Subcontractor Management Strategy: An Approach to Manage Subcontractors in Construction Projects

Subcontracting in the construction industry has greatly increased in recent years. Technology, size, and scale of construction projects are tending to be more specific and complex. As a result, main contractor prefer to subcontract the work because of insufficient resources or expertise in a specific area. Subcontracting is used much more extensively on housing and building construction projects than on engineering and industrial projects (Clough and Sears 1994). Arditi and Chotibhongs (2005) defined a subcontractor is a construction firm that contracts with a general contractor to perform some aspect of the general contractor’s work. Hsieh (1998) found the main missing element in the construction process is the disregard of the crucial role played by subcontractors who are hired to perform specific tasks on a project.

Subcontractors have also caused problems (Kumaraswamy and Matthew, 2000; Humphreys et al, 2000). Many of these subcontractor companies do not have the necessary capability to carry out the work satisfactorily. As a consequence, they are unable to give their clients the required service. Matthew et al (1996) believed that the increase in sophisticated technology-based products has required a high degree of design, manufacture, installation, and commissioning skills that have not been readily available to the industry’s clients, as the skill base has moved away from the main contractor’s organization. This has resulted in main contractors concentrating their efforts on managing site operation rather than employing direct labor to undertake construction work (Kumaraswamy and Matthew, 2000).

Furthermore, there are institutional gaps between the contracting parties (i.e., the general contractor and the subcontractors). These gaps may be inherent or established through time with little heed, but they have the potential to divide the construction team into “islands,” or self-centered decision-making units with conflicting interests (Hsieh, 1998).

Even though a large portion of a construction project is usually performed by subcontractors, the issues concerning subcontracting practice are seldom acknowledged and the ways to improve subcontracting practice are seldom discussed (Arditi and Chotibhongs, 2005).

Mr. Allan Janwar Tannaya conducted a research which objectives were to : (1) explore main contractor’s control strategy to manage subcontractors including procurement, cost, scheduling, quality control, and safety aspects; and (2) investigate main contractor-subcontractor relationship in terms of partnering, leadership style, and communication.

Conclusion

Conclusion for Subcontractor Control Strategy

Based on the result of data analysis, it can be concluded that subcontractor control strategy in terms of procurement and cost from local contractor has been aligned and organized, but, in terms of schedule, quality and safety aspects, it has been yet organized. Major improvements are needed for the subcontractor control strategy in local contractor in order to improve the subcontractor management performance. In contrast, it can be concluded that subcontractor control strategy from international contractor has been aligned and organized in all aspects. However, there are some major points, which need to be improved in order to strengthen and continually improve the strategy performance. Comparative subcontractor control strategy between local and international contractor are shown in table below.



Conclusion for main contractor-subcontractor relationship

It can be concluded that main contractor-subcontractor relationship from local contractor has been yet managed since main contractor does not implement partnering concept in practice. The reason is main contractor and subcontractor have a partnership temporarily only in the project. Moreover, task-oriented leadership style of project manager and site manager may create the distance between main contractor and subcontractor. Considering site manager has a lot of work to be cared, by assigning the site manager more responsible for maintaining the communication with the subcontractor may cause site manager work ineffectively. On the contrary, it can be concluded that main contractor-subcontractor relationship from international contractor has been managed by implementing partnering in practice. The reason is subcontractor has to be trained in order to understand the complicated system of main contractor. It also supported by relationship-oriented leadership style of project manager and site manager. Furthermore, by employing a person to be special coordinator, communication between main contractor and subcontractor can be managed effectively. The summary can be seen in table below.



Recommendation for subcontractor management improvement

After recognizing how main contractors managed their subcontractors together with the strength and weaknesses of each strategy, recommendation for improvement can be reliable proposed as follows:

1) It is important to have formally procurement standard for subcontractors. It helps main contractors to make decision easier and faster whether the subcontractors are qualified with the main contractor’s commitment.

2) Always have two-way lead times built into subcontract agreements. Two-way means that the main contractor and subcontractors agree on an appropriate time for the main contractor to notify the subcontractor when to begin work and an appropriate amount of time for the subcontractors to inform the main contractor of any conflict. Main contractor should monitor subcontractor’s schedule by developing a system or adopting advanced technology software that allows main contractor to track causes of schedule variance.

3) Top management should take a leader role in commitment toward quality. There should be quality policy and activities performed in an effort to implement the quality policy. Subcontractor should understand the quality policy and follow it as a quality standard of the work. The problems related with low quality can be prevented.

4) By establishing a subcontractor database, main contractors are able to know the information about subcontractors. It helps main contractors to have better understanding subcontractors’ performance.

5) Main contractor should develop comprehensive project safety policy and safety programs which make provisions for subcontractor safety. Subcontractor has to obey the main contractor’s safety policy and follow the main contractor’s safety programs by the inclusion of specific language to that effect in their contracts.

6) Main contractor may consider employing subcontract coordinator in order to improve coordination and communication with subcontractors.

His abstract is copied and posted.

ABSTRACT

Subcontracting in the construction industry has greatly increased in recent years. In most construction projects, especially building projects, it is common for 80 to 90% of the work to be performed by subcontractors. This has resulted in main contractors concentrating their efforts on managing site operation rather than employing direct labor to undertake construction work. Therefore, main contractor need to develop a strategy that allow him to control subcontractor effectively and efficiently including procurement, cost, scheduling, quality, and safety and manage the relationship in terms of partnering, leadership style, and communication. In order to understand how the current strategies are being operated together with the strengths and the weaknesses of the strategy, four local contractors and one international contractor were investigated through documentation, archival, and interview. The results shows subcontractor control strategy and relationship management from local contractor has been yet aligned and organized. Major improvements are needed for the subcontractor control strategy in local contractor in order to improve the subcontractor management performance. In contrast, subcontractor control strategy and relationship management from international contractor had been aligned and organized. However, there are some major points, which need to be improved in order to strengthen and continually improve the strategy performance.

Happy Lunar New Year

Dear all

In this new tiger year, i wish you all a happy and prosperous year. I believe this metal tiger year will give you courage and strong spirit for your continuous success.

Regards
Hadikusumo
Professional Master in Project Management Coordinator

Assessment Of Critical Infrastructures: December 2004 Tsunami In The Southern Region Of Thailand

The tsunami that stroke six southern coastal provinces of Thailand on 26 December 2004, has increased concern over an infrastructure system. This event caused extensive damage to human lives and properties which include many infrastructures that have vital services and facilities for citizens as a whole.

