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