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INTERNATIONAL JOURNAL OF

PROJECT
MANAGEMENT
International Journal of Project Management 24 (2006) 622634
www.elsevier.com/locate/ijproman

Good project governance for proper risk allocation in


publicprivate partnerships in Indonesia
Martinus P. Abednego *, Stephen O. Ogunlana
Construction Management and Engineering, School of Civil Engineering, Asian Institute of Technology, P.O. Box 4, Klong Luang,
Pathumthani 12120, Thailand

Abstract
Parties that are involved in an infrastructure project under publicprivate partnership (PPP) procurement system typically have different perceptions of proper risk allocation. Consequently, disputes may arise between those parties thus reducing the chances for the
projects success. Moreover, PPP projects are generally challenged with both project management problems which require day-to-day
supervision (short-term) as well as partnership problems which require more of a strategic approach (long-term). Consequently, PPP
projects can be considered to have governance concerns because they deal with monitoring and overseeing strategic direction as well
as strategic decision-making.
This research is conducted to discover the perception of proper risk allocation of each party involved and utilises the ndings as the
foundation to develop the concept of good project governance. Accordingly, this concept will perform as a mean to achieve proper risk
allocation in tollway projects that are developed under PPP procurement system which would enhance the projects performance. A case
study research on a tollway project in Indonesia is carried out for this purpose and the preliminary results of the analysis are presented in
this paper.
2006 Elsevier Ltd and IPMA. All rights reserved.
Keywords: Risk allocation; Publicprivate partnership; Project governance; Tollway projects; Indonesia

1. Introduction
In this globalisation era, the private sector has been
playing an active role through involvement in delivering
public services to enhance infrastructure development,
especially in the developing countries. In order to increase
private sector participation, several eorts have been made
by the government ranging from performing an outright
privatisation of previously state-owned industries [1], up
to contracting out of services or cleaning to private rms
and the use of private nance in the provision of social
infrastructure [2,3].
In the rapidly developing economies such as the countries in the East Asia region, concessions as well as build

Corresponding author. Tel.: +66 2 5245531; fax: +66 2 524 6059.


E-mail address: Martinus.Abednego@ait.ac.th (M.P. Abednego).

0263-7863/$30.00 2006 Elsevier Ltd and IPMA. All rights reserved.


doi:10.1016/j.ijproman.2006.07.010

and operate agreements for large-scale infrastructure networks (i.e. tollways) have been the main interest [4]. As
such, publicprivate partnership (PPP) is becoming inevitable. Additionally, such relationship also oers a long-term
sustainable approach to improving social infrastructure,
enhancing the value of public assets and making a better
use of taxpayers money [4]. Compared to other developing
countries, countries in the East Asia region have experienced more success in attracting private investment in
infrastructure. In the total investment made for infrastructure projects between 1994 and 1999 in East Asia, 27% of
the investments were in Indonesia the second highest in
the region [5].
In Indonesia, the private sector has been allowed to
invest in toll road projects through build, operate and
transfer (BOT) scheme since the early 1990s and the expansion of private participation in infrastructure has made signicant progress since then. The study conducted by the

M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634

World Bank also found that between 1994 and 1999 the
total private investment in Indonesian infrastructure was
more than US$20 billion in which the transport sector
led in terms of number of projects with 20 infrastructure
projects (13 toll road projects and 7 seaport projects) with
private participation. However, from 1978 to 1997 Indonesia managed to construct only a total of 570 km of toll
roads, which is about 30 km/year.
Since Indonesia is increasingly recognising the need to
attract private investment for its toll road development
and to establish constructive partnerships between the private and public (government) sector, it is necessary to discover the perception of proper risk allocation of each
parties involved. A common understanding of these two
sectors in terms of proper risk allocation will lay a foundation to formulate unbiased and non-discriminative regulatory policies. These regulatory policies will sustain their
long-term partnership, thus increasing the chance to
achieve a more successful and fruitful partnership which
consequently increases project performance. The theoretical relationship used in this research can be summarised
in Fig. 1.
Following the theoretical framework in Fig. 1 the
research is conducted to investigate the dierent perceptions of proper risk allocation in tollway projects under
PPP procurement system. In eect, the study utilises this
knowledge to develop good project governance concept
as a guideline for proper risk allocation in PPP projects.
For this purpose, the 2nd Stage Cipularang (Cikampek
PurwakartaPadalarang) tollway project is selected as a
case study on risk allocation in tollway projects in
Indonesia.
Based on the preliminary results of the case study
research, this paper provides an insight into the owners
perspective on proper risk allocation. In particular, the
paper will attempt to:
 Discover the owners perception on proper risk allocation and project success.
 Develop the basic concept of good project governance
for tollway projects under PPP procurement system.
 Investigate and analyse their risk allocation strategy.
 Analyse the inuence of the applied risk allocation
arrangements on the project performance.

