Risks in Civil Engineering Projects
Constructors perspective
Risk Analysis In Project Mgt.
This is not a speculative game at all. Our
objective is not to avoid risks but to recognise it
price it and sell it.
Construction Budgeting Decisions
Risks and Uncertainties
Non-availability of detailed designs and drawings Precise ground conditions at site Type of contract arrangement Inflation and price variation Annual change in Govt. budget and policies Construction market conditions Global competition for works in India Industrial relations Adequacy of site investigations
Construction Budgeting Decisions
Risks and Uncertainties
Management Risks Same project, different contractors Materials Discounts, terms of payment, vertical integration Labour productivity skill, workmanship Labour Cost Materials Mgt. Wastage Equipment Mgt. Productivity Constn. Techniques Sequence operations Distortion in bidding - front loading Overheads and profits
Professional Liability
Adequacy of site survey Design errors Misleading estimates Selection of contractors Terms of Contract Management of Contract
CR Policies
General exclusions, period of cover Sum insured, Replacement value Endorsement for Special Risks Cover for Cross liability Maintenance visits cover Cover for extra charges for airfreight Structures earthquake zone Cover for surrounding property Cover for Designers risks
Insurance
Identify potential exporters to Laws Separate pure risks from speculative risks. Consult Insurance Companies before. commencement of work to cover unusual risks. Carefully choose the period of insurance cover. Define site, CV to include price variation. Professional Indemnity policy. Consequential losses, debris removal Legal liability, exclusions, claims etc.
Decennial Guarantee
Scope of cover Damage to structures Damage to non-structural works Debris removal Limit of Indemnity: Limited to value of structures insured on the date of acceptance Exclusions Fraudulent act of policy holder / all the insured Damage due to fire or explosives
Decennial Guarantee
Damage due to settlement by mining operations Damage to third parties Failure to carry out the finishing operations Damage due to faulty maintenance, abnormal usage, normal wear and tear Modifications subsequent to the completion Damage resulting from substandard work mentioned at the time of acceptance Damage occasioned by faulty waterproofing
Risks - Overseas Projects
Risks of projects in Third World countries FIDIC Conditions of Contract Political Stability Volatile currency rates Sanctity of the contract agreement. Registration of Contract Customs Regulations, entry to Ports. Local agents, Local Laws, Local Insurance Co Settlement of claims in local currency Income tax by the host country
Risk Analysis in Project Mgt.
Role of Actuaries
In 1994 the Institution of Civil Engineers (UK) and the British Institute of Actuaries established a joint working partner to produce risk analysis and management process. A handbook RAMP Risk Analysis and Mgt. for project has been produced. Civil Engineers aware of technical risks with limited exposure to non-engineering financial risks. RAMP methodology encourages Civil Engineers to be aware of the business side of projects and to mange a wider variety of risks.
Risk Analysis in Project Mgt.
Role of Actuaries
CIDC initiatives and intervention resulted in a National Conference in Delhi in February 2000. Risk analysis specifically discussed. Bench marks required for most appropriate insurance products.
Item Rate Contracts
Quantity variation at Employers Risk More competitive Quotes Employer responsible for Design and Drawings and their accuracy Detailed monthly measurements and consequent time for certification Risk of extended construction time
Risks in Civil Engineering Contracts Why Contracts?
Risk sharing by Employers, Contractors. Utilise special skills/ resources. Faster completion, less cost. Special equipment, Processes. Different types of Contracts allow flexibility in sharing of Risks. Item rate, Design-Build, Turnkey contr.
Design- Build Contracts
Increased Contractors Risk
More competitive Designs
Construction tuned to the contractors
expertise,equipment, trained manpower
Simplified milestone payments Quick certification of payments Design approval controversies, delays
Turnkey Contracts
Maximum Risk borne by the Contractor
Includes Engineering, Procurement, manufacture,inspection,QA ,Supply erection, testing, commissioning, performance testing.
AS-Built Drawings,operation manuals Maintenance , Manuals.
Final handing over
Project Management Consultancy
Pre-investment studies
Design, Engineering
Tenders, Contracts finalisation
Construction supervision
Contract management
QA, Certification of all Payments
Commissioning, Maintenance
General Conditions of Contract Developed Countries have Standard General
Conditions of Contract, max two or three types for use within the country. India does not have any Such Document There are more than 100 versions of General Conditions of Contract,in use by Central,State Govt Depts, Undertakings, Architects Consultants, and other Employers
General Conditions of Contract Prepared by FIDIC Switzerland
CONDITIONS OF CONTRACT FOR WORKS
OF CIVIL ENGINEERING CONSTRUCTION
Part I General Conditions, with forms of
tender and agreement
Part II Conditions of particular application
with guidelines for
Clauses
preparation of Part II
General Conditions of Contract Prepared by FIDIC
Prepared by the International federation of Consulting Engineers; India is represented by ACE
Document universally accepted , but India
World Bank, Asian Development Bank insist on adoption for India also Suitable for Domestic Contracts also
not by
General Conditions of Contract Prepared by FIDIC
Cl 21 Insurance of Works, Equipment:
Works, together with materials and Plant for
incorporation therein, to the full cost plus 15 % The Contractors equipment and other things brought to site , for a sum provide for replacement sufficient to replacement
General Conditions of Contract Prepared by FIDIC
Insurance of Works Exclusions Cl 21.4
War, hostilities, acts of foreign enemies
Rebellion, Revolution, Insurrection, or Military
or usurped Power, or Civil War
Radioactive toxic explosive, ionizing radiation,
Radioactive Contamination
Pressure waves caused by aircraft
General Conditions of Contract Employers Risks FIDIC
All Exclusions PLUS loss or damage due to use
or occupation by the Employer of any part of
the works,
Loss or damage due to design of the
works,except that of the Contractor
Operation of forces of Nature which an
experienced contractor cannot foresee
Civil Engineering Constructin Risk Factors
The Works, Construction Equipment and Enabling works Contractors liability to own employees Public Liability and cross liability Damage to Employers Property Professional Indemnity Employers personnel at the site Guarantees, Liquidated Damages
Civil Engineering Construction Risk Factors: Works definition
The permanent & temporary works and
materials to be incorporated therein,and
situated at the Contract Site or in transit thereto or there from, or in Stores situated at The Works may, if defined,include or exclude property supplied for installation by someone else
Civil Engineering Construction Risk Factors: Contract Value
Contract Price: Sum stated in the letter of acceptance Contract Value may vary due to Variation in Scope of work Additions/ Deletions Changes in Specification, Design Price Fluctuations/ Variations Delayed handing over of
Site Drawings
Civil Engineering Construction Risk Factors: Contract Period
Contract agreement specifies construction and maintenance periods They also provide for time extensions Liable for delays due to Contractor / Employer / other factors Contract liability continues during such extended periods, even under changed political/ economic regimes