This tsunami had possible effect and impact on: (1) physical components of infrastructure systems; (2) potential loss of service; (3) the safety of humans and; (4) the security of sensitive systems in the natural and built environments (Wallace, et al., 2003). Many aspects of tsunami impact were studied by many experts in various fields. Infrastructure is one of important aspect that is needed to study because disruptions of infrastructures have a serious impact to people as a whole in both during an emergency period and a long term development.

Disruption in an infrastructure is said to occur when one or more of the physical components or one or more of the activities needed to operate a physical component cannot function at prescribed levels (Wallace, et al., 2003).

The word “Critical infrastructure” was said a long time before this tsunami event. This word was more concerned in The September 11, 2001, attack on the World Trade Center in New York City. The threat at that time, which was terrorism, was not natural phenomenal disaster like this time. Critical infrastructures identification provides information to prioritize which infrastructure is more crucial to protect from a treat. Criticality assessments were applied for critical infrastructure identification in this research study. Criticality assessments provide information to prioritize assets and determine which potential targets merit further evaluation. Criticality assessments provide a basis for focusing the mitigation strategies and implementation methods on the most important items by identifying which assets and structures are more crucial to protect from a treat (United States Coast Guard, 2002).

Tourist industry of Phuket and Phang–Nga Provinces were serious depressed by tsunami. Especially, Phuket Province is very famous tourist place of Thailand for both domestic tourist and international tourist. Revenue of tourist industry is a major income for these two provinces. Tourism infrastructure is the physical element that is created or made to cater for visitors (Davidson, 1993). The emergency plan and evacuation plan is thus needed to study in order to reduce the potential loss of human lifes. The host community has the onus of preparing for disasters not only for their own protection, but also for the safety of tourists (Drabek, 1994).

There is a relationship between tourism infrastructure and tourist industry because without recovery of tourism infrastructure, recovery of tourist industry cannot be accomplished. Although tsunami is unpredicted event, preparation to minimize losing human life and property is still important. Planning for tsunami helps people do better next time. To accomplish critical infrastructure protection, disaster management is needed to study in order to reduce potential loss of infrastructure services and human lives.

Mr. Bunpot Luttakoon made a study which main objective is to assess critical infrastructures during the December 2004 tsunami in the southern region of Thailand. Three specific objectives of his research study were to : (1) develop a framework to identify critical infrastructures in the event of December 2004 Tsunami in the southern region of Thailand; (2) assess the changes in the hotel management and tourist industry that was related to the emergency plan, evacuation plan, strategy, and policy after the event of December 2004 Tsunami in the southern region of Thailand; and (3) formulate strategy and policy recommendations for critical infrastructure protection to reduce potential loss of human lives and infrastructure services.

Conclusions

The tsunami event on 26 December 2004, was striking in the southern region of Thailand, has been being concerned for infrastructure systems. Tsunami is a widespread natural phenomenon disaster. Disruption of infrastructures was a serious problem for both during an emergency period and a long term development. During the recent tsunami event, many infrastructures were disrupted. It caused a serious impact on the national defense, economic security, public safety and public health. In addition, infrastructure interdependence also increased an impact between them.

The major findings in the first phase of research study are: (1) Phang–Nga Navy Base of Royal Thai Navy Force is the most critical infrastructure based on national defense criterion; (2) Hotels and accommodations are the most critical infrastructure based on economic security criterion; (3) Hospital is the most critical infrastructure based on public health and public safety criterion and; (4) no infrastructure was serious impact based on critical infrastructure interdependence criterion.

It was found that some infrastructure is critical infrastructure in other extreme event but it was not critical infrastructure for tsunami event because their infrastructures do not have a risk that is impacted by tsunami event. It can be concluded that risk is one factor that should be considered to identify critical infrastructure for tsunami event. The researcher suggested that critical infrastructure for specific location and specific event are different because at lease, level of complexity of infrastructure and type of threat in different country are different. Critical infrastructures were identified in the first phase.

In the second phase, hotels and accommodations was selected for further study. All selected hotels, located in the risk area of tsunami, were impacted by the tsunami in both direct and indirect impact.

It was found that all studied hotels and accommodations in the impacted area do not have emergency plan and evacuation plan for tsunami before the tsunami event on December 2004. The hotels have only emergency plan, evacuation plan, and training program for fire emergency that is enforced by government regulation otherwise the hotels cannot continue their hotel license for tourist business. The emergency procedure for fire was trained every year for employees. The report paper of training has to submit to government agency every year for continuing of hotel license.

Emergency plan for tsunami was very much concerned by every hotel in affected area after the tsunami of December 2004. But it seems to be declining by a time it was passed. It was found that major pressure to implement tsunami emergency plan is human life concern and community–based activity while depressed tourism industry situation is the minor pressure to implement this plan.

The royal Thai government was a center of tsunami emergency plan and evacuation plan for a whole community, including every hotels and accommodations. Hotels and accommodation representatives were selected for this training program. After that, the representatives of each hotel and accommodation had to implement emergency plan and evacuation plan for each own hotel. The successful levels of this implementation for each hotel are different. It is up to the capability of each hotel and level of attention.

The emergency plan and evacuation plan were not government regulation but all hotels and accommodations have a good concern by them because this implementation also effected to the trust from both customers and employees. For overall impacted area or community, it has a training program and tsunami warning systems test every month. This training was held very frequent in the first year after the tsunami event especially when tsunami warning system was installed but it seems to be less in the second year as reported by many executives.

Post–tsunami development offers the opportunity to correct the mistakes of the past. Activation of emergency plans is based upon assessment of the potential impacts of disaster. Skill in emergency preparedness and planning is to be distinguished from skill in the emergency management. The core of emergency management has to do with inter–organizational relationships (Drabek, 2002).

Existing policy and strategy were acted by both individual hotel and cooperation of many organizations. It was found that the best policy for recover tourism industry is confidence creation. Many ways of promotions were acted by the government agency and related organization for confidence creation and confirm that all area was recovered back to the normal situation. Tsunami warning system installation was also a purpose for confidence creation. The completion of disaster management, including preparedness, detection, response and recovery, would not have been accomplished without the support by collaboration of Hotels, Tourism Authority of Thailand, Tourism Guide Company, Government Agency, Airlines, the Thai Hotels Association and the Association of Thai Travel Agents.