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by PT. Jasa Marga, and the private sector who is represented by the contractors and the end-users of the tollway.
A questionnaire was distributed to the end-users of the
tollway to understand the perception of success from the
view point of user. The survey analysed the perception of
success for the tollway project in terms of its serviceability,
functionality and safety. The rst factor assessed whether
the tollway has been able to provide the required service
for the end-users, the second factor assessed whether the
tollway has been able to function as intended and the third
factor assessed the safety measures within the tollway.
However, this paper will only discuss the owners perspective. To achieve this goal, multiple sources of evidences
are used, such as newspapers, articles, journals, project
documents, etc. The evidences are also supported by interviews with key decision makers in PT. Jasa Marga.
2.1. Interview sessions
The interview questions were developed in an open-end
format with a specic rationale which performs a guide to
keep the answer within the intended purpose. However, the
questioner provided freedom for the respondent to express
their opinion in each question. These questions were then
distributed and reviewed by professional practitioners
and academicians prior to its use. The questions are classied into four main sections with the following objectives:
 First section: To get an overview and general information of the project owner.
 Second section: To explore the owners perception on
project risks as well as their risk allocation strategies.
 Third section: To investigate the owners perception on
project success.
 Fourth section: To discover whether the project risks
have really been allocated properly to establish good
project governance and how such governance would
produce better projects performance.
Through the analysis of the information gathered, the
factors relating to good project governance in this type of
project are determined and are analysed how they can
improve the performance in a project this nature.
3. Case study background

2. Data collection methodologies and analysis


The key participant in this case study is the government
as the owner of the project, who in this case is represented

Good project
gove rnance

Proper risk allocation

Better project
performance

Fig. 1. Theoretical relationship of the research.

The JakartaBandung corridor had been recognised to


have a high trac volume for many years. Although there
are several alternative routes connecting these two cities,
they were still unable to cope with the increasing trac volume between the cities. In particular, the route through
Purwakarta experienced an increasing trac volume of
79% per year in three years [6]. The trac increase in this
particular area, which was mostly due to the vast development of the industrial sector around the East Jakarta
region and the economic development along the corridor,
prompted the Indonesian government to develop a high

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M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634

standard primary road to increase transportation


eciency.
To further support this national plan, the Indonesian
government appointed PT. Citra Ganesha Marga Nusantara (CGMN) in 1994, a local private company, as the main
investor and executor of the second stage Cipularang Tollway project. A concession was then created between
CGMN and Trafalgar House Construction (British investor) along with PT. Jasa Marga who owns a small share
in the concession and several other small local investors.
CGMN was the leader of the consortium and received
licensed agreement to nance, construct and operate this
tollway project, while Trafalgar provided additional nancial support as well as construction technology.
However, due to the nancial crisis in 1997, this project
along with several other government projects was re-evaluated. Since there was no signicant progress made by the
joint-venture, the project was then suspended and resulted
in the termination of the joint-venture and CGMN as the
investor. In 2000, a Presidential Decree No. 64/2000 was
issued by the Indonesian government to conrm the continuation of the project and appointment of PT. Jasa
Marga as the main developer.
This second stage Cipularang Tollway with a total
length of 41 km connects the Padalarang-Bypass tollway
with the JakartaCikampek tollway (Fig. 2), making it
the longest tollway network in Indonesia [7]. It was previously divided into four work packages with an average
length of 8.512 km for each package.
However, since Indonesia will be hosting the 50th Asia
Africa Conference in Bandung, Megawati Soekarnoputri,
who was the Indonesian President at the time, had
requested PT. Jasa Marga through the Indonesian Ministry
of Public Works to accelerate the construction of the pro-

ject. To meet the demand, the project was then divided into
nine packages (sections), namely North PurwakartaSouth
Purwakarta (Section 1), South Purwakarta (Section 2),
Plered-Darangdan + Ciujung Bridge (Section 3.1),
DarangdanCikalong Wetan (Section 3.2), Cisomang
Bridge (Section 3.3), Cikalong WetanCikubang (Section
4.1), Cikubang Bridge (Section 4.2), CikubangCipada + Cipada Bridge (Section 4.3) and CipadaCikamuning (Section 5).
Nine local contractors were selected through a tendering
process and nine project managers from PT. Jasa Marga
were selected to lead each of these sections. The entire process was coordinated by a project director. Consultants and
several professional experts were also hired to conduct
supervisory and construction management works as well
as technical advices. Fig. 3 illustrates the organisational
structure during the construction phase of the project.
There were quite a few problems discovered during the
construction of this project and they can be classied into
two categories:
 Problems experienced during construction of the project.
 Problems caused by the project itself.
The problems that were experienced during the construction phase of the project are mostly caused by the geographic conditions (i.e. unstable soil condition) of the
project which forced PT. Jasa Marga to redesign the structure during the construction stage, thus aecting the project schedule. Moreover, the weather condition also
played a signicant part in causing delays during the construction of the project.
Unfortunately, the project also became a source of
problems. Its existence caused an increase in the overall
trac volume in the JakartaBandung corridor. Consequently, the city of Bandung experienced serious trac
problems because it does not have good road network. This
condition is also worsened by the fact that the vehicle
growth in this city had exceeded the infrastructure growth

Project Director
Professional
Experts

CM
Consultants

Project M anagers

Field CM

Supervisory
Consultants
Contractors
(General Superintendent)

Suppliers

Fig. 2. Map of Cipularang tollway.

