Constructions projects have become of increasing technological complexity with relationships of those involved are also more complex and contractually varied. Additionally global trends are dramatically impacting contracting activity. Success depends on new and innovative ways to manage uncertainty and complexity.
Orlando’s Arnold Palmer Hospital Layout Strategy-1.pptx
Today's Contracting - Contracts Risks and Disputes
1. OMAN – BRIDGES /
HIGHWAYS SUMMIT
Loay Ghazaleh, MBA, BSc. Civil Eng.
Todays
Contracting –
Contracts
RISKs and
Disputes
Sep 15, 2015
Oman
2. 2
Complexity & Changing Landscape in Construction Projects
Challenges and Best Practices In Managing Government Projects
Mega Projects in Focus
Introduction to Risk
Identifying & Allocating Risk
Risk Management – PMI
Project Cost Management - PMI
Construction Projects Delivery
Procurement Payment Methods (Owner / Buyer Perspective)
Construction Hazards, Injury & Catastrophic Events & Insurance
Contractors‟ All Risks (CAR) Insurance & Wrap-ups / OCIPs
Disputes & Killer Provisions In Contracts & In Insurance
3. Complexity & Changing Landscape
in Construction Projects
3
Construction projects
have become of
increasing
technological
complexity.
The relationships of
those involved are
also more complex
and contractually
varied.
Global trends are
dramatically
impacting contracting
activity
4. NEVER HAS THE CONTRACTING
INDUSTRY BEEN SO:
Dynamic
Growth enabled
Globally connected
Communications capable
And yet never has the markets been so
Shaken by global events
Resource locked
Risk consumed
Slow to move on innovation
THUS, with size of projects increasing, acceptance for
other contract forms has developed over time from
fixed price to cost-plus to EPC / PPP.
4
5. Project Team Participants
Construction projects have involvement of many
participants comprising Owner, Designer, Contractor
and many other professionals from construction related
industries.
These participants are both influenced by and depend
on each other.
Therefore the environment in which construction projects
are accomplished today often involves completing
complex, multi phased projects within tight budget and
time constraints and extensive efforts are required to
reduce costs associated with time, materials, and
engineering….
5
6. Typical Construction Industry!
Less than 1 in 5 contracts are completed on time &
within budget in the Construction industry!
Very few contracts successfully completed to
satisfaction of all participants
Blame culture is common!
Participants become defensive
Relationships break down
Participants become contractual
Participants end up losing
and don‟t want to do repeat business
6
7. Some Emerging Forms of Contracts
7
Model Fundamentals Success Factors
PPP / BOOT Public Private
Partnership
Complimentary investment
and ownership outlooks
Private Equity / Ownership Private ownership and
development of assets
Multiple equity partners
Aligned ROI
Supported by Government
policy
Alliances Formal alliance, usually
project or period based
Requires exceptional trust,
open book and planning
systems
Good opportunities for
people development
Complimentary Partners
Relationship / Panel
contracting
Accredited panel elite
contractors
KPI incentives / profit at risk
High quality / engineering
Several partners, resource
optimization
8. With Global Risks Increasing
Global credit crisis continues!
Global warming a serious issue now
Natural disasters increasing
Oil price / commodities volatility
Terrorism spread
Internet dependency (What if it fails?)
Global supply chain interruption risks (steel, oil,
building equip)
Pressure on resources: water, food, energy, labor
8
9. And Changing Social Fabric
World population growth (7.2b by 2015)
Growing middle class
Urban centers expand, household sizes
fall
Aging workforce and populations in
developed nations grow
Social networking driving new
communication behaviors.
9
10. A MIX Change In the Contractual
Context had taken place;
Greater MIX change has been seen in
Developers and Clients forming “Alliances” & „Partnering‟ Forms of
Contracts with Contractors
More of 2 Stage Tendering
Clients wishing to secure Contractors resources to deliver their projects
Contractors becoming more sophisticated in terms of Risk Management
Introduction of Best Practice from other countries
Contractors looking at undertaking numerous projects.
Also the war on talent continues!
Moving away from the traditional lowest cost adversarial
approach, No one party is interested in litigation!
Remember ; „Construction is and will be a High Risk‟
industry
10
11. 11
The Future In Construction
More PPP , More Design & Construct
Bigger projects / Mega!
Fewer contractors
Higher cost to Principals / Owners / Sponsors
More work opportunity for Consulting Engineers
Potential for more claims and litigation
Better risk management by all parties
Better Measures to Evaluate Performance!
12. Some Emerging Measures to Evaluate
Performance
Profitability is just a short – term measure!
Satisfaction Measures!
Client satisfaction
End user satisfaction
Repeat clients
Better relationship with the suppliers and the subcontractors
Factors Leading To Client Satisfaction;
Better value for money
Improved predictability of cost and time
Better resource planning
Better design
Fewer defects at completion
More effective procurement
Fewer disputes
Better use of resources
Improved supply chain management
12
13. Challenges and Best Practices In
Managing Government Projects
Non financial
Benefits
Political
Environment
Formal Processes
Megaprojects
Long Product Life
Cycle
Multiple
Stakeholders
13
14. Characteristics of Government Projects
and Programs
Generally there is Poor Performance Management of
Government Projects and Programs in ALL COUNTRIES!
Key Characteristics of Government Projects and
Programs
Non-Financial Benefits
Political Environment
Formal Processes
Mega, complex projects
Long Product Life Cycle
Multiple Stakeholders
14
15. To Do List! - Non-Financial Benefits
Identify Clear Non-Financial Benefits in the Business
Case
Ensure that Target Benefits are Realistic and
Achievable
Establish an Agreed-Upon Evaluation Methodology
for Project Benefits
Evaluate the Impact of the Project on the Achievement
of Strategic Goals
15
16. To Do List! - Political Environment
Consider Legal Consultation to ensure that Proposed
Ideas are in Line with Current Legislation
Consider Financial Consultation to Improve
Understanding of Economic Aspects of the Project
Ensure that the Project is aligned with Agencies’
Strategies
Consider Public-Private Partnership (PPP) when
Appropriate
Ensure PPPs are Economically Feasible
Provide Project Managers More Authority
16
17. To Do List! - Formal Process
Establish and Follow Government Projects
Management Framework and Processes
Follow Formal Planning and Estimating Processes that
Incorporate Lessons Learned
Follow a Formal Risk Management Process
Follow Formal Project Monitoring and Change
Management Processes
Establish and Follow Project Governance Framework
17
18. To Do List! – Mega Complex projects
Develop a Base Cost Estimate and Integrated Master
Schedule (IMS) for Mega & Complex projects
Align the Project Cost with the Annual Budget Cycle
Consider Off-the-Shelf Solutions over High-Risk New
Development When Possible
Split Programs into Smaller Manageable Projects for
Tighter Project Control
Develop Contingency Plan and Monitor Risks
Identify Training Needs for Large-Scale Mega &
Complex projects
18
19. To Do List! - Long Product Life cycle
Ensure Robust Design and Quality Management
Process
Reduce the Use of Unapproved (too advanced)
Technologies
Account for Project falling out of favor as duration
usually exceeds the election cycle.
19
20. To Do List! - Multiple Stakeholders
Engage Procurement Personnel on the Project Team
Consult the Business Community when Relevant
Coordinate the Project with Existing Operations
Establish Interagency Agreements for Cross-Agency
Projects
20
21. Mega Projects in Focus
Mega projects are led by
large client, prime
contractor or joint
venture
Processes are tailored
to the requirements of
the project
There are opportunity to
find new ways to
improve performance
Success depends on
new and innovative
ways to manage
uncertainty and
complexity
21
22. Distinguish Mega Projects from Programs
& Portfolio‟s
A program is a group of related projects managed in a coordinated way
to obtain benefits and control not available from managing them
individually.
There must be some value added in managing projects together as a
program.
Program management focuses on the project interdependencies.
A portfolio refers to a collection of projects or programs and other work
grouped together to facilitate effective management to meet strategic
business objectives.
The projects or programs of the portfolio may not be interdependent or
related.
Portfolio management refers to the centralized management of one or
more portfolios, which includes identifying, prioritizing, authorizing,
managing and controlling projects, programs, and other related work.
23. Complex project
Simple project
Technology
Novelty
Pace
Complexity
Array System Assembly
Derivative
Platform
Breakthrough
Super-high-tech
Medium-tech
High-tech
Low-tech
Regular
Blitz
Fast/competitive
Time-critical
Shenhar and Dvir‟s (2007) 4D Model
4 types of technological uncertainty
3 levels of Complexity
3 levels of Novelty
3 levels of Pace
24. 3 Levels Of Complexity
Array
project
„System of systems‟
Systems with independent
functions, but each with common
goal
Airport
Channel Tunnel
New nationwide mobile
communications system
System
project
single system - a common goal
platform with subsystems
Aircraft
Air traffic control system
Building
Assembly
project
self-contained component
perform a function in a larger
system
Modular components and
subassemblies
Computer stations
25. Complexity and Organization
Assembly projects
Single organization (often one functional group), with the help from other
functions
Small team working in one location
System projects
Main contractor responsible for deliver of product
Tasks divided among several subcontractors, in-house or external
Array projects
Central umbrella organization – often separate entity or company and
formally coordinates program and subprojects
Deals with financial, logistical, legal and political issues
Projects often spread over wide geographical area
26. Systems Integration Example
Systems integrator
Parts suppliers
Subsystem suppliers
Operator and users
Component suppliers
Design and integrate
hardware, software
and services into
functioning system
A process to
coordinate
large
network of
suppliers
27. 27
Mega Projects In Construction
Multiple stakeholders
Ambiguity (Unknowns) in project features, resources, phases.
