costruction cost estimate

7/31/2019 Costruction Cost Estimate

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Multi-Purpose American Marine Highways

Series Product ShipTask 7.3 Report on Build Strategy & Construction Cost Estimate

Appendix A

Construction Cost Estimate

For

Herbert EngineeringRevised August 20, 2010


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NOTICE

The cost estimates presented herein are believed to be fair representations of anticipated truecosts based upon the design information provided and current average costs experienced within

the U.S. shipbuilding industry.

SPAR ASSOCIATES, INC. MAKES NO WARRANTIES OF ANY KIND WITYH REGARD TO THISMATERIAL, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OFMERCHANTIBILITY AND FITBNESS FOR A PARTICULALR PURPOSE.

SPAR Associates, Inc. shall not be liable for errors contained herein or for incidental orconsequential damages in connection with the furnishings, performance or use of this material.


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Contents

Contents1.0 Introduction ........................................................................................................................................... 42.0 Basis for the Estimates .......................................................................................................................... 5

2.1 Korean Engineering Package ............................................................................................................ 52.2 Korean Material Packages ................................................................................................................ 6

3.0 Summary of Cost Estimates .................................................................................................................. 73.1 Summary for Large Commercial U.S. Shipbuilder .......................................................................... 83.2 Summary for Mid-Tiered Commercial U.S. Shipbuilder ............................................................... 10

4.0 Engineering & Construction Cost Estimates ...................................................................................... 124.1 Engineering & Construction Cost Estimates Large U.S. Commercial Yard ............................... 12

4.1.1 Large Commercial Shipbuilder Using All American Technical Resources & Material

Purchasing ......................................................................................................................................... 134.1.2 Large Commercial Shipbuilder Using Korean Technical & Material Packages ..................... 19

4.2 Engineering & Construction Cost Estimates Commercial Mid-Tiered Yard .............................. 264.2.1 Mid-Tier Shipbuilder Using All American Technical Resources & Material Purchasing ...... 264.2.2 Mid-Tier Shipbuilder Using Korean Technical & Material Packages..................................... 33

5.0 Conclusions ......................................................................................................................................... 406.0 The ESTI-MATE Cost Models ........................................................................................................... 417.0 Estimating Cost Risk........................................................................................................................... 45

7.1 Cost Risk of Applied CERs Due To Price, Economic & Technology Uncertainty ........................ 487.2 Cost Risk Due To Anticipated Performance Problems of Detail Engineering ............................... 487.3 Cost Risk Due To Shipbuilders Relative Inexperience or Lack of Prior Performance ................. 50 7.4 Cost Risk Due To Compressed Production Schedule ..................................................................... 527.5 Cost Risk of Rework Due To Immature Detail Engineering When Overlapping With Production 53


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1.0 Introduction

The following provides a general description of the cost estimates produced for the CCDoTTRORO/Container Carrier designed by Herbert Engineering. Separate estimates were produced forthe following:

Design, Engineering & Production for a large U.S. shipbuilder that has modern shipbuildingfacilities and has demonstrated better levels of productivity than expected from other U.S.shipbuilders. This large yard is not a U.S. Navy combatant builder, but one that hasperformed well in building commercial ships of the size of this RORO/Containership orlarger.

Design, Engineering & Production for a mid-tiered U.S. shipbuilder that has modernshipbuilding facilities and has demonstrated good levels of productivity as a U.S.shipbuilder, although somewhat less than expected from the large shipbuilder describedabove. This mid-tiered yard also is not an exclusive U.S. Navy combatant builder, but hasbeen engaged in building commercial ships of the size of this RORO/Containership.

Cost estimates also were done for the following build strategies for each of the two describedshipbuilders:

Design, engineering and production utilizing all American resources for labor, materialsand equipments.

Design, engineering and production utilizing engineering and material packages providedby a Korean shipbuilder in much the same fashion as Hyundai and Daewoo has done forNASSCO and Aker Philadelphia Shipyard, Inc. (APSI) in the construction contracts for the42,000 DWT product carriers over the past number of years.

The cost estimates for each of the above build scenarios were developed using SPARs ESTI-MATEcost models. Section 6 generally describes these models and their capabilities.

Finally, cost estimates (refer to Appendix B) were produced for a simulated commercial trailerand container transportation market in and out between the following U.S. East coast ports:

Brunswick, GA (BGA)

Norfolk, VA (NFK)

New Haven, CT (NHC)

A second market route scenario is a round trip run only between BGA and NHC.

These simulations estimated annual costs for capital, operations and maintenance in order todetermine approximate required freight rates (RFR).