Sub-Contractors

Fig. 3. Organisational structure of the project.

M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634

while there was no proper city and infrastructure planning


by the local government [8]. Although the local governments have started to solve these problems through various
eorts, such as expanding the existing roads, constructing
yovers/underpasses as well as planning the development
of monorails and performing better management and
proper control on land-use in Bandung, the problems could
have been avoided or minimised if they had started these
activities as soon as they became aware of the central governments plan to develop the Cipularang tollway.
4. Analysis and ndings
As mentioned previously proper risk allocation can be
achieved through good project governance. It may enhance
the performance of a tollway project under PPP procurement system. Therefore, this section will present the ndings as well as the results on the analysis of three major
aspects, namely good project governance, proper risk allocation and better project performance. First, the section
will proceed to a theoretical discussion on good project
governance. Second, following the theoretical discussion
a framework for proper risk allocation is established to
analyse the second stage Cipularang Tollway project developed under PPP arrangement in Indonesia. Third, better
project performance is discussed using the same case study.
4.1. Good project governance
The following section presents a theoretical discussion
on good project governance.
4.1.1. Background theory
A logical framework method (LFM) was proposed by
Baccarini [9] to provide a detailed framework for dening
and understanding of project success. According to this
method, there are two components of project success: project management success and product success. However,
since most of the existing project management literature
have confusingly intertwined these components by presenting them as a single homogeneous group, it is important to articulate and dierentiate these two dierent
concepts.
Baccarini elaborated further that project management
success has three main components:
 Meeting time, cost and quality objectives.
 Quality of the project management process.
 Satisfying project stakeholders needs with respect to the
project management process.
Moreover, product success also has three main components, viz;
 Meeting the project owners strategic organisational
objectives.
 Satisfaction of users needs.

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 Satisfaction of stakeholders needs where they relate to


the product.
By comparing the above theories with what have been
encountered in this project, it was discovered that even
though the project can be considered to be completed
within the required schedule as well as within the estimated
project cost, the quality of the project management process
is below par. This condition was veried by the fact that
quite a few risks, such as unpredicted project site condition,
contractors failure and questionable construction quality,
occurred during the construction period. The consequences
of occurrences of these risks could have been prevented or
minimised if the project owner had carried out a proper
and more detailed feasibility study which would have provided them with necessary information in sucient detail
to produce a more accurate project estimate and proper
project planning.
However, this circumstance is not entirely due to the
owners lack of management and decision-making ability.
The Indonesian central government should have oered
more support by providing relevant information on how
the project is associated with the national infrastructure
development plan. The governments assistance would
have also been beneted to project for better coordination
between government agencies/departments so that the government may assist the project owner to properly plan and
determine the most suitable risk allocation strategy. However, due to absence of supports from the government the
project owner failed to make the right decision in terms
of risk allocation strategy.
On the other hand, the product of the project can be
considered to be successful so far, due to the opening of
new opportunities and market impact. Ever since the tollway was still under construction and until its current operation phase, it has managed to generate employment
opportunities for the local communities surrounding the
tollway. It has also provided opportunities for those communities to develop various kinds of businesses, such as
restaurants, accommodation services, transportation services, etc, which contribute signicantly towards local economic growth. However, since the users satisfaction on the
tollway is still being assessed, denite conclusion on the
projects product success or otherwise cannot be reached.
Moreover, since the project is a public infrastructure
project developed under a PPP procurement system, it
has short-term as well as long-term purposes. On the
short-term, the project is generally faced with challenges
such as stakeholder management to ensure smooth ow
of construction work, client satisfaction, organisational
issues, etc. In other words, it is considered as management
concerns because it deals with tactical issues that relates to
day-to-day operations.
In contrast, the project is also confronted by strategic
issues which may inuence its performance in the longterm. Ideally, the ability to balance the stakeholders objectives in the form of proper risk allocation is an imperative.