Highly regulated environment
Significant political / authority influences
Project duration exceeds elected officials office cycle!
Changing project governance
Use of technology that is new to the organization
Use of technology that has not yet been fully developed
Project duration exceeds the cycle of relevant technologies
Significant external influences
Significant internal interpersonal or social influences
28. Introduction to Risk
Construction industry
must accept that the
risks profiles has
changed and must
form new and
innovative models to
succeed in the new
un certain
environment
Your Organization‟s
Risk Experience.
Risk Management
and Insurance
28
29. Contractors Decision –
to Bid or Not to Bid!
Contractors usually consider before bidding;
Strategic Goals of the Company
Capabilities of the Company
Location of the Work
Bid Logistics
Licensing
Pre-Qualification
Bonding
Scope of Work
Resource Requirements
Project Risks!
29
30. Contractors –
Your Organization‟s Risk Experience??!
How well is your organization identifying and
managing risk?
How well are technical risks integrated into overall
program risk management activities?
How is your organization dealing with “unknown
unknowns” associated with programs/projects with
complex elements?
To which standardized risk management practice(s)
has your organization aligned to?
How has that alignment affected your organization‟s
ability to identify and mitigate risks?
30
31. Contractors –
What Are Your Organization‟s Drivers?
On time / Within budget
Meeting safety requirements
Meeting regulatory requirements
Meeting/exceeding capability targets
Competitive quality
Customer satisfaction
New business
Staying in business
Better team‐organizational performance
Culture change
Others?
31
32. Owners –
Does the Contractor Have In Place;
Realistic, effective and accountable project/contract deliverables?
Clear expectations?
Clear KPIs and Terms & Conditions?
Commercial, technical and legal risk register?
Reasonable evaluation?
Risk sharing?
Variation and scope controls?
Streamlined supply chain?
Effective contract & risk management mechanisms for parties involved ?
Insurance mechanisms for Company & Sub Contractors?
Owner as beneficiary in insurance policies?
Effective procurement contract templates?
Procurement life cycle management?
Effective tendering processes?
32
33. Owners –
Is the Contractor Buying Into Risk Management?
Understanding of risk management:
Does the Contractor have an effective risk management system?
Does the team understand risk?
Are the risks narrowly focused?
Does the Contractor train and engage the risk team?
Supply Chain Management;
Is risk being built around the supplier timelines?
Is there supply chain security?
have long-lead items been adequately budgeted for?
Is there risk mitigation if the supply chain fails?
Is the risk on the Suppliers / subcontractors or the Contractor?
Is there full disclosure in regards to inventory lead times?
Will timelines be met?
33
34. Owners –
Are the Contractor Buying Into Contracts Clarity?
Is there a contractor‟s relationship management with
effective contract deliverables, KPIs and terms and
conditions.
Are commercial, technical and legal terms defined in the
contracts.
Is Technical authority clear?
Are terms and conditions recent and understandable?
Is there clear reporting & meeting agendas adhered to?
AS OWNER; ARE YOU BUILDING SUSTAINABLE
RELATIONSHIPS WITH TE CONTRACTOR?
34
35. Projects & Programs Risks
Projects and programs are often complex
undertakings with potential risks from many
different application areas.
There are substantial challenges to managing risks
that come from within familiar application areas.
Program/project teams struggle with who is
responsible for risk management and which
practices are most effective.
35
36. Understand Risk From The Start
Risk analysis of projects determine how unforeseen
disturbances can impact the project delivery.
Identifying areas of danger in the project cycle and
developing ways to overcome delays with proper
risk management planning and cost analysis is
paramount.
The unknowns or improbable are dealt with in
contingencies.
Risk Funding can come from current expense
accounts, funded reserves, borrowing and from
captive insurers or commercial insurance.
36
37. Risk Management is the process of planning, leading and
controlling the resources and activities of an organization;
To fulfill its objectives cost effectively
To protect and grow corporate assets
To enhance shareholder value
Risk Management
Identify
Exposures to
Loss
Examine
Feasibility of
Alternative
Techniques
Select the
Apparent Best
Technique
Implement the
Chosen
Techniques
Monitor and
Improve the
Risk
Management.
Program
37
38. Strategic Risks
• Program design
• Financing
Operating Risks
• Safety management
• Quality assurance
• Claims cost management
• Communication systems
Financial Risks
• Risk allocation methods
• Risk assumption/transfer
• Risk costs recovery
Information Risks
• Benchmarking
• Management practices
Breadth of Risk Management
39. Better Risk Management In Tenders
Risks profiling and their management can be used to
drive contracting strategies. Different contracting
models carry different risks.
Always: Identify the chance of loss (Risk) , establish
degree of probability of such loss and assess the money
that may be lost.
Risk Management tools in TENDERs;
Effective development of scope is paramount
Risk identification and pricing in tenders
Risk sharing with agreed specified outcomes
Limitation of liability - for the owner, contractors and
consultants
Tender evaluation criteria – Fair , Transparent with Equal
Opportunity
39
40. Example; Uncertainty and Contractual
Approach
Cost-plus contract
• Risk and opportunity shared
by client & contractor
• Client bears the cost of
development and seeks to
avoid less than optimal
solutions
• Contractor has an incentive
to produce best result and
maintain profits
High Low
Fixed-price contract
• Contractor takes on all the risk
• Does not work well for high-tech
uncertainty – creates risk for client
& contractor
• Contractor loses money due to
unexpected events
• Client gets inadequate product
when contractor stays within the
price range
Relative uncertainty
40
41. Major Project Delivery Risks/ Exposures
Lack of approvals
Supply chain lead times
Poorly defined scope
Design creep
Scope creep
Weather
Inappropriate/unqualified team
Contractual disputes
Poor risk management
Technology issues
41
43. Top 10 Causes to Cost and Schedule
Overruns in Construction Projects
1. Engineering - delays, changes
2. Estimating – poor quality of the estimate
3. Procurement - long leads, changes
4. In adequate in house Fabrication / Manufacturing
5. Facilities – limited capacities/ available space,
constrained logistics
6. Poor Labor skills and availability
7. Low productivity and performance
8. Inadequate execution planning
9. Project funding shortage
10. Sub optimal decision making
43
44. All top contributors to Overruns can be
Mitigated! Examples
Gate Processes – Controls;
Engineering
Estimating
Funding shortage
Front End Planning – Controls;
Procurement, long lead, changes
Inadequate execution planning
Sub optimal decision making
Construction Readiness Reviews – Controls;
Poor labor, skill, availability
Low Productivity and
In adequate in house Fabrication / Manufacturing
limited capacities/ available space, constrained logistics
44
45. Remember ; Top Ways To Improve Risk
Management In Execution45
Standardization / formalization of construction
process
Periodic review / secondary review / oversight
Dedicated / experienced resources involved in
process
KEY; input early on in the construction process
Build-ability
Value Engineering
46. Risk Management As A Practice
Construction industry recognizes the relationship
between risk management and sustained profits.
Risk management requires “beyond the edge”
thinking.
Managing risk has evolved from a one-time a year
insurance process into a serious profit initiative.
Managing risk will boost profits, reduce costs and
change the way contractors compete.
46
47. Risk Management and Insurance
RISK MANAGEMENT INSURANCE MANAGEMENT
Active/Initiative Reactive
Dynamic Passive
Protection oriented Security oriented
Financially/analytically
oriented
Administratively oriented
Seeks responsibility Seeks safety
Curious/Creative Narrow in scope
Applied to the
construction activities /
company
Responsive to others
Broad Based – includes
multiple disciplines
Not all risk areas are covered
48. Construction Industry Bonds
Bonds are not NOT Insurance. They stand on their own
Bond holders will go after contractor when in default
Goals of Bond Holders may not be all the same! In General; Do not release bond too early
Bid Bond
Will the selected bidder start the project?
Public ~ 20% or as low as 5% of Bid
Private ~ 5% to 10% of Bid
Performance Bonds
Guarantee the specific performance of the contract or completion of the contract
For use when the project is not completed as contracted. usually100% Complete Job at Bid
Price
Payment Bonds
Guarantees the payment of subcontractors on the project. Will a contractor pay any
associated charges (e.g., subcontractor fee)?
Cover Unpaid Bills by Contractor
50% for < $1M
40% for $1M < X < $5M
2.5M for > $5M
Most Institutions Now Require 100%
48
49. Price Premiums In Tenders
49
Risk Area Risk Premium
Global risk environment High in current environment
National contract environment Low to moderate
Local competitive environment Low but will drive price margin
Core business activity Non-core will add premium
Multiple partner deal (partner confidence) Low if risk sharing is accepted by partners
Project complexity Higher complexity higher premiums
Global sourcing of commodities High (hedge contracts)
Scale and length of project Need to structure pricing to fit
Safety factors Medium (added project control)
Method of financing High (deal many not be executed)
50. IDENTIFYING AND ALLOCATING RISK!
Systematic and
holistic approach
to identifying and
analyzing the
associated Risk in
construction
projects begins by
identifying the
stakeholders
perspectives as
project
participants have
different interests
and demands.
50
53. Understanding Project Participants
Interests & Perspectives
A more systematic and holistic approach to identifying and
analyzing the associated Risk in construction projects begins by
identifying the stakeholders perspectives as project participants
have different interests and demands
Client
Focuses on the final quality within the Budget and timeframe.
Contractors
Financial Result
Future Projects with same Client
Image in the society
Consultants
Quality and Execution monitoring to comply with the design intent
Over come the design /construction issues, which has been noticed
during the construction stage without impact in the contract.
