DELIBERATIVE MEMORANDUM 

TO: Donald Anderson, USEPA 

FROM: Betsy Bicknell and Mark Briggs, ERG 

DATE: April 18, 2011 

SUBJECT: Direct and Indirect Escalation Cost Factors for Developing Budgetary 

Estimates for Waste Management at Seafood Processing Facilities 

As requested in our March 23, 2011 meeting, ERG is providing EPA with a listing of the direct 

and indirect cost factors used to escalate the budgetary cost estimates for seafood processing 

facilities in Alaska. The direct cost escalation factors are for costs such as plumbing and 

electrical work that are added to the cost of purchased equipment to develop an installed 

equipment cost. Indirect costs are for engineering, scheduling, and other costs that are added to 

the installed capital cost to cover the contractor’s overall project costs. 

Direct and Indirect Cost Escalation Factors

To estimate the installed capital cost for seafood waste management systems, ERG used the 

direct and indirect escalation factors shown in Tables 1 and 2 respectively. The factors in Table 1 

were developed from ERG support to U.S. Department of Defense construction programs1 and 

from ERG experience with construction costs for various industrial sectors. The factors in Table 

2 were developed taken mainly from RSMeans Construction Cost data2 supplemented with 

information from U.S. Department of Defense construction programs. The specific references 

and/or sources of the escalation cost factors used to develop capital costs for seafood processing 

waste management systems are included in Tables 1 and 2. 

In general, ERG developed the escalation cost factors for plumbing, electrical, mechanical 

systems, and site preparation from projects related to construction activities at naval industrial 

facilities. These projects require moving liquids and sometimes semi-solids between various 

processing steps, similar to seafood waste management. The escalation cost factors have been 

tested on completed naval construction projects. For example, ERG used these escalation cost 

factors to prepare a conceptual cost estimate for a water treatment facility at a naval steam 

generating plant. ERG estimated the conceptual installed capital costs to be $12.8 million dollars 

for the water treatment facility, and the actual bids received from the construction company hired 

to build the water treatment facility were $12 million. 

 

1

 U.S. Army Corp of Engineers, DD Form 1391 Processor System Reference Guide 

2

 RSMeans Building Construction Cost Data, 68th Annual Edition, 2010. 
The direct cost escalation factors in Table 1 are comparable to the factors presented in RSMeans. 

For example, in RSMeans the total mechanical and electrical cost escalation factor for an 

industrial factory ranges between 21 percent and 35.5 percent. ERG used 33.3 percent (17.5 + 

15.8) for mechanical and electrical systems at the seafood processing waste treatment systems. 

According to RSMeans, the site work cost escalation factor for an industrial factory ranges 

between 6.95 percent and 17.95 percent. ERG used a cost escalation factor of 14 percent for the 

seafood waste management facilities. The plumbing cost escalation factor used by ERG for the 

seafood waste management facilities is outside the RSMeans published range for an industrial 

factory (3.7 percent to 8.1 percent), however ERG believes that because the majority of the 

process equipment associated with the seafood waste management requires plumbing systems 

similar to the Naval facilities, using the plumbing factor that somewhat higher than the RSMeans 

range is appropriate. 

Table 1. Direct Cost Escalation Factors 

Direct Cost Factor Description 

Percent of 

Equipment Cost References 

Plumbing Carbon steel pipe, fittings, valves, 

pipe racks, and installation labor 

13.3 ERG experience 

with similar Naval 

industrial type 

projects 

Mechanical Systems Equipment supports and anchors, 

duct work, HVAC systems, etc. 