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M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634

However, often times it is faced by a dilemma regarding


who is given and who should have been given the advantage
in terms of risk allocation arrangements. Based on these
facts, it is clear that the project also has governance concerns, because it deals with monitoring and overseeing strategic direction as well as strategic decision-making [10], in
addition to project management problems.
How can the application of these two dierent
approaches (management and strategic/governance) work
together to inuence the performance of a project? A
research done by Walker and Chau [11] provides an example of two dierent approaches to produce more benecial
results. Based on the research and the results of the case
study analysis, it was discovered that there is a need to
combine these two dierent approaches since the combination has the ability to enhance projects performance.
Although it has been acknowledged that proper risk
allocation is one of the key success factors to achieve better
project performance while it has also been discovered that
there are two major components that can be utilised to
assess project success, there is still a missing variable in
between them. The two major components (project management and product) can only be utilised to assess the
short-term success of a project that can be achieved
through management approach. Since this kind of project
also has long-term issues which require a strategic

approach, there is a need to develop a concept which can


be utilised as a strategic approach to help the project succeed in the long-term. Thus, there is necessity for the development of a good project governance concept. The
integration of these two approaches is expected to enhance
the performance of this kind of project because they complement each other. Fig. 4 provides an illustration on the
relationship between the management approach and strategic approach.
4.1.2. Concept development
The United Nations Economic and Social Commission
for Asia and the Pacic (UN-ESCAP) dene governance
as the process of decision-making and the process by which
decisions are implemented (or not implemented). Moreover, corporate governance can be dened as a companys
eort to balance between the economic and social goals
of the company as well as between the individual and collective goals of the companys stakeholders [12]. An analysis of governance focuses on the formal and informal
parties that are involved in the decision-making process
as well as its implementation, and it can be used in various
contexts such as corporate governance, international governance, national governance, including project governance.
According to UN-ESCAP, there are eight main characteristics of good governance:

WHO

WHAT

Proper
Risk
Allocation

WHEN

HOW

Good Project
Governance
(Strategic
Approach)

Project
Performance

Long-term
Success

Project
Management
Success

Management
Approach

Product
Success

To determine whether the project had allocated


the risk properly
To evaluate whether the project had consider
long-term planning or just short-term planning

Sustainable Partnership in PPP procurement system

Fig. 4. Inclusion of good project governance (strategic approach) to enhance project performance.

M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634

1. Participation, by all involved parties. Participation needs


to be informed and organized.
2. Rule of law, which means fair legal frameworks are
required to be enforced impartially.
3. Transparency, which means that all decisions and their
implementation must always abide by the rules and regulations. It also means that information must be freely
available and directly accessible to those who will be
aected by the decisions.
4. Responsiveness, which requires all of the stakeholders to
be provided with a reasonable timeframe.
5. Consensus oriented, which means it requires mediation
of the dierent interests in the society to understand
what is the best interest for the whole community and
how it can be achieved.
6. Equity and inclusiveness, which means all parties are
equal and have the same opportunities to improve or
maintain their well being.
7. Eectiveness and eciency, which means that it has the
ability to produce results that meet the needs of the society while still making the best use of available resources.
Moreover, it also covers the sustainable use of natural
resources and environment protection.
8. Accountability, which means that all parties are accountable to those who will be aected by its decisions or
actions and must be enforced through transparency
and rule of law.
Based on this philosophy, a good project governance concept is developed to evaluate the performance of this project, especially in strategic issues. Such evaluation is
necessary to assess the projects overall success in addition
to evaluating the project management process and product
success as mentioned previously. Fig. 5 illustrates the relationship theory between proper risk allocation and project
success.
This good project governance concept has the following
characteristics:

1. Right decision at the right time, which is a form of active


participation.
2. Contract fairness.
3. Information transparency, especially between the government and private sector.
4. Responsive, concrete action/implementation within a
reasonable time framework from any decisions made.
5. Continuous project control and monitoring, in order to
achieve the common goal and satisfying all interests.
6. Equality, between all involved parties, especially
between the government and the private sector to create
true partnerships.
7. Eectiveness and eciency.
8. Accountability, in the form of users satisfaction and
public community participation.
This concept of good project governance is then utilised
to assess the case studys risk allocation arrangements as
well as its overall performance.
4.2. Proper risk allocation
Following the above theoretical discussion this section
looks into proper risk allocation in the second stage Cipularang tollway in Indonesia.
4.2.1. Project risks
According to the previous research done by Nur Wulan
[13], the risks that may occur in a tollway project in Indonesia can be classied into the following categories:
1. Political risks, such as discontinuation of concession, tax
increase, inappropriate tari implementation, inappropriate tari increase, new government policy enforcement, etc.
2. Construction risks, such as inappropriate design, land
acquisition, project delay, project site condition, contractors failure, etc.

WHO

WHAT

Proper
Risk
Allocation

WHEN

HOW
Management issues
Efficient & Effective
Project Risk Management

Achievement of project
goals and objectives

627

Project M anagement
Success

Product Success

Good Project
Governance
Strategic issues

Fig. 5. Eects of proper risk allocation on project success.

PROJECT
SUCCESS

M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634

4.2.2. Capability and willingness to accept project risks


In terms of capabilities, PT. Jasa Marga has a higher
advantage on experience and human resources, especially
its managerial capabilities, compared to other tollway
enterprises. This is due to the fact that they provide continuous training for their employees, which benets both the
company and the employee itself. For the employees, it
enables them to learn dierent things and gain invaluable
experiences. As for the company, it performs as an inhouse scouting system to monitor and evaluate the
strengths as well as the weaknesses of each of their employees, which would provide long term benets for the

Loan Repayment

Project
Owner

Government
Warranty
Financial
Guarantee

Financial
Institution
(Bank)

Letter of
Comfort

Contractor

Payment

Project

Supplier

Sub
Contractor

Fig. 6. Contractors pre-nance (CPF) scheme.