Liability Issues. PII important
53
54. Principles of Risk Allocation
A risk shall be allocated to the party that:
If the risk is of loss due to the party own willful misconduct
or lack of reasonable efficiency or care;
If the party can cover the risk by insurance and allow for the
premium in settling the charges, and it is most convenient
and practicable for the risk to be dealt with in this way;
If the substantial economic benefit of preventing the risk
accrues to the party;
If it is in the interest of efficiency to place in the risk on the
party;
If, when the risk eventuates, the loss happens on the party in
the first instance, and there is no reason under any of the
above headings to transfer the loss to another , or its
impractical to do so.
54
55. Allocating The Risk To The Party Best
Able To Carry The Risk
Leiringer (2005): Is this the party with largest
influence on the probability of an adverse occurrence
happening, or Is this the party that can best deal with
the consequence after an adverse occurrence?
Corner (2006): To best manage risk means to
manage it at least cost. If cost of preventing an
adverse occurrence is less than cost of dealing with
consequences of the adverse occurrence, then risk
should be allocated to the party best able to
influence the probability of occurrence.
55
56. Fundamental Risk Allocation Tips
Contractors are often highly risk averse
For risks that contractor can’t control, they may be willing to pay a risk
premium (charge less for contract) to owner to take over the risk.
For risks that contractors can control, may be willing to manage risk.
Structure risk allocation in contracts so that
Risks that contractor can better handle are imposed on contractor (i.e.
contractor will lose $ if don‟t control)
Risks that the owner can better handle are kept with / by the owner
Maintain Balance
Impose high enough risk incentive to get contractor to do the job
efficiently – within the specifications of the contract. E.g. Incentive to finish
on time, incentive to stay within budget
Impose low enough risk to have reasonably low bid
56
57. Risk Types & Categories
Risk Types
Known known Total certainty
Known unknown Degree of uncertainty
Unknown unknowns Total uncertainty
Risk Categories
External, unpredictable Regulatory, etc.
External, predictable Market risks
Internal, non-technical Management
Technical Design
Legal Contractual
57
58. Key Risks that Influence Project
Objectives
Risk
Code
Likelihood Impact
Highly
Likely
Likely
Less
Likely
High Medium Low
1 o.5 0.1 1 0.5 0.1
1 Tight Project Schedule TPS
2 Design Variations DV
3 Excessive Approval Procedures EAP
4 High Performance/Quality Expectations HPQE
5 Inadequate Program Scheduling IPS
6 Unsuitable Constructions Program Planning UCPP
7 Variations of Construction Programs VCP
8 Low management Competency of Subcontractors LMCS
9 Variations by the Client VC
10 Incomplete Approval and other Documents IAD
11 Incomplete or Inaccurate Cost Estimate ICE
12 Lack of Coordination between Project participants LCP
13 Unavailability of sufficient professionals and Managers UPM
14 Unavailability of sufficient amount of Skilled Labor USL
15 Bureaucracy of Government BG
16 General Safety Accident Occurrence GSAO
17 Inadequate or Insufficient site information ISI
18 Occurrence of Dispute OD
19 Price Inflation of Construction Materials PICM
20 Serious noise, dust Pollution Caused by Construction SNP
The analysis to be performed for 1) Cost 2) Time 3) Quality 4) Environmental and 5) Safety Risks
Typical Risk Register
61. Risks & Projects Success Formula
Clients (should) know what kind of project features they want and therefore should
clearly define them in the brief to avoid changes during the execution.
The early effective involvements of the parties on the projects helps clients to produce
appropriate project schedule, financial report by considering the price inflation.
Designers (including consulting engineers) should carry out in-depth investigation of
site conditions prior to the design works and employ effective mechanism to articulate
the clients‟ needs.
Bureaucracy Authorities Could create a swift environment to support the project
development while the project team should always maintain close relationship with the
government officers to shorten the time for approvals.
To keep the construction work on track, experienced professionals need to be
assigned in the project as early as possible to make sound preparations for
developing valid construction programs.
The systematic approach would assist the stockholders /managers‟ to manage
and resolve the potential risks at various stages of the project and take decisions
to drive the project team to goal and complete the construction projects on time
with profit.
61
63. PMI Risk Definitions
Risk is an uncertain exposure to
a potential occurrence, causing
things to go wrong or right i.e.
to positively or negatively
affect project constraints (
Scope, Schedule, Budget,
Quality, Resources, and
Customer Satisfaction)
The PM should be in control and
proactively manage events,
anticipate and identify areas of
risk, how to quantify them and
how to plan for them.
63
65. PMI Risk Breakdown Structure
The Risk Breakdown Structure (RBS) lists categories and sub-
categories within which risks may arise. Different RBS are
appropriate for different types of projects & different organizations.
65
67. Identify Risks (Diagramming & SWOT
Analysis)
Diagramming technique
Flow charts are useful in identifying risks because they
can breakdown complex items into an understanding
diagram
Cause-and-effect or Ishikawa diagrams and Fishbone
diagrams are one way to show potential causes that can
lead to risks
SWOT Analysis
SWOT Analysis, helps to specify the most significant
project risks by plotting each risk in the corresponding
quadrant.
67
76. Plan Risk Responses – Negative Risks
(PMI - Tools & Techniques)
Avoidance / Prevention (Before the Fact)
Plans to eliminate a specific threat by eliminating the cause so
that it never happens.
Mitigation / Reduction (Before the Fact)
Plans to reduce the probability or impact of the risk.
Acceptance (After the Fact)
Passive - Decide to do nothing about it and live with the
consequences if it ever happens.
Active - Develop a contingency plan and execute it once the
risk is realized to reduce risk impact and minimize losses.
Transfer
Get a 3rd party to take care of the risk e.g. insurance,
outsourcing / subcontracting, and warranties.
76
77. Avoidance:
Risk prevention
Changing the plan to eliminate a risk by avoiding
the cause/source of risk
Protect project from impact of risk
Examples:
Change the implementation strategy
Do it ourselves (do not subcontract)
Reduce scope to avoid high risk deliverables
Adopt a familiar technology or product
77
78. Mitigation
Seeks to reduce the impact or probability of the risk
event to an acceptable threshold
Be proactive: Take early actions to reduce
impact/probability and don‟t wait until the risk hits
your project
Examples:
Staging - More testing - Prototype
Redundancy planning
Use more qualified resources
78
79. Transfer
Shift responsibility of risk consequence to another
party
Does NOT eliminate risk
Most effective in dealing with financial exposure
Examples:
Buy/subcontract: move liabilities
Selecting type of Procurement contracts: Fixed Price
Insurance: liabilities + bonds + Warranties
79
80. Acceptance
Used when project plan cannot be changed & other risk
response strategy cannot be used
Active Acceptance
Develop a contingency plan to execute if the risk occur
Contingency plan = be ready with Plan B
Passive Acceptance
Deal with the risks as they occur = No Plan B prepared
Contingency allowance/ reserve
Established amount of reserve (e.g.: time and/or money) to
account for the identified known risks.
Amount is decided based on probability and impact
80
81. Plan Risk Responses – Positive Risks
(PMI - Tools & Techniques)
Exploitation (Before the Fact)
Plans to ensure a specific opportunity actually happens / realized.
Ex: Assigning organization most talented resources to the project to
reduce cost lower than originally planned
Enhancement (Before the Fact)
Increase the probability and/or the positive impact of the opportunity
(risk)
Ex: Adding more resources to finish early
Acceptance (After the Fact)
Passive - Decide to do nothing and benefit from the event if it happens.
Active - Develop a contingency plan and execute it once the risk is
realized to increase impact of opportunity & maximize profits.
Share
Allocating some of the ownership to third part best able to capture the
opportunity
Ex: Joint ventures, special-purpose companies
81
88. Earned Value Management Technique
The earned value management technique is a method to measure project
performance against the project baselines. It results from an earned value analysis
indicating potential deviation of the project from the cost and/or schedule baselines.
Acronym Term Explanation
PV Planned Value Estimated value of the work planned to be done
EV Earned Value Estimated value of the work actually accomplished
AC Actual Cost Actual cost incurred in work accomplished
BAC Budget At
Completion
The Budgeted amount for the total work
EAC Estimate At
Completion
The current estimate for the total project cost
ETC Estimate to
Complete
From this point, how much more the project would
cost to complete
VAC Variance at
Completion
How much over or under budget we expect to be at
the end of the project.
88
89. Earned Value Formulas
Acronym Formula Explanation
Cost Variance (CV) EV-AC Negative is over budget, positive is under
budget.
Schedule Variance (SV) EV-PV Negative is behind schedule, Positive is
ahead of schedule.
Cost Performance Index
(CPI)
EV/AC We are getting $_____ worth of work out
of every $1 spent.
Burn Rate 1/CPI BAC burn rate.
Schedule Performance
Index (SPI)
EV/PV We are progressing at ________ percent
of the rate originally planned.
Estimate to complete (ETC) EAC-AC How much more the Project would cost.
Variance at Completion BAC-EAC How much over or under budget we
expect to be at the end of the Project.
To Complete Performance
Index (TCPI)
(BAC-EV)
/(BAC-AC)
How well shall we be performing from
this point on to be back on budget.89
90. Estimate At Completion (EAC)
Acronym Formula When to use it? Assumptions
Estimate At
Completion (EAC)
BAC / CPI Same spending rate, typical variances, no
variances to experience in performance.
Estimate At
Completion (EAC)
AC + (BAC – EV) Same spending rate is NOT acceptable,
atypical variances, variances shall have to
be experienced in performance and
geared up to 100%.
Estimate At
Completion (EAC)
AC +
Bottom up ETC
Original estimate is flawed.
