The valuation of variations is near daily task on large construction contracts. It is a norm in the construction industry where one of the contracting parties disagrees about the valuation of work done. Thus, the valuation of variation orders has been admitted as one of the main causes for conflict and disputes in construction management. A mechanism is required to accommodate the process of the changes in order to derive a more objective decision-making. An appropriate mechanism should be identified as a potential feasible solution for modeling the decision making process in the valuation of variation.
As abovementioned, Ms. Supatchana Pumpipat conducted a research studies for proper quantification of variation claims by emphasizing the varied works impact to cost structure which will be claimed by the contractors. Therefore, the major objectives for her study were to: (1) classify the variation works types in civil works of commercial building project and identify the problems that incurred in managing variation; (2) find out how to price the varied works that is generated from variation order that could be caused of claims and disputes; and (3) propose proper valuation process and the effective negotiation on the accepted price for both contractor and owner.
Conclusion
Based on the Case Study, the rebuilding shopping mall project garnered variation orders that were classified into five (5) categories such as:
i) New work – are the additional item in the some part of building for more suitable and aesthetic of the building. Frequently, this category is initiated by owner
ii) Modified work – are the existing of buildings becomes unsuitable for their present use, and then improvement, repair and maintenance are often required to keep them in usable condition.
Change work – are covered amend in some parts or whole scope of work that is stipulate in the contract
iii) Move work – are Moving things without creating any damage to those items including storage of those items, they assume a duty to be included in this section.
iv) Demolishing work – are move the existing part out and would not be reused. And the occupancy of debris that comes from the demolishing process will be agreed before starting work.
v) Correcting Work – items that are corrected or fix the damage of building. Most of them are architectural work.
At first, the author would like to identify the specific valuation method in each variation categories but based on interview, the valuation methods is not related to the variation categories. The valuation methods depend upon the condition and the character of the varied work.
The formulation procedure was initiated in order to manage the emerging variation orders. Basic flows of steps were provided but still flaws were found in processing time in every step. Some VO can be process without any difficulty and some may takes time to verify the submission documents, verify evidence, to gather data to confirm entitlement of the contractor to claim VO. Resolutions to variation order impact through variation order management were viewed and as to the effectiveness of current procedure. Current procedure is useful but can be developed to improve processing period and administer each changes lessening the probable effect to the whole project particularly on the cost.
Actually, the problems of this project are generated in every stage of variation procedure which will only base on the contractor’s viewpoint such as follows.
1. Notification - Information of change is given by either the PM or Contractors or whoever identifies the variation and all site instructions that may constitute a variation should readily indicate and require the Contractor to submit quotation. In the event that the Contractor submits a proposal like for example value engineering, this is the only time when the Project Management team conducts a preliminary analysis on time, cost, quality and the overall effects of the change in the construction.
2. Evaluation – the stage of gathering data to confirm support documents submitted by the Contractor. Determine the quantities, cost and time involved in the variation request. Coordinate the change with the trade in the construction for probable effect on the progress of the work and the work itself. At the same time coordinate with the contractor’s QS for comparison, checking and correcting evaluation. This will greatly discourage dispute in final cost later and save time on repeated evaluation in cases of disagreements.
3. Negotiation-in the event that the contractor still does not agree and cannot settle among QS of both parties, it is only then that the variation is elevated to negotiation. And in times that QS from both parties cannot decide on particular issues, negotiation among PM is recommended to settle the variation.
4. Final Approval– will include informing the Accounting department for the additional cost due to the variation for budgeting and cash flow management.
Nonetheless, one of the common reasons for dispute is the valuation of variation. The current traditional approach has been claimed inadequate to provide a scheme of compensation for any delay or disruption involved due to variations. Actually, rules for variations, when appropriate, the rate and price quoted is used in the valuation for variations. However, the rate or prices may not necessarily be an accurate figure for individual work items. In other words, it represents the collective amount of the project. Therefore, the rules of valuation should not be implemented in a loose way, simply because the rates to which they are applied are imperfect.