Loan Approval

Owners Approval

In this case study, there are several risks considered by


the owner to have a signicant impact on project success.
Limited capital is one of the risks considered as the main
concern in this project. As soon as PT. Jasa Marga was
appointed by the Indonesian Ministry of Public Works to
continue this project, they immediately encountered nancial challenge. Due to the high constraint on the construction time and their limited liquidity, PT. Jasa Marga was
forced to design a nancial strategy that would ensure
nancial security for the project as well as maintaining a
healthy condition on the companys cash ow.
A Contractors Pre-Finance (CPF) system was then
developed as a mean to nance the project. In this system,
several local banks (government and private) agreed to
make a commitment with PT. Jasa Marga to nance the
project by providing loan for all of the nine contractors
selected to construct the project. In addition to that, these
banks also agreed to apply a xed interest rate for the
whole loan and payback period. They were willing to provide such demanding commitment because of the guarantee
from PT. Jasa Marga, on behalf of the Indonesian government, that they will get their money back no matter what
happens with the project. The agreement was then formulated in a form of Letter of Comfort which is then used
by the contractors to request for a loan from these banks.
The CPF system applied in this project is considered to
be a privately nanced system since the contractors who
would like to be involved in this project must be willing
to pre-nance the project. Although the government made
prior agreements with the nancial institutions (public and
private) to provide loan for the qualied and appointed
contractors the government is still responsible for repaying
the debt made by the contractors to construct the project.
The dierence between the CPF system with the other
nancial strategies, such as the conventional project nancing or BOT, is that in the CPF system the project owner
does not need to look for an investor to nance the project
and they are not in debt to the banks who provide the loans
during the construction phase since the contractors borrowed the money directly from the bank. Also, these debts
will only be acknowledged by the project owner after the
project is completed and handed over to the owner. As long
as it is still in the construction phase, the contractor is fully
responsible for the loan debt to the bank. After the project

is completed, the project owner has the responsibility to


repay the loans made by the contractors to the bank within
a certain period that has been agreed previously by the
owner and the banks. Fig. 6 illustrates the CPF nancing
strategies of the project.
Additionally, other risks are mostly due to inaccurate
project estimation and improper project planning. For an
example, the actual amount of soil required to move for
the cut and ll work was much greater than what was estimated. As a result, additional resources were required to
solve these problems. Adding to the complexity was that
the project completion target date could not be changed
and this increased the project cost. These ndings gave
clear evidences that there were miscommunications
between the government and private sector, and some
information was also not properly distributed during the
initiation and construction stage of the project, aecting
the eectiveness and eciency of the project. The success
of the project depended on good communication and
proper information dissemination between the parties
involved.

Loan Request

3. Operation and maintenance risks, such as tollway network condition, operators incompetence, construction
quality, etc.
4. Legal and contractual risks, such as concession time warranty, awed/inconsistent contract document, etc.
5. Income risks, such as inaccurate trac volume estimate,
inaccurate tollway tari estimate, construction of a competing alternative road, etc.
6. Financial risks, such as ination, devaluation, interest
rate, changes in monetary policies, limited capital, etc.
7. Force major, such as weather condition, war, natural
disasters, etc.

Income

628

M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634

company because it enables them to put the right person on


the right place and doing the right work.
Due to the companys reputation as an experienced and
procient tollway developer and operator, and also its status as a state-owned enterprise, the nancial institutions
had no diculties trusting them and making a demanding
commitment. This condition became the nancial strength
for PT. Jasa Marga, thus increasing its nancial capabilities. Therefore, PT. Jasa Marga is considered to have the
required capabilities and is more than willing to accept project risks and will do their best to prevent or minimise the
consequences as long as the project is considered to be
nancially benecial.
4.2.3. Risk allocation strategy
According to Ward et al. [14], Edwards [15], and Flanagan and Norman [16], several conditions must be satised
to determine whether project risks have been properly allocated or not. These conditions are:
 Risk should be allocated to the party with the best capability to control the events that might trigger its
occurrence.
 Risks must be properly identied, understood and evaluated by all parties.
 A party must have the technical/managerial capability
to manage the risks.
 A party must have the nancial ability to sustain the
consequences of the risk or to prevent the risk from
occurring.
 A party must be willing to accept the risk.
However, these conditions are basically criteria that
must be evaluated against each party before allocating a
project risk to a particular party. In other words, it only
helps to determine where the risk should be allocated. On
the other hand, risk allocation strategy is more than just
deciding which party should accept the risk. It should go
beyond that. Proper risk allocation should also be able to
acknowledge the most appropriate time to allocate the risk
and provide an alternative solution. Therefore, besides just
determining which party (who) has the best capabilities to
accept the risk (what), the when and how factors should also
be considered to ensure proper risk allocation (Fig. 7).
Based on this perception, a risk allocation table is formed
using those four main factors to assess the actual risk allocation strategy performed by the owner of this project as
well as providing the possible alternative risk allocation
strategy (Table 1).
Results from the risk allocation strategy assessment veried several issues. First, it provides evidence of the owners actual capabilities to accept and control certain types
of risks. However, most of the time those risks were allocated to another party. For example, the delay in the project construction initiation was actually caused by the
inadequate results produced from the feasibility study as
well as lack of information from the owner regarding the