Estimate At
Completion (EAC)
AC + [(BAC – EV)
/ (SPI x CPI)]
Same spending rate, typical variances, no
variances, need to hit a firm deadline.
90
91. Reporting Performance on Small Scales
20 / 80 Rule
Activity is considered 20% complete when it starts
50 / 50 Rule
Activity is considered 50% complete when it starts
0 / 100 Rule
Activity gets no credit for partial completion
91
93. Project Delivery Contract
Why do we need contracts?
To define roles and responsibilities.
To make things legally binding.
To mitigate or allocate Risk.
What do we need to have a Legal Contract?
An offer > Legal Capacity – External Legal Parties
Acceptance > Legal Purpose – Legal Goods
Consideration – Value, something in return of the services
93
95. Possible Roles of Consulting Engineers
For Owners (Purchasers)
Initial planning, project definition
Concept design
D&B tender document preparation
D&B tender evaluation
Proof checking / design verification
Also design verification roles for :
BOO developer (who appoints D&B contractor)
Financier to BOO developer
For Contractors
Tender design
Detailed design
Construction management
Commissioning
95
96. Considerations in Project Delivery
Owners have more options available today.
Owners increased emphasis on qualifications.
Promoting competition provides value for the owner and
makes the industry more responsive.
Stewards of public funds (Governments) have a legal
and ethical responsibility to preserve and protect the
public trust.
Transparency and fairness in procurement process are
critical to a successful project.
Base decisions on project needs & budget……not
marketing!!!
96
97. Factors in Selecting Delivery Methods
Complexity of project
Project size (cost estimate)
Is early contractor involvement desired?
Is price or qualifications the driving factor in selection?
Is single point responsibility or multiple contracts
desired?
How much control does owner want?
Intention for a general contractor with self-performance
capabilities or a Construction Manager.
Project schedule requirements
97
98. Subjectivity While Promoting Competition
The owner can set up a ranking system based upon
desired priorities, while fostering competition by
providing inclusive set of attainable criteria's;
Does the contractor‟s proposed team have a history of
working collaboratively with the owner and/or designer?
What local or regional relationships and resources does the
contractor have at their disposal?
Which contractors proposing on the project have the best mix
of experience, price, and resources for this particular project?
Is experience with the type of project more important than
the experience with the delivery method!
Naturally, one should avoid selection criteria's that have
no bearing on the quality of the project!
98
99. Red Flags! - Contracts Risk and Conflict
When competition is minimized, Owners pay more. Thus
Use reasonable project / tender advertisement to attract
bidders.
Avoid conflicts of interest in CM procurements (separate
the responsibility for design and construction)
Avoid qualifications requirements that are specific to
regional / country experience.
Embrace realistic schedule requirements
High liquidated damages result in low turn out or
eventual disputes.
Use optimal incentives.
99
101. Competitive Bidding – Best Value!
Traditional & widely used in buildings projects
Formal procedure for public agencies
Time consuming process involving a bidding period as well as a bid
evaluation & review period prior to issuing notice to proceed with
construction
Work awarded to highest score - technical and financial
Project constructed with specified quality at usually the lowest price
Contracts can be;
Unit-Priced – BOQ Based.
Lump-Sum – BOQ Guided!
Loss is absorbed by the Contractor, if actual cost exceeds contracted
amount in lump sum contracts.
101
102. Traditional General Contracting
Characteristics102
Single source of construction responsibility
Presumed checks and balances between A/E and contractor
Less construction risk for owner
Simple and objective selection process
Less administration required by owner
Owner and contractor's interests are not aligned
Lack of contractor input in design phase of project
Loss of fast-track ability, which increases cost
Design risk for owner is more
Risk of "unknown subcontractors"
105. Design-Bid-Build
Pros
Well understood by all parties
Owner has a large amount of control over final design
Independence between designer & contractor
Can apply multi-parameter bid evaluation (e.g., low bid + other technical /
delivery factors)
Cons
Prequalify process is aggressive.
Pressure for lowest bid can create
Cutting corners
Low-quality personnel
Bad feelings
Sequential process
Construction cost not established until after design is complete
No constructability review during design
Potential for adversarial Relationship
105
108. Pure “Agency” CM
The process by which a qualified firm is retained as Construction
Manager by an Owner to furnish services in connection with the
administration of the contract throughout the planning, design and
construction phases of a project. The Construction Manager is
generally authorized by the Owner to:
Act on behalf of that Owner with respect to contract matters, including
overview of the design and construction phases of the project
Transact business on behalf of that Owner
Render an account of its activities
The actual construction work is performed by others under direct
contract to the Owner. The Construction Manager is typically not
responsible for construction means and methods nor does he
guarantee construction cost, time or quality aspects of the project.
108
110. Construction Manager at Risk (CMAR)
Pros
More flexibility allowed under the law in selecting the CM
Constructability review – Shortened Scheduled
Buy in from the CM for the design
Maximum price is established earlier in the process
Elimination of the conflict of interest between the design team and the
owner
Cons
Owner has less control over design details
Potential Adversarial relationship between A/E & CM
Owner must view A/E & CM as equals
Lowest price may not be achieved
If CM isn‟t selected prior to substantial design development benefits
are lost
110
112. 112
Why Design & Construct ?
D&C is the most common form of project delivery in the Building,
Urban Infrastructure and Power Generation
Reduce claims by contractors against Principals
Risk transfer from Principal to Contractor
Government departments downsizing / eliminating in-house
engineering capability
Innovation without risk
Larger projects – contractors are perceived with greater capacity to
manage than government
Successful and speedy delivery
Contractors having more control in project implementation
Avoiding cost overruns which can be risks to politicians
(Desired) Projects delivered in one political term
114. Design – Build Characteristics
114
A single source of responsibility for design and construction
Providing all services necessary to design and construct a facility or
structure
Guaranteed max price
Valuable input by A/E and contractor from beginning to end
Reduced time to complete
Potential savings back to owner
Reduced claims - by 30% or more for professional liability
Loss of checks and balances
Difficult and costly selection process
Limited flexibility
Competitive bid advantages can be retained
Owner loses control over project and becomes sole watchdog
116. 116
D & C Business Model & Risk Transfer
Principal
D & C
Contractor
ConsultantSubcontractors
Total Risk
Transfer
Risk
Transfer
Risk
Transferred
or Managed
117. 117
D & C Risk Environment for Consultants
Legal framework – Common Law, Contract Law,
Trade Practices Laws / Acts, Occupational Health &
Safety Laws / Acts
Onerous Agreements
Contractors capacity
Contractors plan to deal with commercial loss
USE commercially sustainable PI Insurance with the
Owner & Contractor as beneficiaries!
118. 118
D & C Risks to Contractors
Client risk dumping
Risks inherent in Design & Construct
Tender process suppresses risks
Client Information risk
Contractor has limited venue to claim against client
Claim against consultant difficult
The risks dominantly are commercial risks
Professional Indemnity (PI) , as design is needed,
cannot support commercial risks
119. 119
Recommended Contractor Strategies in
DC Contracts
Don‟t accept unreasonable terms – Examples of Onerous Terms;
Unusual standards of care
Responsibility for client supplied information
Absolute fitness for purpose warranties
Strict compliance
Open ended indemnities
Duty of care to multiple parties
Liability for delays outside control
Disclosing terms of PI Policy
Negotiate a good contract to maintain a good relationship and a
good business
Use Limits of Liability in Insurances
Encourage Client to carry some risk
Adopt commercially sustainable PI Insurance levels and guidelines
Negotiate scope carefully and exclude others‟ responsibilities
120. 120
Potential Roles of the Consulting
Engineer in D&C
Owner‟s (Principal) Planner and Engineer
Banker‟s Engineer
Contractor‟s Designer
Contractor‟s Verifier
Proof Engineer for the Principal and Contractor.
Construction Verifier for the Principal and
Contractor.
Independent Reviewer for the Principal and
Contractor.
121. 121
Contractor–Consultant Model Options
Contractor–Consultant Liability Transfer Model
Contract conditions passed down from Principles
Risk transfer through onerous terms
Impossible and impractical notice requirements
Certify compliance or breach contract
Excessive and protective administration
Aggressive and manipulative behaviours
Designers site role suppressed / limited
Post-contract claims and disputes
Contractor–Consultant Liability Managed Model
Co-operative integrated relationship
Methods of managing contract conditions agreed without transfer to consultant
Consultant carries negligence risk
Consultant assists Contractor to identify and manage risks
Contractor to certify compliance or non-conformance
Consultant to retain independent judgment
Consultant uses Contractor administrative systems
Co-operative behaviors and excellent performance
Designers site role expanded and integrated
122. Design-Build (DB) / Design & Construct (DC)
Pros
Multiple procurement options
Allows constructability review
Single point of responsibility (as far as Owner is concerned)
Shortened scheduled
Non-adversarial relationship between A/E & GC
Cons
Owner has less control over design details
Owner must clearly define scope prior to entering into contract (scope
creep risk)
Owner must have extensive construction experience
Loss of check & balance between A/E & GC
Potentially more expensive since pricing is established prior to design
completion, however, the adverse is true as well!
122
123. D & B - Issues during Tender Stage
Contractors expecting Consulting Engineers (CEs) , to perform
tender design at minimal fee
Short available time to produce tender design
Tender design based on insufficient information
Pressure to take design risks
Contractors expecting CEs to „guarantee‟ tender design /
quantities
Contractual Issues
Back to back contract arrangement
Fit for purpose
Liquidated damages – schedule
Liquidated damages – performance
CEs‟ professional indemnity insurance
123
124. D & B - Good Practices In Tenders
Contractors preferred to be paid for tender services , high
development costs!