Researcher suggested that almost critical infrastructure protection previously started was concentrated on human disaster such as terrorism, human error, and dangerous chemical. It is very less that critical infrastructure is concerned on natural phenomenal disaster especially tsunami because preparedness for disaster is up to the frequency or recurrence of disaster event. The main policy of this research study was applied from disaster management. The key of disaster management can be applied for every disaster. These are preparedness, detection, response, and recovery. In addition, three important words should be added. These are resilience, robust and redundant of critical infrastructure.

Critical infrastructure protection requires a consistent, cooperative partnership between the owners and operators of critical infrastructure and government agencies. Owners and operators of critical infrastructure would provide adequate security of their assets by actively implementing their emergency plans, evacuation plan, and exercises. The government should enforce emergency plan and evacuation plan for tsunami as legislation for hotels and accommodations for tourist industry security. This legislation should cover minimum standards for infrastructure design. Even the best security management plans and legislation which compel to their enforcement are worthless without proper implementation. Experience proves that independent Commission security inspections of their implementation are the only efficient instrument to guarantee the correct implementation of security requirements.

Communication breakdowns often hamper the effective coordination of a disaster response. Tsunami in the south of Thailand 2004 creates the need for cooperation within and among responding organizations. Many government agencies involved with Tsunami response operations. However, if all organizations hope to achieve full cooperation during a response, many inconsistencies in the management of information within and between organizations will have to be eliminated. The functional responsibilities of every relief organizations are different, and understanding how to translate differing capabilities and concerns into a unified inter–organizational interaction is a major priority.

The response during the relief period after the tsunami event has to include the following issues. These are human life rescue, food, water, sanitation facilities, temporary shelter, and clothing. The recovery period includes many development programs, reconstruction of facilities, education recovery, economic recovery, and etc.

In order to achieve a sustainable development, basic infrastructure should be provided and recovered after the tsunami event. The provision of food is a crucial for survival needs of affected families and to help sustain recovering communities. Government has to provide shelter options for tsunami affected communities, including safe and appropriate public buildings. Schools or education facilities should be reconstructed for students and teachers. The government should focus on increasing appropriate health care services in tsunami–affected communities. Ambulances, hospital beds, major medical equipment, and pharmaceuticals should be provided for victims. Victim could access to clean water, toilet and laundry facilities, pavements, wells, water towers, drainage systems, rainwater harvesters, public bathrooms, boreholes, and etc.

His thesis abstract is copied and posted.

ABSTRACT

During December 2004 Tsunami in the Southern Region of Thailand, many infrastructures were disrupted by seismic sea waves. This research study developed a framework to assess critical infrastructures during the December 2004 Tsunami in the southern region of Thailand. Specific locations of this study were Phuket and Phang–Nga Provinces. Four criteria were developed to identify critical infrastructures that were disrupted in the study areas. These criteria were national defense, economic security, public health and public safety, and infrastructure interdependence. The questionnaire and interview were conducted among experts who were responsible for these infrastructures during the emergency and recovery period. It was found that: (1) Phang–Nga Navy Base of Royal Thai Navy Force is the most critical infrastructure based on national defense criterion; (2) Hotels and accommodations are the most critical infrastructure based on economic security criterion; (3) Hospital is the most critical infrastructure based on public health and public safety criterion and; (4) no infrastructure was serious impact based on critical infrastructure interdependence criterion.

Hotels and accommodations were selected for a further study. This study aimed to assess the changes in the hotel management and tourist industry that was related to the emergency plan, evacuation plan, policy, and strategy after the event of December 2004 Tsunami in the southern region of Thailand. The questionnaire was developed for a telephone interview of fifteen hotels in Phuket Province and five hotels in Phang–Nga Province. It was found that the government agencies were a center of tsunami emergency plan, evacuation plan and training exercises for a whole community, including the hotels and accommodations. These hotels and accommodations have been implementing tsunami emergency plan and evacuation plan after the Tsunami event. The stimulated factors to implement these plans were human life concern, community–based activity and depression of tourism situation.

Finally, strategy and policy recommendations were formulated in order to reduce potential loss of human life and infrastructure services. These policy and strategy were applied by the key of disaster management. These are preparedness, detection, response, and recovery. In addition, resilience, robust, and redundant of infrastructure were included for critical infrastructure protection.

IT Application For Construction Safety Management: Planning, Monitoring And Trending

Construction industry is considered as one of the most complicated industries because of its uniqueness, rapid growth, and dynamic nature. All the three main resources of this industry, i.e. labor, material and equipment have their own complexity and moreover their complexity vary with environment or workplace. Complexity and dynamic nature of construction industry makes it very difficult for the department of management of the company to take care of the occupational health and safety of their employee in construction site.

Every day construction site deals with lots of activities which surround with different hazards. Most of the company has many manuals, rules, regulations, and checklists. So it is very difficult for a safety officer to remember all the things to do. So it becomes essential for a development of a tool which can remind safety officer that the activities that should be done daily, weekly and monthly. This also helps new safety officer as his tool of assistance which can remind him important jobs to be done priority wise.

According to Cheung et al. (2003) safety and health issues are of very dynamic nature in construction industry. Anytime and anywhere new hazard can be identified and accident may occur. For that purpose sometimes safety officers require expert advice and instruction. It will be advantageous for a safety officer if a tool is designed to enable online expert advice and instruction.

More over Cheung et al. (2003) emphasized on the requirement of a detector of potential risks and hazards which can able to highlight with a warning sign to the activities that required immediate corrective action.

Kartam (1997) has identified three main elements who are obligated to provide safe work environment. They are owner, contractors and regulatory agencies. All this three elements has different needs towards safety. Owner needs a tool to monitor and control safety during construction and to assess safety plans as criteria for selecting a contractor. According to Kartam (1997) contractors need a tool by which to actively integrate safety and health measures into project planning.

Mr. Bhaskar Jyoti Das conducted a study which main objective was to develop an information technology application, which can facilitate construction safety officials to manage health and safety. In order to obtain the main objective, the following sub-objectives must be fulfilled: (1) to identify and understand the safety practices; (2) determination of the system requirement; (3) design and development of the databases system to store safety information; and (4) to design and development of Information Technology (IT) application.