A valuation scheme in valuing variations has been provided. The possible outcomes of the scheme when the valuation is to be determined are as follows:
1. Applying original rate and price from similar works in the bill of quantities.
2. Using the original rate and price of similar works as the basis of valuation, applying necessary adjustment and/or allowances.
3. Determining new rate and price derived from fair valuation.
However, there was an issue arise on this scheme as it is potentially creates conflicts and disputes. The conflicts and disputes has been identified, namely the distinction of the varied works compared to the original works, i.e. similar character and/or under similar conditions. In the case of similar work characteristics and/or work condition, the varied works are valued using the original rate and price of similar works in the Bill of Quantities. If the work character and/or work condition is not similar but in the opinion of the assessor is still appropriate, the original rate and price of similar works in the Bill of Quantities will be used as the basis of valuation applying necessary adjustment and/or allowances. If the work character and/or work characteristic are totally different from those mentioned in the Bill of Quantities, new rate and price will be established by fair valuation. A mechanism for valuation of variations is essential if our understanding of construction management is to be advanced.
On the other hand, difficulties may arise among the related parties in perceiving the conditions to be encountered during execution. Each party may perceive the works characters and/or work conditions differently according to the nature of their own needs and for their own benefits. A framework has been developed to fairly assess all changes resulted from authorized variations and relate the changes to the final decision of valuation method to be. The form of contract also has been especially drafted to accommodate the risks of different perceptions on this matter and distribute the risks fairly to the involved parties. This result in the recommended way to deal with variation events is to look back to the forms of contract to make a careful assessment.
Finally, based on the findings, it can be concluded that each of the condition of contracts has stipulated clearly the rules for method of valuing the claims of variation works. However, the adequacy and appropriateness of the mechanism are different based on the different types of contracts. The selection of the type of contracts to be used for a particular project may influence the project implementation in terms of contractual administration related to claims for variation works. By selecting an appropriate type of contracts for a project to be implemented may reduce the tendency of disputes arising from valuation of variation claims. Disputes related to claims of variation works can be avoided by overcoming the problems of the disputes. This may only be achieved through the proper selection of type of contracts which contain the most effective methods of valuing the variation claims. Despite the fact that BQ rates/Contract rates is the most instant method and agreeable among the contracting parties, it is recommended that this method should be improved by rationalization of the rates accordingly depend on the nature of the work of similar character executed under similar conditions. In other words, the BQ rates/Contract rates despite being the most agreeable rates they should be adjusted accordingly so that the rates for varied works will be fair to both contracting parties.
Recommendation
It is also suggested that the application of Information Technology by using an expert system as a potential decision-making tool in the valuation of variation claims to be further explored as it has the potential to deliver the best solution in the valuation of variations which based on the expertise of the professional decision-makers. It has been previously explored that the valuation of variations needs a mechanism that represents the expertise and knowledge of the human experts for its decision-making. Decision-making by experts regarding the valuation methods to be applied, based on the determination of the extent of the changes affecting the work characteristics and/or work condition, plays an essential role in the valuation scheme.
However, the majority of human decision making is answerable to more than a single person, and involves higher level functions that can be constrained and frustrated by any attempt to enforce rigid or methodical practices. In other words, consensus decision-making is required from several human experts for an appropriate decision. The human experts for the valuation of variations are the quantity surveyors due to their important role and involvement in financial and technical aspects of a construction project management.
Here are some knowledgeable key points to manage a Variation Order:
- Out-Source Information - for variations that need price comparison, outsource information must be obtained such as price indices from the government, quotations from suppliers and price information from consultants.
- Data collection – is to collect the correct information to support the validity of the any variation order. It can be Site Records such as site diaries, weather charts, site instructions, inspection reports, shop drawings and materials approval, RFIs and other forms of communication like emails, transmittals, minutes of meeting and project reports.
- Investigation - For variation order due to differing site conditions, site investigation is imperative. It is essential in determining the actual site situations and for observing if the proposed change were feasible to the site. It is also done to verify quantities, type of material applied by the contractor and to confirm the methods proposed for application for use.