Obtain commitment for appointment and fee level for a
successful bid
Consider „success fee‟ / gain share
Clearly state limitations (sufficiency of data, time, design
accuracy)
Define tender design scope / responsibility
Define exclusions (guarantees, fit for purpose)
Involve contractor in decision process
Commitment from and motivation of both parties to win
CE takes ownership of tender design
A true D&B team; Minimizes disputes
124
125. EPC
This style of contract is usually fixed price with milestone
payments.
Owners Team has recourse to penalties for time, and
performance shortfalls.
EPCM acts as the Agent for the Owner for all contracts for
engineering, procurement, management of construction and
provision of commissioning support.
EPCM is Retained on rates basis for services within a limit in
liability for faulty services.
The Contractor is responsible for specialist technology packages and
full process warranties.
Process design, detailed design, procurement, construction and
commissioning by the Contractor with full mechanical warranties and
varying design warranties.
The Owners Team supplies specialist technology or free issue items.
The Contractor completes detailed design and associated
construction based on a process or design from the Owners Team.
125
127. PPP Project Development Issues
There is a D&C Contract embedded in every PPP - BOOT, BOT contract.
Construction phase of a PPP likely to be delivered via design-build agreement
Traditional contracts used by a Public Entities for delivering public works may
not be adequate templates for mega projects.
Localities, especially those with limited experience in managing design-
build projects, should pay attention to the following:
Are the technical requirements and standards to be incorporated into the
agreement appropriate for design-build project delivery?
How will the notices to proceed for design and construction work be issued?
How will the design review and the construction oversight processes work?
Does the locality‟s oversight program properly align with the risk allocation
in the agreement?
How will the contractor be paid for work performed?
How will the dispute resolution process work?
127
128. Other PPP Development Issues
Receipt of an unsolicited proposal can create resource challenges;
Local Government units should developing guidelines, even if a locality has no
immediate plans to pursue a project using PPP, to ensure a review/management
process is in place should the locality receive an unsolicited proposals.
Use risk workshops throughout project development and procurement
process to help inform key decisions makers / internal stakeholders;
Risk workshops can help project owner by consider feedback received from
proposers (sponsors) and develop and refine the scope of the project.
Also risk workshops can help the project owner to develop a negotiating
strategy.
Risk matrix is useful when briefing internal stakeholders about the project and
contract terms
Be mindful of additional requirements that may come along with
particular sources of funding;
Using federal / donor funds for a project may trigger additional oversight,
reporting, and procurement requirements
128
129. Typical PPP Model Structure
Special Purpose Vehicle
SPV
PPP Contract
Public Procurer
Public Sector
Private Sector
Equity
Subordinated
Debt
Construction
Company
Operator
„Unitary Charge“ /
„Lease“ Payment
Senior Debt in
form of Project
Bonds
Investors buy
or underwrite
129
130. PPP Challenges and Mitigations
Challenges Mitigations
Multiple stakeholders Stakeholder management
Differing risk attitudes Candid, open dialogue
Protecting the taxpayer Open book awards
Complex procurement Competent, experienced advisors
Political process Keep decision-makers closely informed
PPP procurement can be long & and complex; but it delivers value for money!
PPP‟s are highly interdependent; a perfect opportunity for collaboration!
One can‟t predict the future ; but it can be managed with long-term robust contracts!
One can‟t get rid of risk; but it can its allocation can be optimized!
PPP‟s last whole life; thus relationships and trust matter!
130
131. Deliver value for money
Project may become affordable within
the annual public budget
Force the public sector to focus on
output and benefit
Competition already in the design and
engineering phases (achievement of
performance-orientated prices and cost
minimising effects)
Maximises the use of private sector
skills
Adequate risk sharing
Delivers assets on time and budget
Partly or completely off public budget
Conclusion of fixed utilisation fee and
defined price adjustment clauses
Loss of management control by the
public sector
Voluminous agreement system
especially on items like control,
devolution, reversion of rights and
events of default
Higher cost of finance
Long term, relatively inflexible
contractual commitment
Risk of insolvency (selection rights to
be agreed)
Higher efforts for control and
monitoring of (quality standards) for
the community
Tax duty
Advantages Disadvantages
PPPs are not “one size fits all” solutions
(each individual project has to be assessed for its PPP suitability)
Advantages & Disadvantages of using
PPPs131
132. PPP Benefits for Government
Budgetary
Management
Exposure to Private
Sector Skills
Smoothing of
CapEx Spend
Profile
Public Private
Partnership
Certainty & Quality
of Service
Timeliness of
Delivery
Optimise Whole-
Life Design &
Costing
Better Risk
Allocation
Generation of Third
Party Revenues
PPP Potential Projects Requirements:
Requirement for capital investment, either now or in the future
Substantial service content within the requirement
Scope for innovation in services delivery
Competitive market, interested in the public sector‟s business,
Private sector is better able to manage risks currently taken by the public sector
Long term contracts are feasible
Boundaries of activity are clearly defined
Final decision against
key evaluation criteria:
PPP offers better
Value for Money
than the Public
Sector Comparator
132
133. Making PPP Projects More Attractive?
Strong political consensus on a cross-regional master plan (What? When?
How?)
Realistic project planning & budgeting
Awareness that PPPs are not a magic formula: bad projects cannot become
good PPPs
Awareness that private partners need certain returns & stable Cash-Flows
Feasibility Studies and Public Sector Comparator crucial for choosing the right
projects and appropriate financing structure (Public Procurement vs. PPPs)
Openness for alternatives to bank loans for financing (e.g. Project Bonds)
Sufficient capacity and skills on the public sector side (PPP Task Force) &
experienced private partners (e.g. advisors)
Legislation and regulatory framework to allow the proper execution of
concession projects (concession law, expropriation issues etc.)
“Best Practice”: replicate the process of successfully realized projects available
in the market “Best Practice” (even if it is in another country)
133
135. Project Alliancing
Project Alliancing is a dramatic departure from traditional
contracting methods in that it encourages project
participants to work as an integrated team by tying the
commercial objectives (i.e. profit) of all the parties to the
actual outcome of the project.
In this arrangement all decisions are made “best for
project” and not “best for individual entity” since the
alliance either wins or loses as a group.
In all construction projects „change‟ is a defining
characteristic and is almost inevitable.
In order to achieve truly outstanding project outcomes,
dynamic projects require contracts that are designed
specifically to embrace and manage change.
135
136. Alliance Contracting Existing Practices
Existing practice with contractors characterized by:
Short term and essentially adversarial in nature
Unaligned objectives
Accountabilities not clearly defined
Risks placed on those unable to influence or
manage them
Skills not recognized and/or ineffective
136
137. Alliances Early Understandings
The Eighties & Nineties – A process to establish and
manage relationships between parties that aims to
remove barriers, encourage maximum contribution and
allow all parties to achieve success via “WIN WIN”
Arrangement.
Close of the Century – A project alliance is where an
owner forms an alliance with one or more service
providers for the purposes of delivering outstanding
results on a specific project to the benefit of all
stakeholders.
NOW – Project alliancing turns upon the formation of
a performance based contract structure, the
alignment of the commercial interests of parties, and
a genuine no blame culture between parties.
137
138. Effective Partnering
High level of trust between Client and Development Team
Common objectives for entire team agreed upfront
Development team engaged consultants and contractors
Strong informed judgments and quick decision making.
Good communication, quick resolution of differences.
Respect
Fair allocation of risk and reward
Value add
Win/win outcome
Successful projects will result in repeat business and
continued success for all parties
138
139. Drivers For Entering Into An Alliance
Contract
Cost savings and efficiencies
Value for money
High performance and innovation
Overall project delivery and outcomes
Reduction of risk
Shared governance
Unique environment
Sharing of resources and capability
The reputation of alliance contracting
139
141. Current Context Of Alliance Contracting
A commercial/legal framework between an owner and one or more
service providers for delivering works/services characterized by:
Collective assumption of all project risks;
No fault, no blame and no dispute between the alliance participants
(excepts in very limited cases of willful default);
Payment under a compensation model comprising:
Reimbursement of all direct costs on 100% open book basis;
A fee/margin as contribution to corporate overheads and profit;
A Gain-share Regime that equitably rewards the value of alliance
performance
Unanimous principle-based decision-making on all key projects
issues; and
An integrated project team selected on the basis of best person for
each position.
141
142. Pain Share (PS)/ Gain Share (GS)
In Alliances
The PS/GS model is based on equitable share of
any single cost saving or cost overrun and any pain
for contractor is up to a maximum of the project
profits and head office overheads.
Standard – 15%
Overhead – 8%
Profit – 7%
The contractor will always be paid for work
completed under the bill of quantities (BOQ),
project related overheads and any approved
variations.
142
143. Pain-share / Gain-share Model
3 part compensation model: All Risks are shared and all participants
are jointly responsible to deliver every
aspect of the alliance.
The alliance participants develop and
commit to work within an agreed
Project Charter.
Reimburse to the non owner
participants (NOP) is 100% Open
Book subject to verification by audit.
The project has established processed
to ensure the team performs at the
highest possible level and achieves
“Breakthrough” outcomes.
* NOP – Non Owner Participant
143
144. How Alliances Works
The principal theme of project Alliancing is to move away from conventional
master/servant contracting, where each party seeks to protect their
contractual entitlement, towards an environment in which all parties share
their resources on a „best for project‟ basis and pull on one end of the rope
The parties to the project alliance work closely together to jointly develop a
Target Cost Estimate (TCE) , based upon the most likely out-turn cost. This
TCE incorporates a contingency fund quantified by a rigorous quantitative
based risk assessment.