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2.0 Basis for the Estimates

The base design that is to be considered is HEC's concept seven which includes 4 decks plus

container cranes, drawing number 2009-76-06. The vessel has the following dimensions,capacities and characteristics;

Length Overall 180.3 MLength Between Perpendiculars 172.0 MBreadth (Molded) 36.6 MDepth to Main Deck (Freeboard) 12.9 MDepth to Upper Deck 18.5 MDesign Draft 6.7 MRO/RO Area (approximately) 15,500 SMTrailer Capacity 181

Container Capacity (stacks) 194Propulsion Twin crew Diesel Electric, 23,500 KWService Speed (approximately) 18 knotsWeights & Margins

Steel 10,800 MTMach & Electrical 2,200 MTOutfitting 1,400 MTTotal Lightship 14,400 MT

The prices are estimated for the year 2012.

Separate estimates are provided for each build scenario: Non-recurring engineering and production planning;

Lead ship construction; and

Construction cost for lead ship, one-of-three and for one-of-five multiple ship constructionprograms.

2.1 Korean Engineering Package

For the Korean engineering package, the following assumptions were made:

The Korean engineering package is estimated at U.S. $12-million The U.S. shipbuilders contribution the detailed engineering and production planning is in

addition to integrate the Korean technical data into the shipyard operations, facilities andcapabilities.


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2.2 Korean Material Packages

For the Korean material packages, the following assumptions were made:

The cost savings for the shipbuilder for using Korean material packages is estimated to beapproximately 25%

The labor savings for the shipbuilder having to use the prepackaged materials is estimatedto be 10%. The material packages would include pre-manufactured items, such as pipespools, and eliminate/minimize these manufacturing processes from the shipbuildersresponsibilities. In addition, it is assumed that these material packages would be deliveredin an orderly way to better meet production schedules for earlier and more productivestages of construction.


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3.0 Summary of Cost Estimates

This section summarizes the cost estimates detailed below in subsequent sections. Figure 3.0.1compares for each build strategy the non-recurring costs, the lead ship construction costs, andassociated cost risk. Details describing cost risk are provided in Section 7.

Figure 3.0.1: Lead Ship Cost Comparison for Four Different Build Strategies

$202.19

$178.32$187.86

$165.88

$18.9

1

$24.74

$21.61

$27

.61

$17.2

8

$11.21

$26

.15

$19.68

$238.38

$214.27

$235.62

$213.17

$307.48

$259.11

$340.21

$291.87

$-

$50

$100

$150

$200

$250

$300

$350

$400

Large Yard w/ USA

Technical &

Material Packages

Large Yard w/

Korean Technical &

Material Packages

Mid-Tiered Yard w/

USA Technical &

Material Packages

Mid-Tiered Yard w/

Korean Technical &

Material Packages

2012US$

Millions

180.3 Meter CCDoTT RORO/Container CarrierLead Ship Should Cost

Non-Recurring Cost

20% Cost Risk


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3.1 Summary for Large Commercial U.S. Shipbuilder

Figure 3.1.1 provides for the large U.S. commercial shipbuilder the lead ship and follow ship

average costs including apportioned1

costs non-recurring efforts. The should cost assumes anengineering and production program that is executed smoothly according to basic characteristicsof the shipbuilder and of the engineering efforts. A more likely set of costs include a measure ofan estimated maximum cost risk.

Figure 3.1.1 further assumes that the large U.S. commercial shipbuilder provides all the non-recurring cost efforts and all material purchases are made directly by the shipbuilder.

Figure 3.1.1: Large Commercial U.S. Shipbuilder Using All American Technical & Purchasing

Services

1Non-recurring costs for design, engineering and detail production planning are apportioned across a multiple ship

construction program equally. For example, for a three-ship program, each ship cost estimate includes one-third of the total

non-recurring costs. For a five-ship program, each ship cost estimate includes one-fifth of the total non-recurring costs.

$221.10

$197.79

$183.17

$238.38

$206.43

$191.09

$-

$50

$100

$150

$200

$250

$300

Lead Ship w/Non-Recurring Costs One-of-Three Cost w/Allocated

Non-Recurring Cost

One-of-Five Cost w/Allocated Non-

Recurring Cost

Large Yard w/ USA Technical & Material Packages

Should Cost


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Figure 3.1.2 shows resulting cost savings for the large shipbuilder by its purchasing a completedesign and detail production engineering package from a notable Korean shipbuilder that isexperienced in providing such services. The large U.S. shipbuilder does contribute some technical

efforts to implement the Korean technical package within its production operations.

These estimates further assume that the large shipbuilder has purchased the majority ofequipment and construction materials (except for steel) from the Korean shipbuilder.

Figure 3.1.2: Large Commercial U.S. Shipbuilder Using Korean Technical & Purchasing

Services

$203.06

$176.30

$163.02

$214.27

$184.19

$170.25

$-

$50

$100

$150

$200

$250


Non-Recurring Cost

One-of-Five Cost w/Allocated

Non-Recurring Cost

Millions

Large Yard w/ Korean Technical & Material

Packages

Should Cost


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3.2 Summary for Mid-Tiered Commercial U.S. Shipbuilder

Figure 3.2.1 provides for the mid tier shipbuilder the lead ship and follow ship average costs

including apportioned costs non-recurring efforts. The should cost assumes an engineering andproduction program that is executed smoothly according to basic characteristics of theshipbuilder and of the engineering efforts. A more likely set of costs include a measure of anestimated maximum cost risk.