- Know your references - reference materials would be the basis for evaluation first, entitlement of the contractor to a variation order, validity of the change, and determination of quantities either additive or deductive. Reference may include Construction Contract, Drawings, Specifications and other forms of site communications.
Her thesis abstract is copied and pasted.
Abstract
Construction industry is often described as a volatile industry which can be true in implementing a project. Construction itself is more often unpredictable due to the different situations a project may face. Variations may occur in the preparation, during construction and even upon completion of the project. The veracity of inconsistent nature of construction, variation management procedures must be considered to minimize the effects particularly to project cost, time schedule and overall quality of the project.
There are an increasing number of construction contracts resulted in claims and disputes. All of the parties involved in the Thai construction industry are fully aware that disputes not only lead to cost overruns, but can end up as expensive and lengthy courtroom battles. However, very few studies related to construction contract claims and disputes in Thailand have been presented. This study is an attempt to gain further insight to construction contract claims and disputes in the Thai construction industry.
The big challenge for Thai Construction industry is to advance the management styles to cope up with challenges faced in a project. Procedures in managing contract and change orders are viewed to know the effectiveness and liability ensuing steps observed. Disruptions in cash flow and programme when mitigated and handled correctly may create confidence in handling changes that transpire in any project.
However, knowledge and skill in managing this challenging changes and observing effective procedures may eventually create a norm in Project Management system in the industry where tradition of strong relationship among Owner and Contract still prevails.
From the aforementioned information, it can be seen that the engineers have high levels of responsibility and must be knowledgeable and experienced in their work. They also have to work carefully to complete their work. Therefore, it is suitable for both engineers and involved personnel to study work data and past court cases that are related to their work, so that they can be careful about their work.
Thursday, 16 June 2011
Wednesday, 15 June 2011
Risk and Project Contract Management for Preventing and Solving Disputes in FIDIC Contract
A project is highly successful when risks are strictly controlled and the contract is effectively managed.
Mr. Dang Thai Son made a case study on the Can Tho Bridge Construction Project. In his study, the following core issues were aimed to achieve:
* To study issues on project risk management: implicit risks, the tenor and process of project risk management.
* To study issues on project contract management: signing and implementing the project contract, amending, canceling or terminating the contract.
* To find approaches to mitigate risks as well as to prevent and resolve disputes, litigations in project contract.
Conclusion
Risks are unavoidable in construction projects, yet it is still possible to prevent them before and during a project. With such a length (15.85 km), Cantho Bridge was a typical example for risk management. The project has received full financial support from the Japanese government which is Twenty Four Billion Eight Hundred Forty Seven Million Japanese Yen (¥24,847,000,000). However, there was still delay in land requisition. Although only two local households did not agree on their compensation, they affected the progress of the project. In addition, shipping equipment and complex custom procedures also hindered the progress.
On the better side, the Contractor has implemented good management starting with the designed hierarchy of management with well-targeted goals as well as backup plans. This helped the project progress even in case of force majeure. Second, the contractor had good management on quality and quantity on various aspects of working requirements such as materials, equipment, construction methods and skilled labors that were focused and well-prepared. Thirdly, the Contractor showed that environment was taken with extreme care so that almost no effects on the local landscape, and ecosystem were done by pollution from the construction. Finally, the Contractor always followed the most important motto: "Safety first." The disastrous accident in foundation settlement showed the nature of risk on one hand; but on the other hand, it showed that the Contractor prepared and implemented practical and helpful steps in preventing diseases and treating injuries to workmen. As a result, construction workers felt better and secure to continue their work and the project could be completed in due time.
After Can Tho Bridge was completed, it has provided the researcher with practical experience in terms of capital, specific infrastructure conditions, hi-tech quality of the contractor and compensation negotiation. This study showed that reality is always unexpected but with well-planned risk management, we can still handle and heal the uninvited damage to project effectively and in time so as to fulfill the project as pre-planned.
In conclusion, throughout the analysis, the Can Tho Bridge Construction Project achieved more successful factors than its constrained ones. This project obtained good delivery system from setting to closing out phase owing to good environments such as stable society economy and politics, favorably legal environment especially the great support from the project stakeholders: Financier (JIBIC), Owner, Consultant, Contractors, Suppliers and others (Local Authorities and so on).