The project alliance agreement (PAA) is executed by all parties and binds
them together on a joint and several risks assumption basis. Thus most, if not
all, risks are shared and therefore managed, mitigated, by the whole
alliance, rather than be allocated in the conventional way.
The alliance is governed by a project alliance board who set the goals and
objectives of the project, establish the project values and KPI‟s and
adjudicate on any issue which cannot be resolved at the alliance
management team level.
There is no alternative dispute resolution procedure, so the alliance
board has a responsibility for resolving all disputes.
144
145. Client Expectations
WIN – WIN for all parties.
Collaborative Start / Collaborative Finish.
Non Confrontational approach by all.
Beneficial KPI‟s (both to project and future performance).
Integrated Management at all levels.
Pride in Product (feel good factor).
145
146. Selecting The Right Alliance Partner
146
THE Traditional Criteria
o Project experience
o Financial strength (balance sheet)
o Partnering experience
o Engineering capacity
o Investment drivers
o Complimentary skills / culture
o Health and Safety and quality accreditation systems
PLUS New Additions
o Ability to streamline contract execution processes
o Risk sharing appetite
o Available resources (offshore, onshore, project specific)
o Financial backing (ability to get deals in a period of global credit crisis)
o Political, community, industry influence
o Collaborative legal and risk outlook
o Board support, particularly independent directors
o Quality, environmental, and project management credentials
147. Sub Contractors / Partners Risk
Identify key Sub-Contract elements where
success / failure can impact the bottom line and,
Where they can provide advice early on in the procurement process
Use Framework Agreements for projects and areas with „key‟ Sub-
Contractors
Best to have an existing relationship. Not about working with any Sub-
Contractor
Understand Sub Contractors;
Quality
Systems
Health & Safety
Management and Staff Resources
Workload – current and future
Use Risk Assessment Matrix for the Delivery & Quality of Critical
Supply Chain
147
148. Grading Sub Contractors/ Partners
A – needs little or no assistance for the management and
delivery. Ideal candidate for Framework / Partnering
arrangement on major contracts.
A/B - requires extra attention in the management and
delivery on major projects, but very capable on medium
sized projects. Ideal for preferred status.
B – requires assistance in the management and delivery to
the extent of hands on management. Suitable for small /
medium sized projects.
C – required major input in all aspects of management and
delivery. Only suitable for small projects less than ---.
D – has very little understanding of the requirements for the
management and delivery. Should not be employed now.
148
149. Barriers To Engaging In An alliance
Contract
Reputation of alliance contracting
Lack of knowledge
Internal or cultural resistance
Lack of senior management buy-in
Negative experience with alliance contracting
Money and resources
Project specifications / scope
Legislation or project constraints
149
150. Pressing Concerns / Challenges Around
Alliance Contracting
Partner selection
Whether it is applicable to the project /
organisation
Resource constraints
Delivering and proving VFM
Developing project KRAs (Key Result Area) and
KPIs (Key Performance Indicators)
Accurately estimating and setting TOCs
Risk management
Team culture or team performance
150
151. Best Practice Tips in Alliance Contracting
Build your own alliance culture
Select your leadership teams carefully
Extensively document innovations to help demonstrate VFM
Evaluate the quantitative impact of risks for various delivery options
Clearly define the role of each individual on the alliance team
The basis of high performance is trust. Nurture trust or risk losing high
performance
Be courageous and know yourself
Both owners and Non-Owner Participant (NOPs) MUST „Lay down
their guns‟ when entering an alliance contract
Remain focused on project objectives
Establish a common alliance office from the start, not just after TOC is
agreed
151
152. How To Measure VFM in An Alliance?
Historical benchmarking
Innovations achieved
Hard money!
Initial evaluation of opportunities and reviewing VFM throughout
project
Independent estimation
Against KPIs
Productivity improvement index
Staff retention
Embedding it in the decision making process
Savings in capital costs
Meeting of program milestones
Actual outcomes vs. anticipated outcomes
152
153. Inhibitors To Delivering High
Performance in Alliances
Culture / Team
Financial constraints
Project Specifications/ Scope
Legislative constraints
Staff Shortages / Skills shortage
Lack of knowledge or experience
Lack of internal capability
Poor alignment of expectations
Incorrect KRAs or KPIS
153
154. Pitfalls To Avoid In Alliance Contracting
Agendas at odds with each other
Lack of cultural agreement
US and THEM mentality
Assessment of value for money
Putting sufficient time and resource into culture
Under-budgeting at start
Poor communication
Adjusting to an alliance environment
Failing to trust each other
The wrong team
154
155. Finally; Compelling Questions
Regarding Alliances
What new and innovative alliance models will emerge to
withstand the impact of global and national trends?
Will ramped up risk management and governance regimes
lead to micro management and “opportunity block”
What will stakeholder hurdles around legal, financial,
commercial look like in this uncertain environment?
NOTE: Excellent contracting/ alliance outcomes rely on:
Better understanding of macro / market trends
Higher lever of collaboration, streamlining and trust between
contracting parties
Acceptance that innovation takes time, and
Strengthened, but streamlined risk and project management
techniques
155
156. Procurement Payment Methods
(Owner / Buyer Perspective)
FP, Fixed
Price
T & M, Time &
Materials
CR, Cost
Reimbursable
Cost Plus
GMP
156
157. Fixed Price Payment Schemes
FP, Fixed Price, Lump Sum, FFP, Firm Fixed Price
Contract = $180,000 , Seller‟s profit margin (fee) is already included
and unknown to buyer
FPIF, Fixed Price Incentive Fee
Contract = $180,000. For every month early the project is finished, an
additional $10,000 is paid to seller
FPAF, Fixed Price Award Fee
Contract = $200,000. For every month performance exceeds the
planned level by more than 17%, additional $4,000 is awarded to
seller (max $30,000)
FPEPA, Fixed Price Economic Price Adjustment
Contract = $300,000 but a price increase will be allowed in year
three to account for increase in some material cost
P.O, Purchase Order
Contract to buy 20 laptops at $1,500 each . This is normally a
unilateral contract (signed by one party only i.e. the Buyer) however if
signed by both parties i.e. Buyer & Seller then it‟s called Bilateral
157
159. Principles of Incentive Contracts
TARGET COST: $20,000
TARGET FEE: $1500
SHARING RATIO: 80/20 %
CUSTOMER PAYS 80 % OF OVERRUN
CONTRACTOR PAY 20 % OF OVERRUN
PROFIT IS $1500 LESS
CUSTOMER KEEPS 80% OF UNDERRUN
CONTRACTOR KEEPS 20% OF UNDERRUN
PROFIT IS $1500 PLUS
Note: Limitations may be Imposed on Price or Profit
EXAMPLE
$20,000
159
161. Some Contract Types & Risk
Contract
Type
Risk
Bearer
Explanation
Fixed Price Seller The price is fixed. Any cost overrun can‟t be passed on
to the buyer, thus the seller takes all the risk.
Cost plus
Fixed Fee
Buyer Seller passes all costs onto the buyer and gets and
additional fixed fee upon completion. Buyer must pay
all cost overruns.
Cost plus
Incentive Fee
Both Seller passes all costs and gets an incentive fee for
meeting targets. Buyer bears most risk but the incentive
fee should motivate the seller to keep the cost down.
Time and
Material
Buyer The buyer pays for all time and the cost of materials,
thus they take all the risk for overruns.
161
162. Advantages and Disadvantages of
Contract Types
Advantages Disadvantages
Cost Reimbursable
Less costly than fixed price because seller
does not have to account for their risk.
Requires auditing all the seller invoices and
thus increases buyer efforts.
Such contracts are simple to draft.
Seller has less incentive to control cost thus
these contracts are inefficient.
Fixed Price
Seller has strong incentive to control cost
thus these contracts are efficient.
Seller may under quote initially and later try to
make high margins on Change Requests.
Requires less effort by buyer to manage
contracts.
Not having a proper scope can result in seller
not providing some of the deliverables.
Time & Material
Easy to create. Seller has no incentive to control costs.
Good for resource augmentation
assignments.
Requires monitoring of daily output.
Good for small projects only.
162
163. Fixed-price or Lump-sum Contract
163
The Owner knows the actual cost of the project before it begins
Contractor required to achieve the project at the Bid/Negotiated Contract Value
Minimize the risk for the Owner if the project is well estimated, contractual
documents accurate, and project clearly defined
High risk for the Contractor in case of many unforeseen problems
Generally utilized with the Traditional Method & usually not possible with Fast Track
Usually a high incentive to finish early at low cost
Contractor carefully “Estimate Target Cost”.
If “Estimated target cost” is low then “Total Profit reduced” & may vanish.
Contractor may not be able to “underbid competitors” . So Contractor assumes a
Large risk.
Lump-sum ; Provides “Max Protection to Owner” for ultimate “Cost of Project”.
Disadvantages:
Requiring a Long Period For Preparation & Adjudications of Bids.
Because of a Lack of knowledge of Local conditions, all contractors Include
Excessive Contingency.
Change Requested
After “Award of contract” can Lead to Troublesome & Sometimes “Costly extras”
164. Unit Price Contract
164
Agreement on the price charged per unit by the Contractor to
the Owner
Contractor overhead must be integrated in the Unit‟s Prices
The lowest bidder is normally selected
Necessity of an Owner presence on site to measure the actual
quantities
Highly dependent on the accuracy of the estimation of the
quantities given by the Owner/Designer
Difficult to accurately quantify the work necessary
Contractor can make more profit because payment is based
on actual quantities but he can also lose money in the same
way!