Figure 3.2.1 further assumes that the mid tier shipbuilder outsources all the non-recurring costefforts to a U.S. engineering firm and all material purchases are made directly by the shipbuilder.

Figure 3.2.1: Mid-Tier U.S. Shipbuilder Using All American Technical & Purchasing Services

$209.48

$186.31

$172.21

$235.62

$198.48

$183.39

$-

$50

$100

$150

$200

$250

Lead Ship w/Non-Recurring Costs One-of-Three Cost w/AllocatedNon-Recurring Cost

One-of-Five Cost w/Allocated Non-Recurring Cost

Mid-Tiered Yard w/ USA Technical & Material

PackagesShould Cost


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Figure 3.2.2 shows resulting cost savings for the mid tier shipbuilder by its purchasing a completedesign and detail production engineering package from a notable Korean shipbuilder that isexperienced in providing such services. The mid tier shipbuilder does contribute some technicalefforts to implement the Korean technical package within its production operations.

It further assumes that the mid tier shipbuilder has purchased the majority of equipment andconstruction materials (except for steel) from the Korean shipbuilder.

Figure 3.2.2: Mid Tier U.S. Shipbuilder Using Korean Technical & Purchasing Services

$193.49

$169.56$155.51

$213.17

$180.91

$165.91

$-

$50

$100

$150

$200

$250


Non-Recurring Cost

One-of-Five Cost w/Allocated Non-

Recurring Cost

Mid-Tiered Yard w/ Korean Technical & Material

Packages

Should Cost


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4.0 Engineering & Construction Cost Estimates

The following provides details of the design and construction cost estimates for the various buildstrategies.

4.1 Engineering & Construction Cost Estimates Large U.S. Commercial Yard

The overall schedule for the shipyard non-recurring engineering and production planning isestimated to be 12 months.

The overall production schedule for the lead ship is estimated to be 18 months, with an overlapwith the non-recurring efforts by three months.

The ship yard labor rates, fully burdened are as follows:

Technical $73.88 (2012)

Production $61.56 (2012)

A 6% markup (G&A) on material and 4% markup (G&A) on labor has been applied to the yardestimate and a profit of 12%.

The cost estimates for construction include a 5% added cost for design contingency margin (dueto current early stage of design development) and a typical 2.5% added costs for anticipatedchange orders. These costs have been included in the cost models SWBS 1000 group along with

MARAD Title XII fees, ABS fees, insurance and bonding costs.

It has been assumed that no third party program manager overseeing these efforts is required.

This net cost is considered the should cost.

This analysis assumes that this would be a three or five ship procurement program, whereby thereare learning benefits to both labor and material costs described below. The non-recurring design,detail engineering and production planning costs are allocated equally across the three or fiveships for a one-of-three or one-of-five ship should cost estimate.

The cost model also develops estimates of cost risk as described in Section 7. Cost risk is assessedbased on expected levels of over-runs. Over-runs can be based on problematic productionengineering and/or problematic ship construction processes or both.

A more likely capital cost includes some measure of this cost risk added to the should cost. Afigure of 20% of the total (100%) estimated cost risk has been applied for a more likely ship costestimate.


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4.1.1 Large Commercial Shipbuilder Using All American Technical Resources & Material

Purchasing

The non-recurring detailed engineering and production planning is anticipated to be provided bythe large U.S. shipbuilder for approximately 187,643labor hours.

For the all American build scenario, the large yard has been given the following levels ofproductivity:

Relative steel productivity 1.00

Relative outfit productivity 1.00

Productivity factors of 1.0 apply to a large, well-run and efficient U.S. commercial shipbuilder.

Figure 4.1.1 summarizes the non-recurring and recurring construction cost estimates for the leadship.

For a multiple ship construction program, an 85% learning curve has been applied to the lead shiplabor hours. However, since the 2nd ship of a series typically does not follow this theoretical rateof cost reduction, the 2nd ship has been given a labor hour learning of 95% of the lead ship. Thecosts for each of the follow ships thereafter have been estimated to follow the 85% learning.

In addition, material costs also have been estimated to follow a learning (discount) of 92%, butmaxing out at a total 20% off the lead ship material costs.

Figure 4.1.2 summarizes total ship costs for multiple ship programs showing estimated levels oflearning (labor) and material savings for each successive ship built.. Non-recurring costs are

allocated equally across each ship of a series. The blue bars indicate the should cost, includingestimated contingency and change orders. The red bars have added the full amount (100%) ofestimated cost risk.

Figure 4.1.3 breaks out the cost risk into the categories described in the description of the costmodels cost risk assessments.

Figure 4.1.4 presents the estimated non-recurring labor hours for shipyard engineering andproduction planning.

