Fixed capital estimation—what counts as direct costs? In a fixed-capital estimate for a chemical plant, which of the following is correctly classed as direct costs?

Introduction / Context:
During early project estimates, fixed capital is split into direct and indirect costs. Misclassification distorts contingency, escalations, and accuracy bands. Understanding what belongs in direct costs improves estimating discipline.

Given Data / Assumptions:

• Direct costs are tied to physical plant and installation.
• Indirect costs include engineering, construction management, and contingencies.
• Raw materials are working capital/operating costs, not fixed capital.

Concept / Approach:
Direct costs typically include purchased equipment, equipment installation, piping, instrumentation, electrical, buildings, yard improvements, and service facilities—collectively described as onsite and offsite (inside battery limits and outside battery limits). Contingencies are indirect. Labor costs for operations fall under operating expenses, not fixed capital (although construction labor embedded in installation is captured within the direct line items).

Step-by-Step Solution:

Verification / Alternative check:
CAPEX templates show ISBL/OSBL under direct costs; contingency appears as a separate indirect line.

Why Other Options Are Wrong:

• Contingencies: indirect cost/allowance.
• Labour costs: as a generic term refers to operating labor; not a fixed capital category.
• Raw materials: working capital and OPEX, not CAPEX.

Common Pitfalls:
Double counting construction labor: it is included within installation and erection subitems—avoid listing it twice.

Final Answer:
onsite and offsite costs