Over those 30 projects, PEMEX’s
estimating organization achieved accuracy at
a consistent level of approximately 21% for
Class IV estimates and approximately 8 to 16
% for Class III estimates. ConocoPhillips, a
downstream organization (now Phillips66),
benchmarked their estimating results over a
five-year period during which they switched
Structured and Collaborative FEED Processes
Projects have increased in size and complexity.
Resource shortages and other factors have
driven up project costs. Owners have responded
by squeezing the FEED stage of projects, which
has led to corresponding misunderstandings
regarding project scope and further introduced
mid-project fluidity.
Global E&Cs have responded by getting bigger,
both through acquisition and organically. But, as
Chiyoda’s executive chairman, Takashi Kubota
remarked during a talk at Rice University
in September 2014, “We need the size, but
does bigger mean better? We are not sure.”
E&Cs have further responded by bidding
more aggressively in a highly competitive
environment.
Coupled with these factors, global work sharing
and value-engineering centers have challenged
project coordination and communication.
During the FEL and FEED phases of projects,
a strong front-end-design collaboration
system can make a true and accurate process
flow diagram (PFD) and key equipment lists
available to the proposal (and project) team
and the owner. This forms the basis for a
transparent communication and discussion
of project scope, to make sure that bids
9 Ways to Improve the Bid and FEED Phases of Capital Projects ©2015 Aspen Technology Inc. 11-7047-0715
from using a factor-based estimating approach
to using ACCE. Phillips66 reduced their capital
estimating variance (at the FEL 3 stage) from a
40% variance with factor-based estimating to
a 12% variance with ACCE. They concurrently
were able to improve the productivity of their
estimators by a 10:1 ratio. The estimating
group at S&B Engineers have used ACCE on a
sustained basis for bidding and project work,
and have measured a 5:1 estimating productivity
gain during FEL 1 and 2 and a 2.5:1 productivity
gain on FEL 3 estimates.
and estimates are prepared with the same
realistic basis that the owner is requesting
and expecting. This also creates the basis for
the owner and E&C to confront the areas of
uncertainty and risk in the proposed project,
required resources, and realism in the execution
plan; and make the appropriate decisions
early enough in the project planning and
development process. A system of this nature,
such as Aspen Basic Engineering, can be a bid
and project game changer.
Collaborative FEED (Aspen Basic Engineering)
further automates the FEED engineering
change process, as well as the development
of deliverables, especially when designs can
be standardized or modularized. This adds
engineering accuracy and quality efficiency.
The challenge when adopting this approach
and achieving the available benefit, is to change
ingrained, traditional silo approaches to a
collaborative team approach.
Breaking Down Business Process Barriers to Effectively
Manage Change and Complexity
The highly structured business processes that are standard within large E&C organizations have not
undergone much change over the past several decades. As global work-sharing and the size and
scope of projects has increased, managers have become paradoxically reticent to change, taking
the conservative position that engineering and approval processes that have worked to achieve
well-functioning plants do not require change. To meaningfully address both the bidding and project
execution challenges and risks in an increasingly global business, these business processes need to
be evaluated and evolve. The powerful capabilities of underlying systems together with wholesale
changes in the engineering workforce presents
the opportunity to conceive, develop, and
execute projects in new ways.

Specifically, during the bidding process, the

opportunity to tie together process modeling
systems, systems to rate major equipment
items, front end deliverable collaboration
solutions, estimating, and formal risk analysis
can and will lead to a competitive advantage
and overall better company and project
performance for those organizations that
embrace it.

To meaningfully address both the bidding

and project execution challenges and risks
in an increasingly global business, these
business processes need to be evaluated
and changed.

10 Ways to Improve the Bid and FEED Phases of Capital Projects ©2015 Aspen Technology Inc. 11-7047-0715
Incorporating the Concepts of Standardized
and Modular Design
Another key trend that’s driven by oil and gas exploration, production, and midstream organizations,
is the standardization and reuse of designs. The one-of-a-kind engineering approaches, which have
been a given in the process industry for decades, are increasingly being looked at as a problem in a
marketplace where spiralling capital project costs can create significant friction in the global energy
market. Energy firms are looking for E&Cs to lead the way in proposing standardized rather than the
“gold-plated” design.