Apart from the strengths achieved as analyzed, there are many weaknesses that the project stakeholders should pay much attention to and should take them as valuable recommendations for future projects:
- Before carrying out the construction of any project, the Project Owner together with Local Authorities shall ensure land requisition to be well-executed and give right of access and site possession to the Contractor at appropriate time without any delay and obstruction from local residents.
- When making the estimation for a project, besides calculating an official capital source for the main items of the project, the project planner should carefully calculate an extra money fund for nearby existing land compensation including the crops. Therefore, the Project Owner will be able to get sufficient land area and provide further access to the Contractor for construction. Because the construction activities of the Contractor definitely affect to the neighboring structures of the inhabitants.
- The Project Owner should thoroughly consider selecting competent, qualified contractors who are healthy in finance and capable of high technology. Not to give the award to the bidder of the lowest price, and poor equipment and poor technology transfer.
It was time for Vietnamese Government and its subordinating Ministries consider carefully when deciding to select the bidder especially for foreign ones. Before inviting them for bidding, a well pre-qualified selection of experienced, prestigious and competent bidder list should be made and elimination of unqualified bidders from the list should be done. If doing so, the Government saves a lot of time and money for unreasonable loss and damage from rectification of defects and re-works.
His thesis abstract is copied and posted.
Abstract
Risk management is an indispensable job because it will help the project reduce and minimize the extraordinary impacts occur which affect to the general objective of the project.
In this study, we should learn about the concept of risk with its two specific characteristics: probability of occurrence and degree of impact. In addition, the classification of risk is also a meaningful deed; each kind of risk is different, therefore, risk management issue is also totally different. To manage risk, a process of six steps can be applied. First, making risk management plan for general orientation of work and scope of performance to manage the risks. Then, carrying out risk determination, it means to list out the risks might occur in the project. Since then analyzing probability of occurrence and the degree of impact of the risks, Control and adjustment of risks are to implement the plan for dealing with actual risks.
Contract management is extremely important in the project management. Referring to the contract, the project manager will treat and adjust the relationship as well as contradiction between interests and liability of the parties concerned in the project. Therefore, being a project manager, he or she needs to master the sequence of steps of signing and implementing the project contract, the arising issues and conditions of alteration, omission or termination of project contract as well as the approaches to resolve and settle disputes in the contract. Once dispute arises, it is wise that the parties should seek for negotiation, discussion or conciliation. This approach is simple, effective and little cost while claim and arbitration approach is more complicated, costly and waste of time.
“Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser – in fee, expenses and waste of time.”- Abraham Lincoln
Mr. Dang Thai Son made a case study on the Can Tho Bridge Construction Project. In his study, the following core issues were aimed to achieve:
* To study issues on project risk management: implicit risks, the tenor and process of project risk management.
* To study issues on project contract management: signing and implementing the project contract, amending, canceling or terminating the contract.
* To find approaches to mitigate risks as well as to prevent and resolve disputes, litigations in project contract.
Conclusion
Risks are unavoidable in construction projects, yet it is still possible to prevent them before and during a project. With such a length (15.85 km), Cantho Bridge was a typical example for risk management. The project has received full financial support from the Japanese government which is Twenty Four Billion Eight Hundred Forty Seven Million Japanese Yen (¥24,847,000,000). However, there was still delay in land requisition. Although only two local households did not agree on their compensation, they affected the progress of the project. In addition, shipping equipment and complex custom procedures also hindered the progress.
On the better side, the Contractor has implemented good management starting with the designed hierarchy of management with well-targeted goals as well as backup plans. This helped the project progress even in case of force majeure. Second, the contractor had good management on quality and quantity on various aspects of working requirements such as materials, equipment, construction methods and skilled labors that were focused and well-prepared. Thirdly, the Contractor showed that environment was taken with extreme care so that almost no effects on the local landscape, and ecosystem were done by pollution from the construction. Finally, the Contractor always followed the most important motto: "Safety first." The disastrous accident in foundation settlement showed the nature of risk on one hand; but on the other hand, it showed that the Contractor prepared and implemented practical and helpful steps in preventing diseases and treating injuries to workmen. As a result, construction workers felt better and secure to continue their work and the project could be completed in due time.