Conclusions

Identification of Safety Practices
After reviewing the literature in construction safety and by interviewing different safety officers, the various safety practices in construction industries are identified. Those are listed below.

- Management roles & responsibilities
- Work method statements
- Safety Planning
- Orientation
- Training
- Safety Meeting
- Toolbox Talk
- Audit of Safety Performance
- Records and Reporting
- Accident Investigation
- Health and Safety Promotion
- Development of Emergency Response Plan
- Risk identification, assessment & control
- Global minimum requirements
- Software use

These practices are used in determining the requirement of the IT application.

Determination of System Requirements
To solve all the problems mentioned above, the construction industry demands a computer application which can be used for planning, monitoring and trending.

· Linking of safety information with project scheduling software like Primavera Project Planner and Microsoft Project.
· Planning of occupational health and safety issues accordance with the project schedule.
· Activity wise citation of occupational health and safety issues for the purpose of review and discussion in safety meetings.
· Addition or modification of safety library anytime
· Safety assessments which address the specific hazards of the site
· To monitor the performance using the data gathered from safety audit.
· Using historical data, to find out the trend of safety performance.
· Remind the user for required safety practices need to perform
· User friendly and compatible with Windows operating system

Considering the above mentioned requirements as baseline, the computer application ACSM-PMT is designed and developed.

Development of the Database System
For planning, monitoring and trending, the system needs to store all the information in a safe and secure location for easy access. A database would be ideal to store all the information. Four different databases have been developed:

Project Schedule: To store the project schedule imported from Primavera Project Planner or Microsoft Project.

Safety Library: To store Hazards and their related information

Safety Records: To store the data from safety audit and accident investigation report

Utility: To store user information, administrator information, and project information.

Development of IT Application
The IT application ACSM-PMT is basically a database management application. This IT application retrieves relevant information from the Database System to present them in a familiar format based on user specifications. The application can use for planning occupational health and safety aspect accordance with the project schedule. Along with the planning, ACSM-PMT can generate work method statement for the activities. The safety audit checklist specifically directing the onsite hazards and accident investigation reports can also be generated. It gathers data from the safety audit and recalculates it in order to be displayed in safety meter graphs. Based on the data accumulated from the safety audit, the user can additionally use the application to compare the performance between various projects. In addition the system can also use for risk analysis based on the collected data from the safety audit and accident investigation report. A reminder function is developed to remind the safety officer about the onsite hazards which are also linked with the corresponding general guidelines files of the hazards for their reference.

The IT Application has been developed using Visual Basic (VB). VB 6.0 was used since it is easy to deploy the project in Microsoft Windows. VB additionally provides a very user-friendly environment. For displaying the results Microsoft Excel and Microsoft Word has been used.

Evaluation
The evaluation was done in two stages i.e. system verification and system validation. For system verification, initially a case study was developed to test the system. Implementing the case study, all the functions were tested and the system was running as per expectations. All the functions gave error free results both in terms of required information and visualization. Connections and query between the databases were found to be established successfully.
Validation was carried out to determine its utility in he construction field by demonstrating the application ACSM-PMT in front of experts in the field of construction. The experts rated the applicability of the system as useful for the construction industry. On the average the system is also rated as easy to use.

His thesis abstract is copied and posted.

Abstract

Saving lives and reducing injuries is crucial for every construction business. Construction companies can save money and improve productivity by using an effective health and safety program. This thesis aims to develop IT software capable of managing health and safety issues by Planning, Monitoring and Trending/Analyzing. It is planned to be used as a supporting tool for the safety officers.

The system requirements are gathered from literature review and interviewing safety officers. Based on the requirements, the databases and the IT application are designed and developed.

This software imports project schedules from Primavera Project Planner and Microsoft Project, and links with the safety library. The user can view information regarding the risk level of on-going activities, their work method statement, and other information. The safety audit checklist and accident investigation reports can also be generated. The system additionally supports safety meter graph, and can be used to compare the safety performance of different projects.

As a final step of this work, the software has been tested for its accuracy and reliability by taking some case studies under consideration. On the brighter side, the outputs obtained for the case studies have been quite satisfactory. This implementation of the software on case studies and the outputs thus obtained have been demonstrated in front of experts in the field of construction for their much sought after comments and suggestions. Based on feedback from the experts, it can be concluded that the system can be successfully used in real-time for planning, monitoring and trending/analyzing safety performance in construction industry.

Special Purpose Vehicle (SPV) For Infrastructure Projects Financing Through Public Private Partnerships (PPPs)

In managing and controlling the construction projects, there are two basic features which go hand in hand ‘project management’ and ‘project finance’. In general, most of the people especially engineers are aware of the project management aspects while they do not pay much attention to the project financing. As a result, most of the project failures and project delays arise due to the lack of the reliable financing which is the main blood stream in developing the infrastructure projects.

Project financing in the form of Public Private Partnership (PPP), Asset Backed Securitisation (ABS) are now becoming popular and in some cases a mandatory investment technique. Projects have traditionally relied upon project finance techniques with debt being made available by commercial banks often from financial institutions and/or multilateral financing agencies. But to accumulate loans, long term debt, subordinated or senior debt, equity, quasi-equity against the project is not an easy task. Alternatively, securitisation offers an attractive potential alternative for generating capital to finance the projects. More and more major infrastructure financing are now using securitisation in conjunction with more traditional project finance techniques. Such in the popularity of securitisation, the experts are estimating that it will only take 10 to 15 years for it to replace traditional bank-lending (Project Finance International). Therefore, in light of such estimates, it is imperative to have basic knowledge of public private partnership, securitisation role in the projects by parties involved especially engineers on it.

Typically, creating an SPV allows privately managed infrastructure projects, either at the stage of construction and/or operation, to enjoy most degree of isolation. In most cases the use of an SPV is a requirement imposed on the private agent by the public sector, the financiers, the guarantors or the contractors of the project. The special purpose vehicle (SPV) conceptually can be divided into two as in legal and financial view point. This research is limited to the legal and financial framework analysis of SPV in PPP projects. So, it can be described as special legal purpose vehicle and special financial purpose vehicle.

SPV varies depending on the legal and financial agreements with stakeholders in a project. Moreover, different infrastructure projects have different structure of SPV. For example, Power Purchase Agreement (PPA), telecommunication, gas and oil, mining or even water treatment projects the structure of SPV is quite different and unique. Therefore, no single SPV structure is suitable for all PPP projects.