WHAT

629

WHO
Willingness &
ability of a party
to accept risks

Risks to be
allocated

Proper
Risk
Allocation
Best strategy to
prevent/minimize
consequences

HOW

The right time


to allocate the
risk

WHEN

Fig. 7. Concept of proper risk allocation.

projects preparedness. This condition could have been prevented if the project owner performs better planning and
applies information transparency during the project preparation stage. Instead, several modications in the construction methods were carried out and adjustments were made
during the construction stage, thus shifting the risk from
the project owner, who actually has the best capability to
control the risk in the rst place, to the contractor. Moreover, the implemented risk allocation strategy dealt with
the consequences of the risk by problem-solving approach
during the construction stage instead by preventive
approach during the preparation stage.
Another example concerns contractors incompetence.
The inability of a contractor to perform their share of duty
and responsibility in this particular project caused the
owner to select and assign an additional contractor to assist
contractors who under-performed. Again, the owner failed
to notice that this could have been prevented if they had
developed and implemented a better system for selecting
contractors as well as committing more time for the selection process to get the most qualied contractors.
However, all of the implemented risk allocation strategies were not inappropriate. Since the owner acknowledged
the time limitation to complete the project and to prevent
or minimise the possibility of project delay due to the
unavailability of primary/main construction materials,
they developed a strategy during the preparation stage by
forming a special agreement with the suppliers of these
materials. The application of the CPF system can be considered as the best risk allocation strategy in this project.
The consequences of limited capital for the project were
overcome by developing a system which transfers the
responsibility to nance the project from the owner to
the contractors. The cash-ow and liquidity problems that
could have been experienced by the owner during the construction stage were also prevented by the system because

630

Table 1
Owners risk allocation strategy in the second stage Cipularang tollway project
Actual

Risk (What)

Suggestion

When

Who

Category

Detail

Consequences

Who

When

How

Application of value
engineering

Construction stage

Contractors

Construction
risks

Use of
preliminary
design to
develop the
detail design in
design-andbuild system

Additional design
work

Project owner
and design
consultants

Preparation
stage

Improve
coordination
between consultants
and owner
Multiple design
inspection and
evaluation
Provide sucient
time allocation for
project design
Conduct a more
thorough and
detailed feasibility
study
Application of value
engineering

Project owner

Preparation
stage

Provide better
information
regarding project
preparedness

Practice longer
working hours
Practice 7 days/week
working days

Additional design
and construction
cost
Construction failure
Increased operation
and maintenance
cost

Project completion
delay
Management of
constructions
primary/main
material
(reinforced steel
and concrete
girder)
On-site construction
method
improvization

Preparation stage

Project owner and


contractors

Construction
risks

Delayed project
construction
initiation

Construction stage

Changes in project
planning

Practice longer
working hours

On-site construction
method
improvization
Practice longer
working hours
Practice 7 days/week
working days

Conduct a more
thorough and
detailed feasibility
study
Provide sucient
time allocation for
project planning
Provide more
accurate project
estimation

Changes in
construction
methods
Project completion
delay

Practice 7 days/week
working days
Application of value
engineering

Increase project cost

Construction stage

Contractors

Construction
risks

Unpredicted
project site
condition

Increase project cost

Additional
construction work
Changes in
construction
methods
Design modication

Project owner

Preparation
stage

Conduct a more
thorough and
detailed feasibility
study
Provide more
accurate project
estimation

M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634

How

Construction stage

Project owner and


contractors

Construction
risks

Contractors
failure

Increase project cost


Time wasted to
search for additional
contractor and
selection process
Structural failure
Increase probability
of quality problems

Project owner

Preparation
stage

Improve the system


and process of
selecting a
contractor

Additional/extra
maintenance work

One year maintenance


period

Contractors

Operation and
maintenance
risks

Construction
quality

Increase
maintenance cost
Reduce income/
prot

Project owner

Preparation
stage

Consultants

Construction
stage

Provide sucient
time allocation for
project design
Provide sucient
time allocation for
project planning
Proper project
control and
monitoring