After Can Tho Bridge was completed, it has provided the researcher with practical experience in terms of capital, specific infrastructure conditions, hi-tech quality of the contractor and compensation negotiation. This study showed that reality is always unexpected but with well-planned risk management, we can still handle and heal the uninvited damage to project effectively and in time so as to fulfill the project as pre-planned.
In conclusion, throughout the analysis, the Can Tho Bridge Construction Project achieved more successful factors than its constrained ones. This project obtained good delivery system from setting to closing out phase owing to good environments such as stable society economy and politics, favorably legal environment especially the great support from the project stakeholders: Financier (JIBIC), Owner, Consultant, Contractors, Suppliers and others (Local Authorities and so on).
Apart from the strengths achieved as analyzed, there are many weaknesses that the project stakeholders should pay much attention to and should take them as valuable recommendations for future projects:
- Before carrying out the construction of any project, the Project Owner together with Local Authorities shall ensure land requisition to be well-executed and give right of access and site possession to the Contractor at appropriate time without any delay and obstruction from local residents.
- When making the estimation for a project, besides calculating an official capital source for the main items of the project, the project planner should carefully calculate an extra money fund for nearby existing land compensation including the crops. Therefore, the Project Owner will be able to get sufficient land area and provide further access to the Contractor for construction. Because the construction activities of the Contractor definitely affect to the neighboring structures of the inhabitants.
- The Project Owner should thoroughly consider selecting competent, qualified contractors who are healthy in finance and capable of high technology. Not to give the award to the bidder of the lowest price, and poor equipment and poor technology transfer.
It was time for Vietnamese Government and its subordinating Ministries consider carefully when deciding to select the bidder especially for foreign ones. Before inviting them for bidding, a well pre-qualified selection of experienced, prestigious and competent bidder list should be made and elimination of unqualified bidders from the list should be done. If doing so, the Government saves a lot of time and money for unreasonable loss and damage from rectification of defects and re-works.
His thesis abstract is copied and posted.
Abstract
Risk management is an indispensable job because it will help the project reduce and minimize the extraordinary impacts occur which affect to the general objective of the project.
In this study, we should learn about the concept of risk with its two specific characteristics: probability of occurrence and degree of impact. In addition, the classification of risk is also a meaningful deed; each kind of risk is different, therefore, risk management issue is also totally different. To manage risk, a process of six steps can be applied. First, making risk management plan for general orientation of work and scope of performance to manage the risks. Then, carrying out risk determination, it means to list out the risks might occur in the project. Since then analyzing probability of occurrence and the degree of impact of the risks, Control and adjustment of risks are to implement the plan for dealing with actual risks.
Contract management is extremely important in the project management. Referring to the contract, the project manager will treat and adjust the relationship as well as contradiction between interests and liability of the parties concerned in the project. Therefore, being a project manager, he or she needs to master the sequence of steps of signing and implementing the project contract, the arising issues and conditions of alteration, omission or termination of project contract as well as the approaches to resolve and settle disputes in the contract. Once dispute arises, it is wise that the parties should seek for negotiation, discussion or conciliation. This approach is simple, effective and little cost while claim and arbitration approach is more complicated, costly and waste of time.
“Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser – in fee, expenses and waste of time.”- Abraham Lincoln
Tuesday, 14 June 2011
Business Cooperation Contract Management in Gas Pipeline Project – A Case Study of Block B – O Mon Gas Pipeline Project
The signing of the business cooperation contract (hereinafter called BCC) to develop the Block B Gas Pipeline Project among PV Gas, Chevron, MOECO, and PTTEP will help to ensure the country's energy security and to promote industrial development in the Mekong Delta. The project will also save a significant amount of foreign currency for Vietnam on fuel imports, create more employment for the community, protect the environment by using a clean fuel, ensure a stable source of power, and open opportunities to connect with the gas pipeline systems of other countries in the region. However, how to well monitor and manage the pipeline project under the BCC is the challenge for operator.