In project financing, the special purpose vehicle, the consortium or project company what would be it named is the hub and the desired financing depends on its functionality, its linkage to varies participants involved in the project. Mr. Abu Naser Chowdhury conducted a research which objectives is to find the following:

- Comparison of various SPV models used in many worldwide projects to search for essential attributes which strengthen the development of the model
- Investigate the forces in SPV development process and potential solutions on legal and financial framework
- Propose a prototype SPV that can be adaptive for infrastructure projects – a guideline

Conclusions

Project finance transactions in public-private partnership projects are complex contractual arrangements among a number of different parties with different objectives. Such transactions can work only if the needs of the private and public sector can be met in an appropriate manner. Financing is the essential part for all these activities; a special purpose vehicle is formed for this issue. It is true that the financing of infrastructure project depends on the anticipated financial performance of the SPV. A proper financial structure needs to set by the special purpose vehicle not only for tapping funds from lending institutions but also for operation and service for the project itself.

The purpose of studying special purpose vehicle for infrastructure projects financing through public private partnerships is to (1) identify the financial components for the development of SPV (2) the legal framework requirements, and (3) finally, propose a guideline as a decision support tool for special purpose vehicle in infrastructure projects financing. The research is carried out by examining 12 worldwide public-private partnerships projects. The focus is to identify and evaluate various components of special purpose vehicle used in those projects. After that, four IPP and two desalination projects in Asia and Mediterranean Middle East are screened out for in-depth analysis on (1) financial sources and strategies (2) market conditions (3) securities and agreements (4) legal framework and support and (5) credit enhancement. The analysis is taken into the financial and legal issues related to project vehicle. A qualitative research is prepared where the data collection techniques are case studies.

From the analysis, the attributes of project vehicle for infrastructure project financing can be divided into five categories; (1) finance-ability (2) sources of funds (3) securities and agreements (4) sovereign support and (5) credit enhancement. All these five attributes are essentially important for financial and legal risk consideration too.

Finance-ability: It is vital to structure the financial attributes of special purpose vehicle. In this respect the foremost duty is to set and check the finance-ability attributes of the project. The structure is the ‘sell idea’ to attract funds from lending and financial institutions. The analysis reveals that Dabhol project had high financial and legal risks involved in it. In finance-ability category, the rigid ‘hell-or-high water’ agreement, foreign supply contract with absence of performance guarantee, high tariff rate and above all direct negotiation to achieve contract had made the project vehicle risky in all aspects. Paiton 1 project in Indonesia is also suffered in financial ground due to high tariff rate. This happened as the supply contract was costly, no performance guarantee provided by the supplier, had little experience in this business and not at all creditworthy. The Indonesian government did not provide counter guarantee for off-take thought it provided ‘comfort letter’ a sort of payment security.

Sources of funds: In question of sources of fund (if domestic capital market contribution is not significant) the sponsors must consider World Bank as the first and foremost option. The host government can take the world bank’s help for subordinated debt financing mechanism and ensuring partial credit guarantee and/or partial risk guarantee to attract other lending institutions in debt financing for the project. Export credit agencies, bilateral banks are in a better position to compel the government to meets its obligations to the project investors and lenders. The support of ECA is sometimes crucial in the project finance market. These agencies need to be selected carefully according to the risks and mitigation strategy set by the project vehicle because most of the ECAs engage in buying-off the host government which in terns charges high premium from the project.

Securities and Agreements: Securities and agreements need to be transparent, concrete and creditworthy. For developing countries particularly in Asia, the contract awarding process must be ‘competitive’, no matter what the situation exists. It has been found that two projects used direct negotiation as awarding contract were Dabhol and Paiton 1. The direct negotiation of achieving the contract had huge impact of mistrust to the project. Skikda desalination project in Algeria initiated in 2004 where the supplier contract, performance guarantee has not set yet. It is found that the project attracted foreign investors, EPC contractors from Spain, achieved MIGA guarantee but payment security like escrow account and host government payment guarantee has not finalized.

Sovereign Support: Government should step in and provide guarantees to the investors in terms of payment guarantee, comfort letter etc. The performance guarantee and counter guarantee to the central bank for foreign exchange availability and transfer. It is found that in HUBCO project, Pakistan government had extended its sovereign support for successful financial structure of SPV regarding to fund accumulation, guarantees to payment and performance even foreign exchange by the central bank of Pakistan.

Credit Enhancement: Sponsors’ contingency equity support played a big role in credit enhancement in Paiton 1 project, Indonesia. This not only attracted financing by private offshore and export credit agencies but also this helped at the time of restructuring debt mechanism. The subordinated debt mechanism was also acted as credit enhancement in HUBCO and Ashkelon project which was set by these two projects on different mechanism.

Finally, it is found that improper setup of SPV in Dabhol project made Indian Government to renege the project, Paiton 1 in Indonesia to restructure the debt financing repayment after a difficult settlement among the stakeholders. At the end, a prototype SPV is proposed as a decision support tool to the experts, government entities, sponsors and lending institutions which helps as guideline.

Recommendations for the Prototype SPV

The prototype special purpose vehicle has been structured on considering financial and legal attributes. Based on findings from the information of diverse situations, the SPV is been structured on finance-ability, sources of fund, securities and agreements, sovereign support and credit enhancement areas. The applicability of the SPV structure will depend on selecting the attributes suitable on that particular condition of the situation exists. The proposed guideline will help the policy maker of the government sector, project sponsors to foresee the essential attributes governing the financial and legal aspects at the time of structuring the SPV framework.

His thesis abstract is copied and posted.

ABSTRACT

The development of special purpose vehicle (SPV) is essential for successful financial closeout of public-private partnership (PPP) projects. The financing of infrastructure projects depends on the anticipated financial performance of the SPV. Ambitious and improper setup of SPV causes suffering to project, forces restructuring debt mechanism and even bankruptcy to giant companies. Concerted efforts from the government and private sectors, as well as political, legal and financial issues need to deal with for smooth mechanism of SPV. These issues have been identified and evaluated from twelve worldwide infrastructure projects. It is found that different projects used different SPV structure. An Attempted has taken to identify the attributes governing the setup of SPV in those cases. Furthermore, six cases out of twelve in Asia and Mediterranean Middle East are screened out for in-depth analysis on financial strategies, legal framework, contract, securities for the SPV framework. The findings are based on a variety of diverse situations.
Finally, a SPV structure for infrastructure projects in general has been developed, addressing key issues in five areas: (1) finance-ability; (2) sources of funds; (3) securities and agreements; (4) sovereign support; and (5) credit enhancement. The research findings should enable public as well as private sector clients to establish more efficient SPV with respect to financial framework for infrastructure projects.