Figure 4.1.5 presents the estimated manpower requirements for this build strategy scenario.


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Figure 4.1.2: Large Shipbuilder, All American Technical & Material Purchasing

Estimated Cost Range for Multi-Ship Procurement

$221

$210

$198

$189

$183

$178

$174

$171

$307

$285

$263

$248

$238

$230

$224

$219

$0

$50

$100

$150

$200

$250

$300

$350

1 2 3 4 5 6 7 8

AverageCost

Design&Build

Millions

Number of Ships In Series

Average Cost Per Ship of Series 2012US$

Includes Non-Recurring & Mgmt Fee, If

Applicable


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Estimated Cost Risk

$19

$202

$26

$0

$27$34

$1$-

$50

$100

$150

$200

$250

TOTALS:

Millions

Lead Ship Estimated Price & Cost Risk 2012US$

Non-Recurring Design, Engineering & Planning

Est. Price of Construction

Est.Construction/Technology CER Cost Risk

Est. Overlap Rework Cost Risk

Est. Shipyard Experience Cost Risk

Est. Engineering Performance Cost Risk

Est. Schedule Cost Risk


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Estimated Non-Recurring Costs

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Thousands

Non-Recurring Costs (Does Not Include Overall Management

Fee, If Applicable) 2012US$


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Estimated Manpower Requirements

-

50

100

150

200

250

- 20 40 60 80 100 120

ManpowerRequirements

Weeks from Start of non-Recurring Design, Engineering & Detail ProductionPlanning


Structures

Propulsion

Electrical

Electronics &Navigation

Auxiliary Systems

Outfit & Furnishings

Armament

Technical Support

Shipyard Services

Non-RecurringDesign, Engineering& Planning


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4.1.2 Large Commercial Shipbuilder Using Korean Technical & Material Packages

The non-recurring detailed engineering and production planning is anticipated to be providedmostly by the Korean shipbuilder for a price estimated to be $12-million. The U.S. large yard willcontribute another 95,886 labor hours of non-recurring technical efforts. These shipyardtechnical efforts are necessary to fully integrate the Korean technical package into the operationsand facility capabilities of the shipyard.

For the build scenario involving the Korean technical and material packages, the large yard hasbeen given the following levels of productivity:




No specific improvements are expected for steel work productivity over the all American buildstrategy, but the outfit labor should be less. In particular, the Korean material packages shouldprovide the shipbuilder with pre-fabricated parts (pipe spools, etc.) that eliminates the aspect ofthe shipyards manufacturing costs. It is estimated that these Korean material packages shouldreduce shipyard outfit labor by 10%.

The Korean material packages assumes that a 33% cost savings is available over the cost forequivalent all American direct purchases from normal American vendors and suppliers. However,the more typical cost of freight changes for the shipbuilder has been increased from 5% to 15%.


For a multiple ship construction program, an 85% learning curve has been applied to the lead shiplabor hours. Since the Korean technical package is expected to be well organized to expediteproduction processes, it is assumed that the 2nd ship, like all other follow ships, follows this laborhour cost savings profile.


Figure 4.1.7 summarizes total ship costs for multiple ship programs showing estimated levels oflearning (labor) and material savings for each successive ship built.. Non-recurring costs areallocated equally across each ship of a series. The blue bars indicate the should cost, includingestimated contingency and change orders. The red bars have added the full amount (100%) ofcost risk.

Figure 4.1.8 breaks out the cost risk into the categories described in Section 7.


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Figure 4.1.7: Summary Cost Estimates for Multiple Ship Construction Programs

$203

$187

$176

$169

$163

$158

$155

$151

$2

59

$238

$223

$214

$206

$200

$195

$191

$0

$50

$100

$150

$200

$250

$300

1 2 3 4 5 6 7 8

AverageCost

Design&Build

Millions




Applicable


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Figure 4.1.8: Estimated Non-Recurring, Lead Ship Construction Costs & Cost Risk

$25

$178

$23

$0

$26

$8$1

$-

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

TOTALS:

Millions










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Figure 4.1.9: Estimated Shipyard Non-Recurring Cost Labor Hours

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Thousands




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Figure 4.1.10: Estimated Shipyard Manpower Requirements

-

50

100

150

200

250

- 20 40 60 80 100 120




Structures

Propulsion

Electrical


Auxiliary Systems


Armament

Technical Support

Shipyard Services



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4.2 Engineering & Construction Cost Estimates Commercial Mid-Tiered Yard

The non-recurring detailed engineering and production planning is anticipated to be provided by

an outsourced U.S. design and engineering firm for approximately 216,342 labor hours at anaverage labor rate of $80.74 per hour..

The overall schedule for the shipyard non-recurring engineering and production planning isestimated to be 12 months.

The overall production schedule for the lead ship is estimated to be 18 months, with an overlapwith the non-recurring efforts by three months.