Modify trac
management
within the city
Construction of an
overpass

Claim submission

Operation stage

Regional government of
Bandung

Operation and
maintenance
risks

Insucient road
network

Trac jam in the


city of Bandung

Regional
government of
Bandung

Preparation
stage

Better coordination
with the central
government
Complement the
regional
infrastructure
development plan
with the national
plan

contractors

Legal and
contractual risks

Inconsistent
contract
document

Disputes between
parties

Project owner

Preparation
stage

Development of a
more balanced and
undiscriminating
contract document
Transparency during
the discussion of
contract document

Contractors and
nancial
institutions

Preparation
stage

Application of
contractor prenance (CPF system
as a nancial
strategy]
(continued on next page)

Construction stage

Construction stage and


operation and
maintenance stage

Payment delay for


contractors
Project completion
delay
Increase project cost
Application of
contractor prenance (CPF
system as a
nancial strategy]

Preparation stage

Contractors and
nancial institutions

Financial risks

Limited capital

Project cancellation
Project completion
delay
Cash-ow and
liquidity problems

M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634

Assign additional
contractor to
assist the
contractors with
poor performance

631

Increase project cost

Changes in
construction
methods
Additional
construction work
Structure failure

Provide better
information
regarding project
preparedness
Improve
coordination
between project
owner and
contractors

the loan was made directly by the nancial institutions to


the contractors. Contractors were paid based on their work
progress achievement, and these loan debts would only be
acknowledged and eventually paid-back by the owner after
the project is completed and handed over to the owner.
Furthermore, the advantages obtained through the application of CPF scheme are identied as follows:

Increase probability
of quality problems

How

Project owner
Project completion
delay

Weather
condition due to
delay in project
construction
initiation

Preparation
stage

Who
Consequences
Detail

 It does not burden the project owners cash ow for the


whole construction phase.
 The loan debt made by the contractor will only be
acknowledged by the project owner upon project
completion.
 Financial guarantee from nancial institutions in terms
of interest rate.
 All project costs and expenses are very well controlled
and monitored.
 Reduce the probability of projects cost misuse by the
contractor.
 Reduce
time
required
to
process
payment
administration.
 Provide nancial guarantee for contractors, thus
increasing productivity.
 The loan interest will be calculated as soon as the project
begins, thus beneting the nancial institution.
 Provide more time for project owner to plan and
develop loan repayment strategy towards nancial
institutions.

On-site construction
method
improvization

Based on the assessment of the acquired information, it


can be conrmed that even though the project owner has in
this case the best capabilities to accept and control the
risks, they failed to notice this condition most of the time,
thus resulting in an improper risk allocation time (when)
and target (who). Such action would then also inuence
the type of risk allocation strategy that will be implemented
(how), hence resulting in some form of chain reaction to
acknowledge a proper risk control. Inadequacy to control
a risk properly becomes visible if one or more of the following occurs:

Practice 7 days/week
working days

Category

Force majeure
risks

Who

Construction stage
Practice longer
working hours

Contractors

When
How

Risk (What)
Table 1 (continued)

Actual

When

M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634

Suggestion

632

 Inability to make the right decision at the right time.


 Discriminative contract document which tends to provide more advantage to the project owner.
 Misinformation.
 Inability to provide the proper response.
 Improper project planning and control.
 Hierarchical relationship between the public and private
sector instead of partnership.
 Ineectiveness and ineciency during construction and
operation stage.
 Unsatised users.
Since most of the above circumstances occurred in this
project due to improper risk allocation, it can be concluded
that this project had not achieved good project governance.
Moreover, good project governance must be achieved to

M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634

633

In the following section, better project performance is


discussed using the case study on second stage Cipularang
tollway in Indonesia.

ful implementation of the system, it must also be supported


by compelling managerial capabilities of human resources.
Moreover, continuous control over the construction process as well as the project management process also plays
an essential part in determining project success. Continuous monitoring of the work progress in the project, proper
control on all resources required for the project and maintaining a constructive interaction within the project will
provide contribution to achieve a successful tollway
project.

4.3.1. Project success


Financial achievements in terms of prot is considered
by PT. Jasa Marga as one of the most important elements
in determining the projects level of success due to its
change of status from being a government agent to a business oriented enterprise. The other components considered
to have the same level of importance are project quality
achievement and on-time project completion. However, it
was discovered that there are other factors that have played
a signicant part in determining the success of this project.
According to PT. Jasa Marga, a tollway project can be
considered to be successful if it is functioning according
to its planned purpose of providing service to end-users satisfactorily. Nevertheless, the success of a project cannot be
valued only by its nal product since there are several other
factors that need to be considered during the preparation
as well as construction stages of the project.
During the preparation stage, it is necessary for PT. Jasa
Marga to receive support from the Indonesian central government which could be in the form of government policy,
government warranty or provision of information regarding the national infrastructure network development plan.
These kinds of supports would enable them to produce a
more accurate project estimate and prepare a more proper
project plan. Consequently, proper project estimates and
plannings are also considered to be signicant in determining the success of this project. Furthermore, good coordination between the parties involved in the project is also
essential to ensure an eective and ecient project development process, which can be achieved if all stakeholders
have a sense of trust.
Another valuable component for ensuring project success is to have a proper system for selection of the most
capable contractor for constructing the project. The term
capable does not only mean having technical expertise
and possessing sucient nancial strength, but also possess
a sense of professionalism which was actually lacking in
this project. This lack of professionalism inuenced the eciency and eectiveness of the particular contractor, thus
aecting project performance. As mentioned previously,
information dissemination and communication system also
played an essential part along with the project development
process. Since it is important to distribute the information
to the right party at the right time, it is necessary for the
project to have a suitable communication system to accomplish this objective. However, in order to achieve a success-