and installation labor 

17.5 ERG experience 

with similar Naval 

industrial type 

projects 

Electrical Systems Wire, conduit, load centers, 

switches, starters, etc. and 

installation labor 

15.8 ERG experience 

with similar Naval 

industrial type 

projects 

Instrumentation Programmable logic controllers 

(PLCs), wiring, monitors, data 

loggers, etc, and installation labor 

17.7 ERG experience 

with similar Naval 

industrial type 

projects 

Site Work Moving and relocating existing 

equipment and space/building 

modifications 

14.0 ERG experience 

with similar Naval 

industrial type 

projects 

Seafood Waste Treatment Cost Methodology

In general, ERG obtained costs for seafood waste management equipment (e.g., rotary screens, 

pumps, tanks, etc) from vendors or from published literature, and applied the appropriate direct 

cost escalation factor percentage (e.g., electrical, plumbing, etc) to equipment cost to derive an 

installed capital cost. Not all of the Table 1 factors are applicable to each piece of equipment. For 
example, ERG did not apply the mechanical systems factor to pumps because the pumps will be 

installed in an existing structure with adequate supports and anchors and the pumps do not 

require duct work or HVAC. Similarly, ERG did not apply the instrumentation or site work 

factors because they are not required for pump installation. The example below shows how the 

direct cost escalation factor percentages were applied to the quoted price for a pump to derive an 

installed cost. 

Pump Quoted Price: $10,000 

Pump Plumbing Cost @ 13.3% Escalation = $10,000 x (13.3/100) = $1,330 

Pump Electrical Cost @ 15.8% Escalation = $10,000 x (15.8/100) = $1,580 

Installed Pump Cost: $10,000 + $1,330 + $1,580 = $12,910

ERG applied the individual indirect cost escalation factors shown in Table 2 to the installed 

capital costs to estimate a total indirect cost. The example below shows how indirect costs were 

estimated using the example for the pump. 

Installed Pump Cost: $12,910 

Pump Engineering Cost @ 8% Escalation = $12,910 x (8/100) = $1,032 

Pump Permits Cost @ 2% Escalation = $12,910 x (2/100) = $258 

Pump Scheduling Cost @ 0.8% Escalation = $12,910 x (0.8/100) = $103 

Pump Performance Bond Cost @ 2.5% Escalation = $12,910 x (2.5/100) = $323 

Pump Insurance Cost @ 2.0% Escalation = $12,910 x (2.3/100) = $258 

Pump Contractor Mark-up @ 10% Escalation = $12,910 x (10/100) = $1,291 

Pump Contractor Overhead and Profit @ 10% Escalation = $12,910 = $1,291 

The total indirect cost is the sum of the engineering, permits, scheduling, performance bond, 

insurance, markup, and overhead and totals $4,556. The total installed capital cost for the pump 

is the total of the direct costs and indirect costs and is show below: 

 Total Installed Capital Cost for the Pump: $12,910 + $4,556 = $17,466 

Based on the direct and indirect cost factors used by ERG, the total installed capital cost is 

approximately 1.75 times the purchase price for the actual equipment. 

 
Table 2. Indirect Cost Escalation Factors 

Indirect Cost Factor Description Percentage of Installed 

Equipment Cost 

References

Engineering System design and 

equipment specifications 

including drawings 

8 U.S. Army Corp of 

Engineers DD 1391 

Military 

Construction Forms 

and Instructions 

Permits Building permits, 

environmental permits and 

control plans 

2 RSMeans Building 

Construction Cost 

Data, 68th Annual 

Edition, 2010

Scheduling Project management 

scheduling including 

equipment procurement 

timing 

0.8 RSMeans Building 

Construction Cost 

Data, 68th Annual 

Edition, 2010 

Performance Bonds Security bond issued by 

the contractor to guarantee 

satisfactory completion of 

the project 

2.5 RSMeans Building 

Construction Cost 

Data, 68th Annual 

Edition, 2010 

Insurance Risk, workers 

compensation, equipment 

lien/lease, public liability 

2 RSMeans Building 

Construction Cost 

Data, 68th Annual 

Edition, 2010 

Contractor Markup Handling cost for all goods 

and services 

10 RSMeans Building 

Construction Cost 

Data, 68th Annual 

Edition, 2010 

Contractor Overhead and 

Profit 

Office overhead including 

project management and 

contractor profit for job 

10 RSMeans Building 

Construction Cost 

Data, 68th Annual 

Edition, 2010