Risks Risks In Construction

8/12/2019 Risks Risks In Construction

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Risks in Civil Engineering

Projects

Constructors perspective


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Risk Analysis In Project Mgt.

This is not a speculative game at all. Our

objective is not to avoid risks but to recognise i

price it and sell it.


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Construction Budgeting DecisionsRisks and Uncertainties

Non-availability of detailed designs anddrawings

Precise ground conditions at site

Type of contract arrangementInflation and price variation

Annual change in Govt. budget and policies

Construction market conditionsGlobal competition for works in India

Industrial relations

Adequacy of site investigations


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Management RisksSame project, different contractorsMaterialsDiscounts, terms of payment,

vertical integrationLabour productivityskill, workmanshipLabour CostMaterials Mgt.Wastage

Equipment Mgt.ProductivityConstn. TechniquesSequence operationsDistortion in bidding - front loadingOverheads and profits

Construction Budgeting DecisionsRisks and Uncertainties


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Professional Liability

Adequacy of site survey

Design errors

Misleading estimates

Selection of contractorsTerms of Contract

Management of Contract


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CR Policies

General exclusions, period of cover

Sum insured, Replacement value

Endorsement for Special Risks

Cover for Cross liabilityMaintenance visits cover

Cover for extra charges for airfreight

Structures earthquake zone

Cover for surrounding property

Cover for Designers risks


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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.


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Decennial Guarantee

Scope of coverDamage to structures

Damage to non-structural works

Debris removalLimit of Indemnity: Limited to value of

structures insured on the date of acceptance

ExclusionsFraudulent act of policy holder / all the insured

Damage due to fire or explosives


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Decennial Guarantee

Damage due to settlement by miningoperations

Damage to third parties

Failure to carry out the finishing operations

Damage due to faulty maintenance, abnormalusage, normal wear and tear

Modifications subsequent to the completion

Damage resulting from substandard workmentioned at the time of acceptance

Damage occasioned by faulty waterproofing


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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

Incometax by the host country


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Risk Analysis in Project Mgt.Role of Actuaries

In 1994 the Institution of Civil Engineers (UK) andthe British Institute of Actuaries established a jointworking partner to produce risk analysis andmanagement process.

A handbookRAMPRisk Analysis and Mgt. forproject 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 awider variety of risks.


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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.


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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

Ri k i Ci il E i i C t t


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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.


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Turnkey Contracts

Maximum Risk borne by the ContractorIncludes Engineering, Procurement,

manufacture,inspection,QA ,Supply erection,

testing, commissioning, performance testing.

AS-Built Drawings,operation manuals

Maintenance , Manuals.Final handing over


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Project Management Consultancy

Pre-investment studiesDesign, Engineering

Tenders, Contracts finalisation

Construction supervision

Contract management

QA, Certification of all Payments

Commissioning, Maintenance


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General Conditions of

ContractDeveloped Countries have Standard GeneralConditions of Contract, max two or three typesfor 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

G l C diti f C t t


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General Conditions of Contract

Prepared by FIDIC Switzerland

CONDITIONS OF CONTRACT FOR WORKSOF CIVIL ENGINEERING CONSTRUCTION

Part I General Conditions, with forms oftender and agreement

Part II Conditions of particular application

with guidelines for preparation of Part II

Clauses


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Prepared by FIDICPrepared by the International federation of

Consulting Engineers; India is

represented by ACEDocument universally accepted , but not by

India

World Bank, Asian Development Bank

insist on adoption for India also

Suitable for Domestic Contracts also



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Prepared by FIDIC

Cl 21 Insurance of Works, Equipment:Works, together with materials and Plant for

incorporation therein, to the full replacement

cost plus 15 %

The Contractors equipment and other things

brought to site , for a sum sufficient to

provide for replacement



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Prepared by FIDIC

Insurance of WorksExclusions Cl 21.4

War, hostilities, acts of foreign enemies

Rebellion, Revolution, Insurrection, or Militaryor usurped Power, or Civil War

Radioactive toxic explosive, ionizing radiation,

Radioactive Contamination

Pressure waves caused by aircraft



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Employers Risks FIDIC

All Exclusions PLUS loss or damage due to useor 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


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Civil Engineering Constructin

Risk Factors

The Works, Construction Equipment and

Enabling works

Contractors liability to own employeesPublic Liability and cross liability

Damage to Employers Property

Professional Indemnity

Employers personnel at the site

Guarantees, Liquidated Damages

Civil Engineering Construction


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Risk Factors: Works definition

The permanent & temporary works andmaterials 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 someoneelse



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Risk Factors: Contract Value

Contract Price: Sum stated in the letter

of acceptance

Contract Value may vary due toVariation in Scope of work

Additions/ Deletions Changes

in Specification, Design PriceFluctuations/ Variations Delayed

handing over of

Site Drawings



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Risk Factors: Contract Period

Contract agreement specifies construction andmaintenance periods

They also provide for time extensions

Liable for delays due to Contractor / Employer /

other factors

Contract liability continues during suchextended periods, even under changed political/

economic regimes


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Documents

Risks Risks In Construction