The ship yard labor rates, fully burdened are as follows:

Shipyard Technical $60.99 (2012) Production $50.83 (2012)

A 4% markup (G&A) on material has been applied to the yard estimate and a profit of 10%.

The cost estimates for construction include a 10% added cost for design contingency margin (dueto current early stage of design development) and a typical 2.5% added costs for anticipatedchange orders. These costs have been included in the cost models SWBS 1000 group along withMARAD Title XII fees, ABS fees, insurance and bonding costs.

It has been assumed that no third party program manager overseeing these efforts is required.

This net cost is considered the should cost.

This analysis assumes that this would be a three or five ship procurement program, whereby thereare learning benefits to both labor and material costs described below. The non-recurring design,detail engineering and production planning costs are allocated equally across the three pr fiveships for a one-of-three or one-of-five ship should cost estimate.

The cost model also develops estimates of cost risk as described in Section 7. A more likely capitalcost include some measure of this cost risk added to the should cost. A figure of 20% of the total(100%) estimated cost risk has been applied.

4.2.1 Mid-Tier Shipbuilder Using All American Technical Resources & Material Purchasing

For the all American build scenario, the large yard has been given the following levels ofproductivity:


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Relative outfit productivity 1.20Productivity factors of 1.0 apply to a large, well-run and efficient U.S. commercial shipbuilder.

Figure 4.2.1 summarizes the non-recurring and recurring construction cost estimates for the lead

ship.

For a multiple ship construction program, an 85% learning curve has been applied to the lead shiplabor hours. However, since the 2nd ship of a series typically does not follow this theoretical rateof cost reduction, the 2nd ship has been given a labor hour learning of 95%. The cost for the followships thereafter have been estimated to follow the 85% learning.


Figure 4.2.2 summarizes total ship costs for multiple ship programs showing estimated levels of

learning (labor) and material savings for each successive ship built. Non-recurring costs areallocated equally across each ship of a series. The blue bars indicate the should cost, includingestimated contingency and change orders. The red bars have added the full amount (100%) ofcost risk.





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Figure 4.2.2: Mid Tier Shipbuilder, All American Technical & Material Purchasing


$209

$198

$186

$178

$172

$167

$163

$160

$340

$311

$282

$264

$252

$243

$236

$230

$0

$50

$100

$150

$200

$250

$300

$350

$400

1 2 3 4 5 6 7 8

AverageCost

Design&Build

Millions



Includes Non-Recurring & Mgmt Fee, If Applicable

Includes Total Cost Risk


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Estimated Cost Risk

$22

$188

$25

$0

$49

$58

$1

$-

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

TOTALS:

Millions










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$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Thousands




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-

50

100

150

200

250

300

- 20 40 60 80 100 120




Structures

Propulsion

Electrical


Auxiliary Systems


Armament

Technical Support

Shipyard Services



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4.2.2 Mid-Tier Shipbuilder Using Korean Technical & Material Packages

The non-recurring detailed engineering and production planning is anticipated to be providedmostly by the Korean shipbuilder for a price estimated to be $12-million. The U.S. mid-tiered yardwill contribute another 139,195 labor hours of non-recurring technical efforts. These shipyardtechnical efforts are necessary to fully integrate the Korean technical package into the operationsand facility capabilities of the shipyard.

For the build scenario involving the Korean technical and material packages, the mid-tier yard hasbeen given the following levels of productivity:




No specific improvements are expected for steel work productivity over the all American buildstrategy, but the outfit labor should be less. In particular, the Korean material packages shouldprovide the shipbuilder with pre-fabricated parts (pipe spools, etc.) that eliminates the aspect ofthe shipyards manufacturing costs.

The Korean material packages assumes that a 33% cost savings is available over the cost forequivalent all American direct purchases from normal American vendors and suppliers. However,the more typical cost of freight changes for the shipbuilder has been increased from 5% to 15%.


For a multiple ship construction program, an 85% learning curve has been applied to the lead shiplabor hours. It is assumed that the 2nd ship, like all other follow ships, follows this labor hour costsavings profile.


Figure 4.2.7 summarizes total ship costs for multiple ship programs showing estimated levels of

learning (labor) and material savings for each successive ship built.. Non-recurring costs areallocated equally across each ship of a series. The blue bars indicate the should cost, includingestimated contingency and change orders. The red bars have added the full amount (100%) ofcost risk.



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Figure 4.2.7: Mid Tier Shipbuilder Using Korean Technical & Material Packages


$193

$181

$170

$162

$156

$151

$147

$144

$29

2

$269

$247

$233

$223

$216

$210

$205

$0

$50

$100

$150

$200

$250

$300

$350

1 2 3 4 5 6 7 8

AverageCost

Design&Build

Millions




Applicable


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Figure 4.2.8: Mid Tier Shipbuilder Using Korean Technical & Material PackagesEstimated Cost Risk

$28

$166

$21

$0

$48

$30

$1

$-

$20

$40

$60

$80

$100

$120

$140

$160

$180

TOTALS:

Millions










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$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Thousands




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-

50

100

150

200

250

300

- 20 40 60 80 100 120




Structures

Propulsion

Electrical


Auxiliary Systems


Armament

Technical Support

Shipyard Services



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5.0 Conclusions

There are significant cost savings for the shipbuilder to purchase a production-engineered

technical package from one of the major Korean shipyards, as well as pre-marshaled materialpackages. The Koreans have developed world class engineering and due to their enormousshipbuilding experience are able to purchase material and equipment at prices much lower thanwhat U.S. shipyards are able to do.