The total cost for the Owner can be greater than planned
165. Cost-Plus-Fixed-Fee (CPFF)
165
Cost may vary but the fee remains firm
The fee is independent of the duration of the project and can
be based on “Total/true Cost”
CPFF is used only if the pricing could not be determined in an
alternative manner
No financial insurance of ultimate cost
Little incentive to reduce costs but high incentive to finish early
The Contractor agrees to make best efforts to complete the
work
Promotes collaboration at the early stages of the project
Contractor agrees only to use Best Efforts to Performance
Good/Poor Performance rewarded equally.
CPFF Required Company books be audited.
166. Cost-Plus-Percentage – Fee Contract
166
The Owner is paying the actual cost plus a fixed percentage fee
High risk for the Owner
Used only if the pricing could not be calculated in any other way and if it is
urgent
No Financial Assurance of “Ultimate Cost”.
Little incentive to reduce costs
The Contractor agrees to do his/her best efforts to achieve the goals
Whatever the quality of the work, the reward is the same but the owner
gets the quality he/she pays for
Permits collaboration at the early stages of the Project
Provides Maximum flexibility to owner. Permits “Owner & Contractor” to
work together cooperatively on All “Technical, Commercial, Financial
Problems”.
“No financial incentive to contractor” this because of “High building cost”
(Compared with other forms).
Only meaningful Incentive can be prospects for Follow-on contracts.
167. Fixed-Price-Incentive-Fee Contracts
167
These are Same as “Fixed-Price contracts” Except have
some “Provision for Adjustment” of the “Total Profit” by
a formula.
This Formula Depends on “Final Total Cost” at
Completion of Project
Formula “Agreed to” in advance By “Owner &
Contractor”.
To use this Both “Project or Contract” Requirements Must
be firmly established
Provides An incentive to Contractor To ; Reduce Cost,
Increase profit
Both “Owner & Cost” Share in “Risk & Savings”.
168. Cost-Plus-Incentive-Fee Contracts
168
Same as: “Cost” Plus Contracts, Except have
“Provide for” Adjustment of “Fee as” Determined By
a Formula:
Compares “Total Project Cost to Target Cost”.
Formula agreed to in advance by “Owner &
Contractor”. Used for “Long Duration” or “R&D
Type Project”.
169. T&M, Time and Material, Unit Price Contract
Type
Buyer may wish to add a “Not to Exceed”
clause in the contract to limit total cost paid
to seller…
Contract = $300 per hour plus materials at $10 per can
of paint and/or $6 per brush
169
170. Cost Reimbursable, Cost Plus Payment
Schemes
Cost Contract.
Contract = Cost (fee is $0.0)
CPF, Cost Plus Fee, CPPC, Cost Plus % of Costs.
Contract = Cost + 13% of costs as fee, Not allowed in the
USA Government purchases / contracts
CPFF, Cost Plus Fixed Fee.
Contract = Cost + fee of $20,000
CPAF, Cost Plus Award Fee.
Contract = Cost + $3,000 for every month production
exceeds 50,000 units (max $18,000)
CPIF, Cost Plus Incentive Fee.
Guaranteed Maximum Price
170
171. Sharing Ratio = Buyer / Seller (80/20, 90/10) it indicates cost
overruns or savings distribution
Ceiling Price = Max price the Buyer is willing to pay to Seller as
per contract
Target Price = Target Cost + Target Fee (as per contract)
Final Fee = Target Fee + Incentive
Incentive = Seller‟s Share Ratio X (Target Cost – AC)
Final Price = (AC + Final Fee) <= Ceiling Price
PTA (point of total assumption) = CPIF
[(Ceiling Price – Target Price) / Buyer‟s Share Ratio] + Target Cost
Any costs incurred above the PTA are considered mismanagement
by Seller who must pay the overruns.
CPIF, Cost Plus Incentive Fee
171
172. Guaranteed Maximum Price (GMP)
With Share Savings - Option172
Variation of the Cost Plus a Fee by having a cap, or GMP
The Contractor assumes any additional costs after the “Ceiling” Point is reached
Similar to CPFF but quality may be sacrificed to avoid increases in cost beyond GMP
Variation: Usually, GM Shared Savings - Below the guaranteed maximum, savings are
shared between Owner and Contractor
Contractor-Gets “Fixed Fee” for his “Profit” and Reimbursed for the “Actual Cost” of
Engineering, Materials, Construction Labor, all Other Job Costs, but only up to “Ceiling
figure established” as “Guaranteed maximum"
Savings below the" Guaranteed Maximum” are Shared between “Owner & Contractor”,
where as Contractor Assumes the responsibility for any “Overrun beyond” Guaranteed
“Maximum Price”.
Contract form Combines advantages as well as disadvantages of Both “Lump Sum” &
“Cost-Plus Contracts”.
Best form for Negotiated Contract as it Establishes a Maximum Price At Earliest Possible
Date
Though contract awarded without “Competitive Tenders”, Yet Protects owner Against
being Overcharged,
Unique in that “Owner & Contractor” share Financial Risk & Both have Real incentive To
Complete Project At lowest “Possible Cost”.
173. Final Notes - The Choice of Payment
Scheme
Buyer > client, customer, procurer, purchaser.
Seller > vendor, contractor, subcontractor service provider
The decision whether it is more advantageous to make a particular
item in-house, or to buy it from a supplier involves both qualitative
(such as quality control) and quantitative (such as the relative cost)
factors.
When the market is in decline, clients insist on fixed price bids
whereas when the market is in boom, it is more difficult to obtain
those conditions
The Choice of payment scheme (i.e., contract type) depend on:
The accuracy of the estimation
The ultimate cost known since the beginning or at least the
maximum
The risk appetite
Priority for quick completion of the work
173
174. Final Notes - Procurement Statement of
Work & Contract Types
Performance; What the final product should be able to
accomplish. No attention is paid to the way it‟s built
and/or designed (need a car going from 0 to 120 KM in
5 seconds)
Usually RFP, RFT are issued, Most likely payment
scheme is CR
Functional; Performance + Features
Design; Reveals what exact work is to be done (build it
exactly as per drawings) as in construction & equipment
purchasing projects.
Usually IFB, RFB are issued, Most likely payment
scheme is FP
174
175. Construction Hazards, Injury &
Catastrophic Events & Insurance
Primary Cause of
Loss
Water
Wind
Rigging & Lifting
Collapse
Equipment
Damage
Fire
175
176. Construction Industry Catastrophic Risks
Catastrophic injury potentials
Course of construction / Jobsite injuries
Post Construction (Operations) Exposures;
Bodily injury arising out of negligent construction
Construction defect property damage claims
Materials; asbestos exposure
Course of Construction - Sources of exposure;
Moving parts and activity; heavy machinery, cranes,
Electrocution,
Heat-related deaths
Pollutants (asbestos and others)
height exposures,
failures of structural components leading to collapse hazards
176
177. Course of Construction Losses
Personal injury & wrongful death claims
Most commonly onsite construction workers are the injured
parties, although sometimes bystanders can get hurt
The construction industry has one of the highest mortality
rates of all industries.
Other losses
Property damage
Business interruption
Delay damages
Multiple bond claims
After Construction is completed, liability exposure for
injuries can continue for decades
177
178. Property Loss Exposures
Water is a Primary Cause of Loss
Flooding from surface water
Water penetration through incomplete building envelope or
temporary openings
Condensation/moisture
Wind
Rigging & Lifting
Collapse
Equipment Damage
Fire
178
179. Example; Structure Collapse
Potentially covered losses
Personal injuries
Death
Property damage
Business interruption losses
Replacement costs
Multiple bond claims
Potentially liable parties
Inspectors
Retrofit contractors
Design professionals
Construction managers
Original construction
179
180. Example; Fire!
Potentially covered losses
Injuries & deaths
Property damage
Business interruption
Rebuild
Business reputation
Potentially liable parties
Business
Promoters
Landlord
Suppliers (Pyrotechnics – exothermic resistant chemicals)
Sub Contractors (flammable foam)
Building contractors
180
181. Know! - Insurance Agents Check List!
1. Transit - Evaluate transit exposure and controls that are in place or required.
2. Storage - Review storage of materials associated with the project on and off the site.
Exposure and controls to be implemented.
3. Security - Evaluate site access controls and theft and vandalism potential.
4. Fire Protection - Review adequacy of fire protection that is provided on the site.
5. Rigging and Lifting / Equipment Exposures - Evaluate rigging and lifting exposures
and other equipment related exposures that exist on the project and controls to be
implemented.
6. Collapse - Monitor collapse exposures that may exist on the site and adequacy of
controls; e.g.: support of excavation, formwork/shoring, temporary bracing of structural
members.
7. Adjacent Hazards – Evaluate adjacent exposures and required controls.
8. Water Hazards – Evaluate water damage exposures that may exist on the site. Work in
progress or materials exposed to damage from water.
9. Flood - Review flood exposure to the project site and adequacy of control of surface
runoff or underground utilities. Action plans to minimize damage and control flooding.
10. Severe Weather Exposures - Review controls to protect stored materials and work in
progress from elements.
181
182. Lowering Insurance Costs –
Underwriters Look for;
Solid Financial Position:
• Profitable
• Willing to invest in safety, training and equipment
Quality Management:
• Reputation and work quality
• Clear safety accountability structure
Contractual/Risk Transfer Controls:
• Qualified internal contract review prior to execution
• Applicable to both prime and subcontract work
Auto/Fleet Controls:
• Uniformly enforce of company policies
• Be familiar with the doctrine of Negligent Entrustment
182
183. Commercial Insurance
A contract under which one party, the insurer, agrees - in
exchange for the payment of a premium - to pay for
specified losses the insured may suffer, up to specified
amounts, under conditions specified in the insurance
contract.
