Professional Documents
Culture Documents
PROJECT
MANAGEMENT
International Journal of Project Management 24 (2006) 622634
www.elsevier.com/locate/ijproman
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
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
Good project
gove rnance
Better project
performance
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M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634
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
Sub-Contractors
M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634
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626
M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634
WHO
WHAT
Proper
Risk
Allocation
WHEN
HOW
Good Project
Governance
(Strategic
Approach)
Project
Performance
Long-term
Success
Project
Management
Success
Management
Approach
Product
Success
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
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
PROJECT
SUCCESS
M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634
Loan Repayment
Project
Owner
Government
Warranty
Financial
Guarantee
Financial
Institution
(Bank)
Letter of
Comfort
Contractor
Payment
Project
Supplier
Sub
Contractor
Loan Approval
Owners Approval
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
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M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634
WHAT
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WHO
Willingness &
ability of a party
to accept risks
Risks to be
allocated
Proper
Risk
Allocation
Best strategy to
prevent/minimize
consequences
HOW
WHEN
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
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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
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
Construction stage
Contractors
Construction
risks
Unpredicted
project site
condition
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
Construction
risks
Contractors
failure
Project owner
Preparation
stage
Additional/extra
maintenance work
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
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
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
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Changes in
construction
methods
Additional
construction work
Structure failure
Provide better
information
regarding project
preparedness
Improve
coordination
between project
owner and
contractors
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
On-site construction
method
improvization
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
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Suggestion
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M.P. Abednego, S.O. Ogunlana / International Journal of Project Management 24 (2006) 622634
633
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
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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