It has been estimated that there should be little difference in the ship pricing offered by the largeshipbuilder versus the mid-tiered shipbuilder. While the large yard has the potential for greaterproductivity, the mid-tiered yard is benefited from lower labor rates. The mid-tiered yard,however, should carry a great cost risk2 than for the large yard. However, the cost risk is expectedto be less when the shipbuilder is working with Korean technical and material resources. A muchgreater cost risk is expected when all-USA resources are employed, more risk with the mid-tiered

shipbuilder.

2Section 7 describes the components of cost risk and how each is developed within the cost model.


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6.0 The ESTI-MATE Cost Models

The ESTI-MATEcost model used to estimate the design, engineering and production of the

RORO/Container Carrier permits quick assessments of costs, risk, and design/mission trade-offalternatives. The model provides a range of structural and powering selections to predict weights,costs and various performance characteristics.

Separate models are available for different hull types (Mono-Hulls, Catamarans and Trimarans).In addition, some models focus on particular ship types: tankers, bulk carriers, container ships,patrol boats, cutters, frigates, hydro-graphics vessels, etc.

The cost model substitutes default ship design parameters developed from statistical dataanalyses until actual design data can be determined. In this way, the cost estimate can follow thedesign evolution and can produce quickly cost changes due to design trade off alternatives.

Flexible Hull Structures Modeling

The models allow the designer to define the structural requirements broken down by structuralcomponents: double bottoms, decks, bulkheads, side shell, super structure, equipmentfoundations, etc. Whatever information is not provided is computed automatically by the systemfrom sets of default assumptions and functional relationships.

Besides structural component weights, the designer may select from a list of structural materialsfor each component. The material selections will have influence on lightship weight,manufacturing (labor hours) and material costs.

Flexible Powering Options

The models allow the designer to select from a list of possible powering options, such as directdrive diesels, diesel electric, pods, props or water jets, etc. These options allow the use of multiplepowering selections for both high-speed transit and low speed maneuvering. From the powerselections, the models compute system weights, costs, and fuel load requirements that directlyaffect available design payload.

Automated Cost Adjustments

Material costs are summarized and escalated to a common year value.Material & equipment prices are escalated by commodity. Escalation factors, both historical andpredicted, are obtained from U.S. Government and industry-recognized commercial and foreignsources

1. Application of commodity cost escalation to estimated future year material costs2. Application of shipbuilders productivity factors


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3. Application of interim product size and manufacturing complexity factors4. Impact of cost estimates & production schedules on projected manpower requirements

Labor Pricing & Cost Rates

Labor pricing requires the designer to define labor rates for technical and for production. Allother labor estimates and material costing is provided by the system from internal manufacturingand material cost estimating relationships (CERs).

The generic CERS are based upon a modern mid-size U.S. commercial shipbuilding facility havingthe following general operating characteristics:

a) Current technology CAD and resource planning and management systemsb) Moderate levels of pre-outfitted hull block and module constructionc) N/C plasma plate cuttingd) Automated panel line

e) Large hull block assembly hallf) Automated shot blast and painting facilitiesg) Steel manufacturing capacity of approximately 20,000 MTONs per annum.

The models operate using CERs based on a wide range of cost metrics including weight forstructural components, kW for powering and electric generation, ship volumes, deck areas,physical hull dimensions, crew size and type breakdown, etc. Users of these models have access tothe CERs to modify if necessary and to apply any additional factors that may be appropriate for theship being estimated.

Shipyard Productivity Factors

The cost models use labor and material cost data based upon a cross-industry analysis of costperformance data collected from various sources and specially formulated for a generic U.S.commercial shipyard. Productivity factors may be applied to these generic costs to suit expecteddifferences for the expected type of shipyard, whether commercial or combatant builder.

Productivity factors adjust costs up or down depending on the relative levels of efficiency,shipbuilding facilities, and management capabilities. The higher costs measured from combatantbuilders may be identified with the following:

1. Shipyards that specialize in building combatants generally operate in a much less

competitive environment. As such, they have not had the same incentives to reduce costs,as do shipyards that focus more on commercial work.

2. Contracts for building combatants have more stringent documentation and quality controlrequirements imposed upon production processes. These requirements add considerablecost to the shipbuilding operations.

3. The higher costs for combatant construction may be due, to some degree, to differences inmaterials and complexity of design from what is generally expected for commercial shipdesigns.