4.3.2. Project eciency


During the construction phase, value engineering was
actively practiced by PT. Jasa Marga through construction
design simplication and the application of new and innovative construction technology. Such application is
expected to increase the projects eciency without reducing its product quality level, thus able to function as its
intended purpose. In addition to that, the projects eciency level was also maintained by balancing the required
design change within the available budget.
However, it was also discovered that the eciency level
in this project did not reach the expectation. One major
reason is because there was no distinct dierence in terms
of obligation and responsibility between the supervisory
consultants and construction management consultants,
thus more often than not; these two dierent consultants
performed the same scope of work. One way to improve
is to upgrade the specications and requirements that are
used for selection of the consultants, experts as well as
contractors.
Another issue that causes ineciency in this project is
the insucient time for design development and project
planning. As a result of the insuciency, PT. Jasa Marga
decided to adopt a design-and-build system in some parts
of the project to be able to proceed with time schedule.
However, since only a preliminary design was produced
from the projects feasibility study, it increases the uncertainty level within the system because its detail design work
is based only on a preliminary design. Although there are
basically limited limitations in the design-and-build system,
the projects circumstances make it less appropriate to
implement in the particular project. Moreover, even
though this approach also enabled acceleration in the construction process, it resulted in an additional cost for repair
and maintenance work as a trade-o.
Based on the above ndings, it can be conrmed that
this project experienced diculties not only in terms of
management or day-to-day issues, but the project had to
meet with problems that had long-term consequences. This
project suers some consequences which could have been
avoided if the source of these problems had been addressed
in the earlier phase of the project. Therefore, it conrms
and supports the ndings from the previous sections
regarding the necessity for implementation of a strategic
approach in a form of good project governance that can
help achieving proper risk allocation in PPP projects.

increase projects performance and project success. However, these were absent in this project and the project cannot be considered as a resounding success in terms of both
management process and project governance.
4.3. Better project performance

634

M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634

5. Summary
In order to make sure a better project performance, sustainable partnership must be obtained by the public (government) and private sectors by applying long-term
(strategic) planning through proper risk allocation in addition to short-term planning (management approach). However, in order to achieve this, both parties must rst have a
better understanding of proper risk allocation since it will
enable them to implement the most appropriate risk allocation strategy.
The case study experienced day-to-day issues which are
considered as short-term problems as well as long-term
issues which can only be solved through strategic approach.
These ndings conrm the necessity for implementation of
a strategic approach to combine both strategic and management approaches so that the strategic approach enhances
the performance of a project in this nature. In eect, it
results in the development of good project governance.
6. Conclusions
The good project governance concept is developed since
projects under PPP procurement system experienced strategic (long-term) problems in addition to the typical management (short-term) problems. In this project the owner tends
to work with the project risks as soon as the threats of consequences emerge. Generally, solutions are sought through
the application of new construction methods, on-site design
simplication, etc., to cope with particular problems during
the construction stage. Although those solutions were more
or less ecacious, it would have been better if preventive
actions had been taken. Even though the problems were
solved and the project was nished within the schedule,
actions such as on-site construction, method modication
and design simplication during the construction stage
resulted in additional project costs. These additional costs,
in eect, aect negatively the long-run maintenance costs.
These ndings demonstrate that the owner considers that
the risk had been properly allocated as long as its consequences can be minimised and show that risk management
strategy is more into problem-solving rather than preventive actions.
The signicant success factors considered by the owner
for this particular project are government support, proper
project planning, good coordination between parties, trust,
good tendering system, proper information dissemination
and communication system and high managerial
capabilities.
The ndings from this case study also provide evidences
that proper risk allocation can only be achieved if it considers the type of risk (what) to be allocated, which party
should accept the risk (who), when to allocate the risk as
well as application of proper strategy to prevent or minimise its consequences (how). If the involved parties in such
project failed to acknowledge this, it will result in an
improper risk control. Incapability to control risk properly

will be reected in absence of good project governance,


thus resulting in an unsuccessful project. There are eight
main criteria that need to be performed to achieve good
project governance: right decision at the right time, contract fairness, information transparency, responsive, continuous project control and monitoring, equality,
eectiveness and eciency, and accountability.
Since this project is a public infrastructure project procured under PPP, it had to work with tactical issues as well
as strategic issues. Therefore, the project must be assessed
in terms of its project management process and its output
achievement. These are indicated in a good project governance to determine project success.
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