Under BCC, each party will appoint a representative to the board of coordinators (hereinafter called BoC) to provide overall supervision and direction over and control all matters pertaining to the system operation. Therefore, the operator cannot decide on its own for the system operation which may lead to run late project, over-budget or fail to meet key needs of parties and so on. There are definitely some shortcomings in project under BCC need to be over, that are:
i. Take time for mutual agreement among parties;
ii. Misunderstanding and misinterpreting of stipulated clauses in contracts
iii. Conflict between contractor and the project company during project execution
iv. Conflict between cultures
A BCC is generally applied for managing the oil and gas project, in case of problems or disputes happen during the project execution, then these problems and disputes shall be resolved in accordance with stipulated clauses in the signed contract, therefore Mr. Phung Quang Hiep made a case study which main object was to focus the Phung Quang Hiep
issues related to BCC:
1. To study BCC contract objectives
2. To study BCC contract conditions
3. To study BCC contract implementation and problems occurring
4. To propose effective solutions for project management under BCC
Conclusion
BCC Objectives:
The purpose of this report is to describe the BCC objectives in which the project is implementing the design, procurement, construction, ownership, operation, maintenance of the upstream Block B & 48/95 and Block 52/97 facilities to ensure economic, efficient System development on an integrated, aligned basis, as set forth in this Contract.
BCC Conditions:
These objectives are concretized under BCC conditions of conditions precedent and participating interest. Block B – O Mon pipeline project has some difference phases. Therefore, the writing displays them in three main groups of technique, finance and legality. Technical phases include construction, operation and maintenance of system; transportation proposal and capacity; usage of the system, transportation of gas and tariffs; as well as decommission. In addition, financial issues of BCC are focused on taxation; government and corporation support; work program and budget; and contracting procedures. Also, BCC requires legal items in operation that are, insurance and litigation; default, assignment of participating interest; withdrawal; and dispute resolution.
BCC Implementation And Problems:
The above analysis is to result to business cooperation contract management for block B – O Mon pipeline project through making up factors affecting to take time for mutual agreement among parties, underground drivers of misunderstanding and misinterpreting of stipulated clauses in contracts and conflict between contractor and the project company during project execution as well as conflict between cultures. To response to these problem statements, this report concentrates on studying problems occurring and proposing effective solutions for project management under BCC as well.
This project may be continued if precedent conditions are satisfied or waived. That foreign- factors take part in business of gas pipeline and that disadvantages are caused by BCC have created some outstanding problems to system operation. The report asserts that issues of finance, accounting, culture, legality, risks, approval and human resource are needed to analyzed, improved and boosted. Otherwise, project will be delayed in the manner of time and quality and not achieved project objectives.
Effective Solutions for Project Management under BCC:
For finance and accounting issues, the operator has to harmonize regulations between BCC and Vietnamese Corporation Accounting which is first priority while the parties are required to obtain deep understanding of investee country, that is, Vietnamese laws. Moreover, due to four different management cultures the operator should set up harmonious business culture, seminars, team build to interpersonal communication and friendly atmosphere and especially maintain internal control of approval procedure and authorization for expenditure procedure. A unified and well defined organizational chart for human resource management is so important for continuous system operation. All above is to minimize business risks led by project specialization.
In addition, the report shows out main experience lesson groups to solve these problem statements. First, the operator should take full advantages of local authorities and governmental support in all tax and foreign currency issues. Second, the operator needs to have closer direction and management of higher authorities to keep the project be in the right way. Third, taking an initiative of finance, positioning negotiators of BCC in the board of operator and maintain frequently periodic meeting are considered as meaningful recommendations to unbind stuck bars during implementing project and achieve project objectives in timely and quality basis.
His thesis abstract is copied and posted.