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The models have options for specifying various levels of productivity relative to shipbuildingfacilities and to different build strategies, including outsourcing. Productivity benefits can besimulated for exploiting early stage construction methods: pre-fitted hull blocks, zone outfit, andequipment/outfit modules.

Costing & Pricing

The models compute the cost for a lead ship. These costs are broken down into ten (10) costgroups (structures, propulsion system, electrical, etc.). The models develop for each of these costgroups estimated weights, production labor hours, labor costs, material costs, and profit.

Non-recurring detail design and production engineering costs and prices are computed separately.

The cost models also produce estimated average costs for multiple ship construction programsthat may be developed with expected learning factors.

Transport Factor

The models compute an important measure for the ship design being analyzed: the TransportFactor(DWT x Speed/SHP). This factor is a relative measure of high-speed commercial transportefficiency. The greater the payload capacity (deadweight) and speed, the design should beexpected to be more effective in satisfying the basic high-speed commercial transport objectives.However, high shaft horsepower is very expensive and becomes a penalizing factor for thiseconomic measure.

Cost Risk

The models develop cost risk within several focus areas:

1. Cost risk of applied CERs2. Cost risk due to shipbuilders relative inexperience3. Cost risk due to compressed production schedule4. Cost risk of rework due to immature detail engineering when overlapping with

production5. Cost risk due to anticipated performance problems of detail engineering


The cost models automatically generate estimated engineering and shipyard productionmanpower requirements. This is a good cross-check on the defined schedule and the estimatedlabor hours.

Design Trade-Off Studies


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The cost models can generate quickly costs across a wide range of ship design parameters,materials alternatives and propulsion/equipment system options.

Details of the cost models are described in the user manual available for downloading from SPARsweb site:

http://sparusa.com


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7.0 Estimating Cost Risk

Cost risk arises from a wide variety of potential problems:

Inadequate development of new technology

Lack of worker skills Lack of experience with new production facilities Limited sources of materials and specialized expertise Political factors restricting free market pricing or interfering with the most productive

shipbuilding approach Escalating vendor prices Escalating exchange rates of foreign purchased goods and services Ineffective planning, budgeting, scheduling & coordinating Ineffective design and engineering (not oriented towards simplifying production) Inadequate development of technical information suitable for efficient production

performance.

High degree of internal or external design changes & rework Ineffective integration of changes into plans and schedules Ineffective purchasing, material deliveries and material control Ineffective quality controls Ineffective management of plans, costs and schedules Inability of management to solve problems quickly and effectively.

The cost model develops cost risk within several focus areas:

Cost Risk Of Applied Cost Estimating Relationships (CERs) Due To Price, Economic &Technology Uncertainty

Cost Risk Due To Anticipated Performance Problems Of Detail Engineering Cost Risk Due To Shipbuilders Relative Inexperience Cost Risk Due To Compressed Production Schedule Cost Risk Of Rework Due To Immature Detail Engineering When Overlapping With

Production

The cost risk analysis sets the maximum risk value at 100% of the estimated cost at projectcompletion. When expected cost increases rise above 100% of the estimate, it is assumed thatthe project most likely may be cancelled. Other ramifications and legal exercises also may be inorder.

Figure 7.0.1 presents a sample that breaks out cost risk by risk category and compares them to thetotal non-recurring cost and the construction cost for the lead ship.


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Figure 7.01: Sample Breakout of Cost Risk Categories

The following sections describe in more detail how the cost risk categories are developed.

Figure 7.0.2 presents the impact of cost risk to a multiple ship construction program. The added100% total cost risk as presented in this figure to the Should Cost most likely would indicate anunacceptable price. However, oftentimes construction programs do not run as smoothly aspredicted for the Should Cost. An astute shipbuilder would incorporate some measure of riskespecially for a fixed price contractual arrangement. Figure 7.0.3 presents some options forselecting the amount of cost risk. What amount of the total cost risk, of course, will depend on avariety of circumstances and that decision will be largely a subjective one that also includesappropriate considerations of the shipbuilders backlog and expected levels of competition.

SPARs experience has been that 20% - 35% of the total (100%) cost risk often results in what ashipbuilder is more likely to bid. It should be understood that 20% of a small total cost riskresults in a lower price compared to 20% of a large total cost risk.

$28

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$21

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$-

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Millions










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Figure 7.0.2: Impact of Cost Risk on Multiple Ship Construction Programs


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Figure 7.0.3: Impact of Accepting Levels of Cost Risk

7.1 Cost Risk of Applied CERs Due To Price, Economic & Technology Uncertainty

This area of risk focuses primarily on the degree of error that may be resulting in the use of thecost model cost data (CERs). The CERs are based on industry average costs that may not fit thecost performance for the shipbuilder being estimated. Differences between shipbuilders areaccommodated with the use of the shipbuilders productivity factors to the CERs, but there may beother factors that may come into play as the construction program actually gets under way.