Experience (claim history) plays significant role in premium
level
Contractor can be Charged Additional Premium for
Uninsured Subcontractors
Underwriters assess loss frequency issues.
Insurance rates are debited (credited) according to claim
history
Exposures to Loss includes; Property, Personnel, Net Income
& Liability
183
184. Insurance- Who Does What!
Contract Should
Specify Who
Purchases
Coverage –
Owner or
Contractor?
Named Insured
Should Include
Both The Owner,
Contractor and
Subcontractors
Contract Should
Specify Who
Pays the
Deductible?
Add Loss of Use
& Testing
Coverages
184
185. • Workers Compensation – Statutory Benefits
• General Liability – limits specified in contract
• Auto Liability – limits specified in contract
• Umbrella / Excess Liability – limits specified in contract
• Professional Liability – limits specified in contract
• Builder’s Risk (Who is responsible?) - Materials On-site,
Off-site and In Transit
• Additional Insured's, (Obligates an insurer to defend and
possibly pay claims of another party, If it is included, add the
phrase: “but limited to the operations conducted by the
Insured).
• Waivers of Subrogation (prohibits the insurer from
attempting to seek restitution from a third party who causes
any kind of loss to the insured)
• Safety and Loss Control Programs / OSHA Compliance
(at the discretion of Owner)
Insurance Specifications
185
186. Extends Limits Over Underlying:
Premium = Limits Selected and Underlying Premiums x Rates
General Liability
Auto Liability
Employer’s Liability
Premium = Type of Professional/Sales/Limits x Rates x Experience
Professional Errors & Omissions
Settlements, Awards
Premium = Value of Equipment X Rates X Experience
Mobile Equipment (At Shop, On Job-sites, In Transit)
Hired, Borrowed and Rented
Crane Overload
Installation
Umbrella or Excess Liability Coverage's
& Costs186
187. Safety Issues - Accident Pyramid
Lost Time Injury
First Aid Cases
Near Misses
At -Risk
Behaviors
Severity
Frequency
Accident
Potential
Situations
Major Accident
187
188. Management of Safety Issues
A successful safety program focuses its efforts on the bottom of the
pyramid
Reducing at-risk behaviors and near misses will result in lower claim
frequency and severity rates over time
Establish a corporate climate of eliminating at-risk behaviors
Develop internal protocol to allow for site/project specificity safety
procedures
Critical components of a successful safety program;
Top management support and commitment
Foreman/Supervisor involvement and accountability
Recognition/Reward for meeting and exceeding expectations
Safety issues demand your attention. Meaningful Numbers;
Million XX man-hours without a lost-time injury
Million XX man-hours without a “major” injury
188
189. Safety and Loss Control Programs
Specifications (Discretion of Owner)
• OSHA/MSHA
• Establish minimum safe workplace standards, often
exceed Contractor safety standards
• Conduct workplace inspections for compliance
• 29 CFR 1926 Standard applies to road construction
operations - Table of Contents is nine pages long!
• 29 CFR 1910 applies to general construction
189
190. Environmental Requirements
Owner or Contractor responsible
Owner or Contractor statutory liable
Air Pollution
Water Pollution
Hazardous Materials
Not Covered by Insurance
191. Contractors Pollution Liability
Since the general liability policy is not designed to provide coverage for
pollution conditions arising out of a contractor operations, many contractors
purchase a separate contractors pollution liability policy.
There is no standard contractors pollution liability policy. Each insurer has their
own unique manuscript policy form.
Who is insured?
Contractor
Newly acquired or formed organizations
Joint ventures
Named joint ventures only
Blanket joint ventures (preferred)
Executive officers, stockholders and employees
Covered Operations
Blanket coverage (preferred)
Designated activities
Subcontractors operations on insured behalf (recommend for all general
contractors)
Remediation operations
Completed operations
192. Contractors‟ All Risks (CAR) Insurance &
Wrap-ups / OCIPs
SECTION 1- Covers
ALL RISK basis
against
unforeseen and
sudden physical
loss or damage to
the insured
property
SECTION 2 - Third
party liability
where the Insured
becomes legally
liable to pay as
damages
consequent
192
193. CAR Insured Matters & Parties
CAR may be taken out for all building and civil engineering
projects, such as:
Residential and office buildings, hospitals, schools, theatres
Production facilities
Infrastructure facilities, airports
Bridges, dams, tunnels and harbors (wet works)
CAR insurance should be concluded for all parties concerned to
avoid overlaps or gaps in cover:
The principal (employer) &/or
The main contractor &/or
Subcontractors &/or
Project managers &/or
Suppliers.
193
194. CAR PERIOD OF COVER
Cover ATTACHES from
the commencement of work or
after the insured items have been unloaded at site or
the inception date as specified in the policy
Whichever is later
And TERMINATES when
the completed structure is taken over or
put into service or
the expiry date specified in the policy
Whichever is earlier
194
195. CAR SCOPE OF COVER – Two Sections
SECTION 1- Covers ALL RISK basis against unforeseen and sudden physical
loss or damage to the insured property (Material) from ANY cause other than
those specifically excluded ; examples of cover:
Contract works (permanent and temporary works forming part of the contract)
Removable of debris
Professional Fees
Free issue materials
Construction Equipment (Site offices, storage sheds, silos, scaffolding, utilities)
Construction machinery (earthmoving equipment, cranes, site vehicles)
Principal‟s existing property
SECTION 2 - Third party liability (Bodily injury & Property Damage) where the
Insured becomes legally liable to pay as damages occurring in direct
connection with construction works insured under Section 1 consequent upon:
Accidental bodily injury to third parties
Accidental loss or damages to property owned by third party.
195
196. CAR General Exclusions to Scope of
Cover
Political risks, war or warlike operations, SRCC
Nuclear, radioactive contamination
Willful act or willful negligence of the insured or
their representatives
Cessation of work whether total or partial
196
197. CAR General Exclusions to Section I & II
Exclusions to section I Cover;
Consequential loss of any kind
Faulty design
Defective material / workmanship (faulty part only)
Mechanical and/or electrical breakdown
Wear and tear, corrosion, gradual deterioration
Road vehicles, waterborne vessels and air crafts
Inventory losses
Exclusions to section II Cover;
Property insured or insurable under Section I
Vibration, removal, weakening of support
Liability for bodily injury to employee/ workmen of insured parties
Liability for damage to property belonging to insured parties
Motor , Marine & Aviation liability
Contractual liability
197
198. Principle Extensions To Basic CAR Cover
Section I Extensions:
Strike, Riot and Civil Commotion
Maintenance Visits Verses Extended maintenance
Expediting Expenses
Airfreight expenses
Offsite Storage
Inland Transit
Designer‟s Risk
Contracts works taken over or put into service
Section II Extensions:
Cross Liability
Third Party Liability (TPL) cover during maintenance period
Vibration, removal or weakening of support
198
199. Calculation of Sum Insured
Standard Insurance must be equal to the amount stated
in the building contract plus a value of any free issue
material
Contractually, insured contractor may be required (e.g.
Under FIDIC contracts) to include 15% of Construction
Value towards costs of rectification, removal of debris
and professional fees
Separate sums insured for:
Construction machinery and construction plant and
equipment (equal to NRV)
Existing property and clearance of debris (Loss limits)
Third party liability – Section II (as per contact conditions)
199
200. USA Wrap / CIP ?
In 990s wraps witnessed significant increase in popularity in the United
States on commercial and public works projects. In Late 1990s – start of
use on residential projects.
Sponsor (owner or contractor) provides insurance to all parties (including
subcontractors) who work on the project under a single program for
general liability for the term of construction and beyond into completed
operations period. Many types;
CIP – Controlled Insurance Program
OCIP – Owner CIP
CCIP – Contractor CIP
Owner or GC responsible for premium and SIR (self-insured retention) or
deductibles but will spread cost through contract “deducts” and/or
indemnity provisions for deductible and/or SIR obligations
Single carrier for all claims will presumably enable ONE lawyer to
represent all parties for any claim.
200
201. Benefits of Wraps
Covers all defined project risks under one policy.
In theory, limits the number of parties, attorneys, and
claims professionals on any given claim.
Reduces uncertainties arising from subcontractor
insolvencies
Reduces uncertainties arising from insurer insolvencies
Reduces uncertainties arising from varying
subcontractor insurance (Montrose - excluding liability
known at the time the policy takes effect) , residential
exclusions, prior work exclusions, etc.)
201
202. Wraps – Legal Considerations
All relevant documents need to be carefully coordinated
through legal counsel familiar with wrap issues.
Type of project; contract indemnity provisions
Self-insured retention (SIR)/deductible provisions
Warranty provisions
Contract insurance provisions
Non-wrap exposure insurance and indemnity provisions
Even the wrap policies themselves may require modification
based on the program involved.
Complications;
Underwriting information on insured's – history needed
Setting premiums
Aggregates and limits of insurance
202
203. Disputes & Killer Provisions In Contracts
& In Insurance
Owner often attempts to
expand liabilities to
include “Killer
Provisions”.
This is true of insurance
risks as well, whether
specified in the Prime
Contract or inherent in
the Contractor‟s program
design.
Contract provisions,
clauses and conditions
need to be reasonable
and bondable.
203
204. Strategies to Avoid Disputes
Clear drafting of the contract
Know what the Contract says
Identifies roles and responsibilities
Entitlements
Procedures
Timeframe
Steering committee
Senior individuals
Peer pressure
Wider forum for ideas / proposals / solutions
Good project management & Risk register
204