Abstract
Natural gas is a fossil fuel extracted from the ground that can be used as a source of energy for household, industrial and commercial use, as well as to generate electricity. So, natural gas is an important factor for the development of countries that have strong economies and people who enjoy good living conditions. To be able to have a viable and efficient supply requires the construction of a pipeline from faraway regions that have large reserves of natural gas to onshore terminals. In Vietnam, the projects of pipeline construction and operation are almost under direct foreign investment of which business cooperation contract is the most favor.
The management of this contract is a challenge to Vietnamese operator due to foreign factors. This report let a case of BCC for block B – O Mon pipeline project as a study of project management in construction. It tries to work out common and regular problems this kind of BCC is encountering. These difficulties are divided into four groups that are, take time for mutual agreement among parties, misunderstanding and misinterpreting of stipulated clauses in contracts and conflict among contractors and the operator during project execution as well as conflict among cultures.
Moreover, BCC conditions and project phase operation are analyzed in details. Above all, the author suggests some solutions focusing on outstanding problem statements to improve the project operation and implement it in the manner of time and quality.
Under BCC, each party will appoint a representative to the board of coordinators (hereinafter called BoC) to provide overall supervision and direction over and control all matters pertaining to the system operation. Therefore, the operator cannot decide on its own for the system operation which may lead to run late project, over-budget or fail to meet key needs of parties and so on. There are definitely some shortcomings in project under BCC need to be over, that are:
i. Take time for mutual agreement among parties;
ii. Misunderstanding and misinterpreting of stipulated clauses in contracts
iii. Conflict between contractor and the project company during project execution
iv. Conflict between cultures
A BCC is generally applied for managing the oil and gas project, in case of problems or disputes happen during the project execution, then these problems and disputes shall be resolved in accordance with stipulated clauses in the signed contract, therefore Mr. Phung Quang Hiep made a case study which main object was to focus the Phung Quang Hiep
issues related to BCC:
1. To study BCC contract objectives
2. To study BCC contract conditions
3. To study BCC contract implementation and problems occurring
4. To propose effective solutions for project management under BCC
Conclusion
BCC Objectives:
The purpose of this report is to describe the BCC objectives in which the project is implementing the design, procurement, construction, ownership, operation, maintenance of the upstream Block B & 48/95 and Block 52/97 facilities to ensure economic, efficient System development on an integrated, aligned basis, as set forth in this Contract.
BCC Conditions:
These objectives are concretized under BCC conditions of conditions precedent and participating interest. Block B – O Mon pipeline project has some difference phases. Therefore, the writing displays them in three main groups of technique, finance and legality. Technical phases include construction, operation and maintenance of system; transportation proposal and capacity; usage of the system, transportation of gas and tariffs; as well as decommission. In addition, financial issues of BCC are focused on taxation; government and corporation support; work program and budget; and contracting procedures. Also, BCC requires legal items in operation that are, insurance and litigation; default, assignment of participating interest; withdrawal; and dispute resolution.
BCC Implementation And Problems:
The above analysis is to result to business cooperation contract management for block B – O Mon pipeline project through making up factors affecting to take time for mutual agreement among parties, underground drivers of misunderstanding and misinterpreting of stipulated clauses in contracts and conflict between contractor and the project company during project execution as well as conflict between cultures. To response to these problem statements, this report concentrates on studying problems occurring and proposing effective solutions for project management under BCC as well.
This project may be continued if precedent conditions are satisfied or waived. That foreign- factors take part in business of gas pipeline and that disadvantages are caused by BCC have created some outstanding problems to system operation. The report asserts that issues of finance, accounting, culture, legality, risks, approval and human resource are needed to analyzed, improved and boosted. Otherwise, project will be delayed in the manner of time and quality and not achieved project objectives.
Effective Solutions for Project Management under BCC:
For finance and accounting issues, the operator has to harmonize regulations between BCC and Vietnamese Corporation Accounting which is first priority while the parties are required to obtain deep understanding of investee country, that is, Vietnamese laws. Moreover, due to four different management cultures the operator should set up harmonious business culture, seminars, team build to interpersonal communication and friendly atmosphere and especially maintain internal control of approval procedure and authorization for expenditure procedure. A unified and well defined organizational chart for human resource management is so important for continuous system operation. All above is to minimize business risks led by project specialization.