Case Studies On Risk Allocation In Highway Projects Under BOT Scheme In Vietnam

Private investment in public infrastructure can be traced back to 18th century, such as the Suez Canal and Trans-Siberian Railway, as well as canals, turnpikes, and rail-roads in Europe followed by Americas, China, and Japan (Walker et al. 1995; Levy 1996).

According to Parker and Hartley (2002), public-private partnerships have become popular in a number of countries in recent years. The eagerness to reduce government spending, loan, and awareness of the private enterprise to provide necessary capital investment, has introduced PPP programmes as an alternative for investment in infrastructure development.

The relationship between public and private sector is described by Merna and Smith (1999) as a contractual relationship where a private party takes responsibility for all or part of government’s functions. It is a contractual arrangement between a public sector agency and private sector concern, whereby resources and risks are shared for the purpose of delivering a public service, or for developing public infrastructure.

Most of the times the public sector retains responsibility for deciding on the nature of service to be provided, the quality and performance standards of these services to be attained, and taking corrective action if performance falls below expectation (Smith, 1999).

However, beside advantage which collaboration between two sectors bring about, risks in implementation process of project is not also avoidable. “A risk occurs where either the outcome or consequence of an activity or decision is less than certain.”(Boothroyd & Emmett, 1996). “Both the outcome and consequence of a decision could simultaneously be uncertain. The presence of risks in a project could hinder the achievement of its objectives. Therefore, risks must be managed carefully to achieve project objectives.”(Akintoye, Beck & Hardcastle, 2003)

A Build-Operate-Transfer (BOT) project, which a model of Public-Private-Partnership (PPP) is defined by Walker and Smith (1995) as a project model where the private company is given a concession to build and operate a facility that would normally built and operate by the government. The private company is responsible for financing and designing the project. At the end of the concession period, the private company returns ownership of the project to the government. A research about BOT highway project will help readers perceive and understand deeply advantages and disadvantages, especially in risks occur (Identification and allocation) in partnership process between public and private sector.

Mr. Nguyen Tuan Nghia made a research regarding the condition in Vietnam where its existing infrastructure facilities are inadequate to meet the requirements of the growing population, modernizing and industrializing country, integrating into the global economy. Therefore, the government has the prime responsibility, to develop infrastructure. In this way some projects have been started in the past and finished or in progress and some are planned to start soon. However, the problems of projects in Vietnam can be briefly described as follows:

- Lack of coordination between public & private sectors;
- Urgent needs for infrastructure development, especially Road Systems in Vietnam. But limited government financial resources.
- Lack of management experience in planning, managing, implementing, risk allocating, etc. development projects in general and BOT projects in particular.

The problems mentioned above can be attributed to one of the important problems, that is, the inaccurate identification of the critical risks of BOT projects. If there had been a proper identification and allocation of the risks, many of these problems could not have been arisen. The problem statement now becomes as stated below:
The BOT projects in Vietnam are suffering from many problems due to inaccurate identification and allocation of risks in the projects. This problem is a major hindrance for future prospects of these projects and the economic development of Viet Nam.

Mr. Nghia set five objectives for his study such as:

- Understand the BOT structure, its applications & limitation in highway projects in Vietnam.
- Identify risks in highway projects under BOT system in Vietnam.
- Investigate the risk allocation arrangement used by the public sector agency & private sector concern.
- Finding potential risk allocation practice through case study.
- Propose recommendations for public & private partnership in developing human resources in order to build proper risk allocation strategies, leading to control risks occur in future highway projects speed road system under BOT scheme more effectively.

His Conclusion

The concept of BOT is relatively new in Vietnam, especially for transportation infrastructure construction industry. The government now has taken steps to initiate projects. These projects meet different challenges under different phases of life cycle from pre-investment to operation phase.

This study focusing on highway projects under BOT scheme in Vietnam in term of risk and risk allocation is deemed to be beneficial to stakeholders. To evaluate the severity of the listed risks, survey questionnaires were used. The suitable current risk allocation finding was implemented through case study method. In both parts, the research samples were separated into two sectors, public and private.

All of study objectives have been achieved: (1) The BOT structure, its application & limitation in highway projects in Vietnam was sketched, (2) major risks in there were determined, (3) The risks allocation attitude between public and private sector have been determined. (4) Allocation practice has been implemented through case study. (5) Recommendations for the shareholder to cope with risks as well as control effectively through proper allocation are made.

Major risks in BOT highway projects in Vietnam

In the order to determine the major risks, total weighting score, which is product of frequency of occurrence and degree of impact, has been calculated. The risks were then ranked according to the total weighting score. The top-ten risks from public respondent attitude, private, and whole were determined in the table below.

Beside, the survey results showed risk allocation opinion base on the percentages of total counts of participant responses such as risk should be allocated to the public sector, to private sector, shared between them, or strongly depend on individual project circumstances.
Hypothesis testing also revealed that risks allocation attitude by the public and private sectors in Highway projects under BOT scheme in Vietnam is not different.

Finding risk allocation in BOT AnSuong-AnLac highway project

“BOT project of improving and upgrade 1A highway for stretch of road AnSuong-AnLac” is selected as case study in this project, because it meets criteria as follows: (1) It has enough number of stakeholders; (2) It is recently completed and open for public use.

General respondents’ perception of risk allocation in AnSuong-AnLac project base on percentages of total counts of participant responses showed that participants accepted risk allocation is important to the success of project, but they have never allocated risk properly and systematically by paying most attention to other important things.
From the point of view of all the parties discussed and retransmitted by Managing director, significant risks as potential risks in this project were identified are: land acquisition and compensation, unstable material prices, change in traffic planning, and inflation rate.
The factors limiting the application of risk identification was ranked and listed based on the result of total weighting score in the table. It is necessary of reason explanation for impact level of those factors to risk identification in this project.