Using the same integrated solutions, as described above, an engineering team can capture standard
repeatable (or modular) design components as building blocks for projects that can be designed and
engineered more efficiently, and at higher quality. Marcel Eijkenboom of Maturus Optimi (a previous
key estimator in the DSM biochemistry company) has made a compelling case as to how he was
able to effectively capture design building blocks that he was able to rapidly assemble into complete
processes. Accompanying these with accurate preliminary costs and economics, he was able to
credibly use this modular approach with business owners to evaluate the commercial viability of new
chemical and bio products being considered for investment and commercialization. These methods
are based fully on software available commercially today.

E&C companies that adopt integrated, project-modeling techniques and build flexibility into their
risk management or project changes will help oil and gas companies. In doing so, this can provide
enormous value to their clients and support large scale projects more effectively. When an E&C firm
helps reduce the cycle time of an oil and gas well development project by a significant amount (i.e.
20 – 30%), it can help their client deliver results far more quickly.

Software consistency drives project transparency

between owner-operator and E&C
Use of the same software between the owner-operator and E&C, especially when employed with
a transparent software system, allows for clear communication between owner-operator and
E&C on the scope and resource requirements. The owner uses this to evaluate bids on a “like for
like” basis and ensures that all requested scope is included. Owners, such as ConocoPhilips, have
demonstrated improvement in project timetables, capital predictability, and EPC oversight through
the transparent use of the same model-based software system by contractor and owner.

11 Ways to Improve the Bid and FEED Phases of Capital Projects ©2015 Aspen Technology Inc. 11-7047-0715
Next Step: Effective Decision-Making
The E&C industry is rapidly changing, as is the
nature of complexity within the business.
For effective bidding, many companies have
successfully implemented the aspenONE®
software suite to help E&Cs deliver project
proposals faster and with less man-hours to
achieve superior process designs. Solutions
from AspenTech significantly improve the ability
to accurately estimate project costs early, bid
faster, achieve better communication between
E&Cs and owner-operators, apportion risk, and
improve project workflows.
cycle will help to capitalize on project
opportunities. By providing cost estimators and
project managers with the right tools, project
uncertainty and risk can be reduced and
capability is enhanced for effective
decision-making to control
industry capital costs. In the
quest for bid-to-win contracts,
better and faster designs mean
better value for customers,
which underpin a successful
strategy for E&Cs to survive and
thrive in a rapidly developing market.

Customer demands are on the increase, AspenTech is currently working with

and being able to adapt strategy and equip several global E&C, EPC, EPCM, and owner
engineering expertise with a cutting-edge organizations who have intiatives in place
economic evaluation and collaborative FEED to gain competitive advantage from the
software platforms throughout the engineering approaches described in this paper.

References
(1) EY (October, 2014) (Ernst and Young), Spotlight on Oil and Gas Megaprojects

(2) Robertson, Elliott (May 24, 2011), Burns and McDonnell, “FEL-2 Optimization of Capital Cost
of an NGL Revamp Facility,” Public Webinar

(3) R
 ichison, Rick (May, 2008), S&B Engineers & Constructors, LTD, “Using ACCE to Cut Estimate
Preparation Costs”

(4) ECC Global Forum (2014), can be referenced online at www.ecc-conference.org

12 Ways to Improve the Bid and FEED Phases of Capital Projects ©2015 Aspen Technology Inc. 11-7047-0715
AspenTech is a leading supplier of software that optimizes process manufacturing—for energy, chemicals, engineering and
construction, and other industries that manufacture and produce products from a chemical process. With integrated aspenONE®
solutions, process manufacturers can implement best practices for optimizing their engineering, manufacturing, and supply chain
operations. As a result, AspenTech customers are better able to increase capacity, improve margins, reduce costs, and become
more energy efficient. To see how the world’s leading process manufacturers rely on AspenTech to achieve their operational
excellence goals, visit www.aspentech.com.

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13 Ways to Improve the Bid and FEED Phases of Capital Projects ©2015 Aspen Technology Inc. 11-7047-0715