The cost model normally assigns a 10% cost risk to the use of its CERs. However, for some CERs,

particularly those for use of exotic materials, new manufacturing processes, etc. the cost risk forthese cost items can be increased by the estimator.

7.2 Cost Risk Due To Anticipated Performance Problems of Detail Engineering

The quality of expected detail engineering is critical for whether or not the shipbuilder can meetcost estimates. Poor quality technical information almost always leads to much greater


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production costs. If production needs to field engineer its work, cost penalties usually result.Poor engineering often means that the technical information is not capable of enabling productionto perform work at the earlier and more productive stages of construction as epitomized by thecost savings from pre-outfitted assemblies and hull blocks.

The cost model allows the estimator to provide a subjective assessment of the expected level ofengineering performance as outlined in Figure 7.2.1. At the bottom of this figure is a netperformance rating. When this rating is applied to the formula presented in Figure 7.2.2, the costmodel can determine the associated cost risk.

Figure 7.2.1: Engineering Cost Risk Assessment Input


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Figure 7.2.2: Formula for Determining Engineering Cost Risk Using Estimated Performance

Rating

7.3 Cost Risk Due To Shipbuilders Relative Inexperience or Lack of Prior

Performance

The shipbuilders relative level of productivity and management of resources is critical for

whether or not the shipbuilder can meet cost and schedule estimates. Poor quality performanceleads to much greater production costs and delays. If the shipbuilder has never had experiencebuilding the ship type complexity being estimated, it may be assumed that the shipbuilderprobably will undergo an expensive learning process.

The cost model allows the estimator to provide a subjective assessment of the expected level ofthe shipbuilders performance as outlined in Figure 7.3.1. At the bottom of this figure is a netperformance rating. When this rating is applied to the formula presented in Figure 7.3.2, the costmodel can determine the associated cost risk.

Shipbuilding Engineering Cost Risk

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- 0.20 0.40 0.60 0.80 1.00

Expected Performance Rating (0 - 1)

PercentTotalLaborCostR

isk


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Figure 7.3.1: Shipbuilder Cost Risk Assessment Input

Figure 7.2.2: Formula for Determining the Shipbuilder Cost Risk Using Estimated

Performance Rating

Shipbuilding Experience Labor Cost Risk

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0%

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- 0.20 0.40 0.60 0.80 1.00

Experience Rating (0 - 1)

PercentTotalLaborCostRisk


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7.4 Cost Risk Due To Compressed Production Schedule

When the construction schedule is severely compressed, there may be a greater likelihood that theshipbuilders costs will increase. Shortening a schedule for a fixed amount of work to build theship translates into the shipbuilder having to enlist a greater amount of manpower and facilities

throughput to finish the work within the specified time table. Excessive manpower may result inhiring less qualified workers whose work caries not only a lower level of quality, but an extra levelof cost.

The cost model simulates stages of excessive manpower and its effects upon cost risk as illustratedin Figure 7.4.1. The greater the size of manpower resources to manage, the greater is the risk thatthe resources will not remain fully productive over the entire course of the production period.Cost risk can increase exponentially as the number of resources to be managed increases. Costrisk can be minimized with outsourcing of major construction blocks and equipment modules andlarge projects can benefit from economies of scale, but usually from the potential of increasedefficiencies from batch manufacturing methods.

With the estimated labor hours developing from the cost model expended over the plannedproduction schedule, the model develops an average estimate of total manpower requirement.For shipbuilding, the cost model assumes that a contract requiring more than 1,000 productionworkers historically have tended to create cost problems to some degree.

Figure 7.4.1: Relating Cost Risk to the Size of the Manpower Requirements

Production Schedule Cost Risk

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- 500 1,000 1,500 2,000 2,500 3,000

Average Men/Month

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ercentScheduleCostRisk


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7.5 Cost Risk of Rework Due To Immature Detail Engineering When Overlapping

With Production

One element of the risk assessment focuses on the amount of design and engineering overlap with the

planned production schedule. While risk assessment is never an exact science, the cost model provides

valuable insight during the pre-planning stages of a construction program.

The cost model develops estimates of cost risk directly from the anticipated planned schedule strategyfor engineering and production. The cost model assumes that the risk of rework is essentially nil when

all engineering can be completed prior to the start of production. It also assumes that maximum rework

will occur when there is a 100% overlap of engineering and production. Too much overlap oftenresults in increased levels of production rework. It also can force production to perform work atless productive stages of construction, hence higher cost.

The cost model uses a maximum percentage potential for rework across each major grouping of the ShipWork Breakdown Structure (SWBS). Figure 7.5.1 illustrates such a breakdown.

Figure 7.5.1: Rework Cost Risk with Degree of Engineering/Production Overlapping Schedules

Rework Cost Risk

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0% 20% 40% 60% 80% 100% 120%Percentage Engineering/Production Schedule Overlap

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stRisk

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costruction cost estimate

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