Finding out potential risks proper allocation approaches in this project is the most important in this chapter. The risk allocation opinions in BOT highway project in Vietnam is really useful in risk allocation practice between shareholders. Specifically in land acquisition and compensation, compensation was assigned to the private sector; acquisition thus should be allocated to the public sector. For unstable material prices, the project cost should be adjusted since it is accepted that this risk may be from external factors. There is no choice for the investor if host government changes traffic network planning in future, they are forced to sell the project to the government if they do not want to lose in the project if operational revenues are below expectation. It is seemingly accepted that the government will adjust toll in future if inflation rate volatility at that time.

The potential problems in the risk allocation strategies were evaluated and listed by interviewees in this project base on total weighting score. As the factors limiting the application of risk identification, it is essential for explaining impact level of those factors to risk allocation strategies in this project.

His Recommendation

Both the public and private sector has different goals and purposes for the project, thus they have different level of willingness to accept the risks if they are allocated to them. Moreover, the willingness for undertaking those risks of each participant in each factor is unready by their responsibility. The risk allocation manners in two sectors are deemed to be very much behind those in developed or even other developing countries. These originate primarily from human resources. Considering the policy is in need for solving these problems by the feasibility in mind, three fundamental recommendations are given:

(1) The government has to introduce proper laws or policies for allocating risks to stakeholders.
(2) An education and training policy and framework should be established to bring out the best of current human resources. It must help encourage responsibility, knowledge sharing, continuous improvement in coping with risks in BOT projects.

(3) Establish benchmarking strategy for risk allocation which properly applied in the future.

His thesis abstract is copied and posted.

ABSTRACT

This study focusing on highway projects under BOT scheme in Vietnam in term risk and risk allocation is deemed to be beneficial to stakeholders. This research comprises of two distinct parts. The first part is determining the major risks and allocation opinion between stakeholders in BOT highway project through a survey on practitioners in public sector agency and private sector in Vietnam. The second part is finding out a proper risk allocation potential through using case study method.

It has been concluded that all of three objectives of the study have been achieved: (1) major risks in BOT highway project were determined, (2) The risks allocation attitude between public and private sector. (3) Allocation practice has been implemented through case study. (4) Recommendations for the shareholder to cope with risks as well as control them effectively through proper allocation are made. Building a framework and policy for risk allocation and establish benchmarking strategy utilization are the two basic recommendations to shareholder in highway construction projects under BOT scheme in Vietnam. Finally, some suggestions for further study have been given.

Improving Project Performance In The Public Sector: The Case Of Thailand

Prior to the economic crisis that started in 1997, Thailand’s economy experienced sharp growth compared with other developing countries in South-East Asia. During the economic boom of 1986-1996, domestic and foreign companies invested heavily in the country. The investors were interested in starting or expanding businesses. In addition, the country’s population continued to grow; fueling the need for new buildings and offices. This resulted in expansion in the real estate sector. The construction industry flourished both the public and private sectors. The need for public infrastructure also tremendously increased in order to support the population and communities. Consequently, government investment in infrastructure development increased sharply. Unfortunately, the public construction budget seemed to be used without a systematic consideration regarding value for money. Ogunlana et al. (1996) stated that since the boom in Thailand’s construction industry was unanticipated, the participants in the industry were not adequately prepared for the project management problems that followed.

In the wake of the economic crisis, most of the government divisions in the public sector, whose main duty was to build the necessary facilities, (such as roads, bridges, dams, schools and civic buildings), received less funding. This was also true with the private sector. In fact, many business companies either postponed their investments or stopped putting money into construction business. Commercial banks also became stricter in giving bank loans to their customers. As a direct consequence, many project developers lacked money and a lot of construction projects had to be abandoned or suspended.

The contractors and designers were also affected because of the competitive construction market during and after the crisis. For example, there was increased uncertainty regarding the ability of their owners to pay for the completed works. As a result, growth in the construction industry stunted and the management of the construction projects became more complex and difficult.

The need to improve the performance on the construction projects has become obvious to all the involved parties in the construction industry. All parties now seek efficiency in project implementation. Each project participant is supposed to identify and develop effective management practices that contribute to higher performance in their relevant involvements in the construction process.

Public owners need to be informed and to realize that the process of construction is as important as its final product. Walker (1996) stated that working with the public sector usually causes more constraints and difficulties than with the private owners, because of many bureaucratic rules. Elinwa and Joshua (2001) noted that, in the Nigerian construction industry, the majority of public construction projects end up with delay because of economic instability, greed, insincerity in formulating policies and incompetence. Ofori (1991) commented that the construction industry in the developing countries should give more efforts to improve contractors’ operating environment. However, this will be less effective if the public clients lack the support of contractor development programs, especially in relieving the financial constraints on their projects.

Such professional comments suggest that, in order to receive a satisfactory finished product, owners in public organizations should be advised on how to go through the process of constructions with new attitudes and work practices that should be different from those in the past. They also need to be informed and to realize that the process of constructions is as important as its final product. The question then concerns what actions should be improved and how the involved parties should accomplish them during the construction process by the involved parties. Moreover, as a client has an important role to play in developing the construction industry, clients need to know what factors account for the differences between their successful and unsuccessful projects in the implementation stage. These are the factors that should be given more attention, if the clients wish to improve their project performance.

Mr. Suphachoke Meeampol addressed these needs in his research, where three major research questions are raised and considered to help address this deficiency in improving project performance in highway construction projects.
1. What factors affect project performance in the construction process?
2. What critical success factors are most predictive of project performance?
3. What factors account for the improvement in project performance?

His study addressed the problems of how project performance can be better achieved in public construction projects through an integrated approach to improve the efficiency of the construction process.

His study aimed to give suggestions regarding how to improve project performances on construction projects in the public sector and attempts to gain better general knowledge in the construction area related to project management. Specific objectives were needed to achieve the aims of the study. These were to: (1) identify the success factors affecting project performance in the construction process; (2) examine the relationship between critical success factors and project performance; and (3) determine what factors account for improvement in project performance.

Conclusions

Success factors affecting project performance in the construction process

It was initially thought that cost and time performances are affected by the thirteen success factors identified from literature; which are: internal complexity, external complexity, supervision and control, owner involvement, design effectiveness, schedule management, budget management, quality management, human resource management, construction resource management, construction method, communication and report, and team relationship. However, the results from the two analytical methods used showed that, factors such as internal complexity and external complexity, do not contribute significantly to project success or failure.

Regarding the perception of owners, factors related to owners’ characteristics, namely supervision and control, owner involvement and design effectiveness, are not significant predictors of cost performance on projects. However, better supervision and control and less owner interference can reduce construction duration.

