Contract Project Risk Management Strategy in an Unstable Market Situation in Vietnam

Based on the preliminary data of the market research company property (real estate) in HCM City, more than 90% of real estate projects in HCM City are behind schedule, in which, an estimated 70% of the construction project stopped. The provinces and cities such as Hanoi, Da Nang, Can Tho, Binh Duong, Dong Nai, BRVT, and Long An have the same situation as in Ho Chi Minh City because of lack of investor, while customers demand decreased significantly due to the decline of the economy and markets. Therefore, investors opted to stop the project until the market and customer needs restoration while some chose to slow down the construction to complete the project as the market and customer needs recovery.

Mr. Nguyen Truong Hung made a case study on the Canary Resident Phase 2 Project in the Proposed Guocoland Mixed Development at VSIP I Thuan An District, Binh Duong Province which aimed to: (i) use research data of the contractor, and build in aspect of contractor’s perfective; (ii) study the behaviour of project owners during slow construction market; (iii) study risks of contractor affected by Owner and market; (iv) study risks management (in term of solutions and strategy); (v) discuss the strengths and weakness of the solutions; and (vi) propose recommendations on risks and solutions.

Conclusions

Risk management is an integrate part of project management. Therefore, risk management should be executed immediately at the commencement of the project and must maintained throughout the course of the project implementation process. Risks can occur in any phase of the project. Contractor cannot avoid risks; however, if the contractor strictly implemented the risk management system, risk can be minimized, transferred or retained. There are several ways to deal with risk such as transfer the risk to another party, avoiding the risk, reducing the negative effect of the risk, as well as accepting some particular or all of the consequences of a particular risk. The active and early identification, analysis and evaluation of risks can reduce its impact and will ensure the feasibility and efficiency of the project. The benefit of risk management as well as effectiveness of project management is to save time, avoid cost overrun, ensuring project completion as planned schedule and with good quality.

This report listed the behaviours of investors occurred in construction projects in Vietnam when the economic and market declined leading to Owner’s economic risks, and unstable market situation in Vietnam. This report also identifies the major risks that construction contractors have occurred in the construction projects, many risks occurred in the construction phase, especially in the economic and slow market situation period. However, the report only give particular serious risks occurred for construction sector in Vietnam due to impact of economic difficulties and sharp market decline which really affected the contractors.

As a result, the report described how contractor analyses manage the risks, and their strategy to overcome the risk. This also highlighted strengths and weakness of contractors when they implemented the risk management system, and suggest solutions as well as give recommendations to manage risks as shown in the tables below.

In order to minimize the risk in each specific case, the main contractor used a lot of negotiation strategy, particularly the cooperation among the parties including investor, main contractor, suppliers and subcontractor which are important in the chains. They must cooperate; share the risks and work together to overcome the risks in order to overcome the market difficulties.

His thesis abstract is copied and pasted below.

Abstract

Construction business and Real estate business began to face difficulties since the first Quarter 2010 due to European economic downturn has affected foreign investment FDI in Vietnam to decrease, and interest bank rate is too high , and significant GDP decline has direct impact on the construction on the construction sector and real estate business. Investors face many risks in the project and this has indirectly affected to contractors, suppliers of projects. Therefore, risk management, especially risk management due to difficulties economic and slow market situation as to be appreciated in order to minimize the risks.  

Risks cannot eliminated, however, if contractor implementation of strict risk management system, risk can minimized, transferred or retained, There are several ways of risk dealing such as transfers the risk to another party, avoiding the risk, reducing the negative effect of the risk, as well as accepting some or all of the consequences of a particular risk. The active and early identification, analysis and evaluation, with control measures and reduce the impact of risk is urgently needed to ensure the feasibility and efficiency of the project. The benefit of risk management as well as effectives of project management is save time, avoid cost overrun, ensuring is project complete on schedule as planned, and good quality.

This study listed Owner behaviours often occur in construction projects when they encounter difficulties in the market, and contractors in risks management strategy to overcome the risks due to operating through the construction projects.