The most important factors in discriminating between success or failure on projects are the eight factors grouped under managerial practices, which are under the direct control of the contractor. Only six managerial factors are important contributors to improved cost performance. The management of construction resources, budget management, construction method, and communication and report should reduce the chance of cost overrun. However, reduced emphasis on schedule performance and human resource management can reduce cost overrun.

All the eight factors are significant in discriminating between successful and unsuccessful projects in time performance. Improvements in construction method, construction resource management, schedule management, human resource management, supervision and control, schedule management, and communication and report, can reduce project delays. By contrast, project delays are associated with increased quality management, budget management, human resource management, owner involvement, and team relationships.
Regarding the data from final reports, only three managerial factors are important contributors to improve cost performance index. The management of quality, and team relationship should reduce the chance of cost overrun. However, reduced emphasis on communication and report can reduce cost overrun.

Five success factors are significant in predicting time performance index. Improvements in owner involvement, human resource management, and construction resource management can reduce project delays. By contrast, project delays are associated with increased quality management, and communication.

The relationship between critical success factors and project performance

Regarding the subjective measures of project performance, two sub-hypotheses were tested using discriminant analysis.

Sub-Hypothesis 1A: Perceived cost performance of the public construction projects can be clarified through the general managerial practices in response to the challenges created by the environment and the characteristics of the project.

Sub-Hypothesis 1B: Perceived time performance of the public construction projects can be clarified through the general managerial practices in response to the challenges created by the environment and the characteristics of the project.

The relationship between critical success factors and perceived cost performance was modeled through discriminant analysis and was shown to have a cross validation value of 71.0%. While the relationship between critical success factors and perceived time performance was modeled through discriminant analysis and was shown to have a cross validation value of 83.9%.

Regarding the objective measures of project performance, the following two study sub-hypotheses were tested using multiple regression analysis.

Sub-Hypothesis 2A: Cost performance index of the public construction projects can be clarified through the general managerial practices in response to the challenges created by the environment and the characteristics of the project.

Sub-Hypothesis 2B: Time performance index of the public construction projects can be clarified through the general managerial practices in response to the challenges created by the environment and the characteristics of the project.

The relationship between critical success factors and cost performance index was modeled through regression analysis and was shown to have an R-Squared value of 46.9%. While the relationship between critical success factors and time performance index was modeled through regression analysis and was shown to have an R-Squared value of 63.2%.

What factors account for improvement in project performance?

As a positive consequence of the economic crisis that affected Asia in 1997, the Thai government has attempted to increase the efficiency and effectiveness of managerial procedures on construction projects. However, most managers in the public sector do not know what to improve in order to boost cost and time performance. Identifying the sources of performance variations is the first step in dealing with the problem and corrective action is the logical second step. In this study, an investigation of owners’ management was done to distinguish between success and failure in perceived cost and time performance and to determine the effect on cost and time performance indexes. The focus was on construction management of public highway projects. The study sheds new light on successful project performance on public projects.

By establishing the objective and subjective measures of cost and time performance, and evaluating each against success factors, some improvement areas can be made. The areas that should be improved are those where there are disagreements in results between the perceptions of owner and the data from final reports. Regarding cost performance, quality management and team relationship need to be improved because they show positive effect on cost performance from the final reports, though owners perceived that they do not affect project time and cost performances. At the same time, communication and report should be reduced or make consistent because the data from final reports show that more communication and report can reduce success in cost performance, though owner perceived that it can increase cost performance. It would therefore seem that quality, rather than volume, of communication is important to performance. Regarding time performance, owner project managers should involve more in construction process than they did in the past because they always perceive that the construction process is not their responsibility. Human resource management should be understood that it can improve time performance, although it does not directly contribute to the physical achievement on projects. At the same time, communication and report should be also reduced or make consistent because the data from final reports show that more communication and report can reduce success in time performance, while owners perceived that it can improve time performance.

General conclusions relating to the hypothesis

The main conclusion that can be drawn from this study is whether project performance in the public sector can be clarified through the general managerial practices, in response to the challenges created by the project’s environment and the characteristics. Also, based on the research results, the relationships between success factors and project performance can be quantified through the four equations. Given the lack of previous research in this area, these findings are significant to the improvement of construction management in the public sector.

The results of the discriminant models show that success in perceived cost performance depends on the management of construction resources, budget management, construction method, and communication. By contrast, schedule management and human resource management inhibit perceived cost performance. Success in perceived time performance depends on choice of construction method, management of construction resources, schedule management, supervision and control, and communication. Quality management, budget management, human resource management, owner involvement, and team relationships impede time performance.
Accordingly, the results of the regression models indicate that cost performance index depends on team relationships and quality management. On the other hand, increasing the volume of communication is detrimental to cost performance index. Confirmation with time performance depends on choice of construction method, human resource management, and owner involvement. Meanwhile, increased quality management is detrimental to time performance.

His thesis abstract is copied and posted.

Abstract

This study investigates cost and time performance of highway projects from the viewpoint of the public owner. It differs from previous studies which focused on the contractor’s perspective on project performance. A total of 13 success factors were identified from literature and the opinions of experienced engineers. Data from 99 projects handled by the Department of Highways (DOH) in Thailand were used to develop and test discriminant and regression models of cost and time performance. Discriminant analysis was used in this study to build the perceived cost and time predictive models, which were generated from samples of cases, which had already been grouped and known as successful and unsuccessful projects. The models were then applied to new cases with measurements for the predictor variables, to predict that the projects were either successful or unsuccessful. Meanwhile, regression analysis was also used to build cost and time performance models, which were generated by regressing 13 success factors against the indexes of cost and time performance which were referred to as the actual construction budget and duration, which varied from the plan.
The results of the discriminant models show that success in cost performance depends on the management of construction resources, budget management, construction method, and communication. By contrast, schedule management and human resource management inhibit cost performance. Success in time performance depends on choice of construction method, management of construction resources, schedule management, supervision and control, and communication. Quality management, budget management, human resource management, owner involvement, and team relationships impede time performance. Accordingly, the results of the regression models show that cost performance index depend on team relationships and quality management. On the other hand, communication restrains cost performance index. Confirmation with time performance index depends on choice of construction method, human resource management, and owner involvement. Quality management and communication impedes time overrun.