In addition, the report shows out main experience lesson groups to solve these problem statements. First, the operator should take full advantages of local authorities and governmental support in all tax and foreign currency issues. Second, the operator needs to have closer direction and management of higher authorities to keep the project be in the right way. Third, taking an initiative of finance, positioning negotiators of BCC in the board of operator and maintain frequently periodic meeting are considered as meaningful recommendations to unbind stuck bars during implementing project and achieve project objectives in timely and quality basis.
His thesis abstract is copied and posted.
Abstract
Natural gas is a fossil fuel extracted from the ground that can be used as a source of energy for household, industrial and commercial use, as well as to generate electricity. So, natural gas is an important factor for the development of countries that have strong economies and people who enjoy good living conditions. To be able to have a viable and efficient supply requires the construction of a pipeline from faraway regions that have large reserves of natural gas to onshore terminals. In Vietnam, the projects of pipeline construction and operation are almost under direct foreign investment of which business cooperation contract is the most favor.
The management of this contract is a challenge to Vietnamese operator due to foreign factors. This report let a case of BCC for block B – O Mon pipeline project as a study of project management in construction. It tries to work out common and regular problems this kind of BCC is encountering. These difficulties are divided into four groups that are, take time for mutual agreement among parties, misunderstanding and misinterpreting of stipulated clauses in contracts and conflict among contractors and the operator during project execution as well as conflict among cultures.
Moreover, BCC conditions and project phase operation are analyzed in details. Above all, the author suggests some solutions focusing on outstanding problem statements to improve the project operation and implement it in the manner of time and quality.
Wednesday, 8 June 2011
Project Schedule Internal Risk Management in EPC Gas Pipeline Project: A Case Study
Oil and gas sector is considered as a backbone of any country’s economy. In Viet Nam, the promotion of gas industry development since the early 1990s has significantly contributed to the economic development of the country.
The demand of domestic gas consumption is being increased in a very short time. Therefore, Petro Vietnam has cooperated with national and international petroleum companies to speed up the plan of developing and building of the new gas fields in the southeast sea and southwest sea of Vietnam. As a result, lot of new pipelines will be installed to transport gas from field to shore of Vietnam, and this process involves many risks. Due to the unique characteristic of this project, the risk management during project execution became very important activity because the risks may have effect on cost, schedule and quality of the project. Risk management is a key to successful project implementation.
For most effective and efficient risk management, it is recommend to plan, analyze and manage risk in all phases of project life cycle specifically from design to construction phase.
Mr. Pham Binh Lam made a case study which objectives were to: (1) describe key activities in EPC gas pipeline project ; (2) identify risk factor in implement the EPC gas pipeline project which may affect the project schedule; and (3) propose risk solution that can be used to manage in the EPC gas pipeline project
Conclusion
Based on the data collected mainly from Bloc B&52-Omon gas pipeline project of Petro VietNam Gas Corporation, the author has clarified that EPC gas pipeline project contains high risk during project execution. The very important stages are from engineering stage to construction stage because these stages influence the quality of gas pipeline project. There are a lot of risk factor impacts on the project schedule in these periods such as experience, knowledge and skill of owner, contractor, subcontractors, design change, and environment impact. Pipeline construction in the offshore environment as well as onshore environment which across many rivers and canals are difficult and dangerous activity which lead to accidents and incidents frequencies happen especially if this project have a long distance from offshore to onshore pipeline route. It will not only cause project delays but also directly and indirectly cause very high project cost.
Major risk factors which may affect EPC gas pipeline project schedule has been identified by and facilitated during the brainstorming session of key experience stakeholders in this project such as top management, project manager, site manager, HSE manager, office personnel and the author.
The author has proposed appropriate strategies to reduce major risks schedule in EPC gas pipeline project by conducting a Framework on EPC Schedule Risk Management through a real gas pipline project case study -Block B – Omon gas pipeline project.The results are shown in the table below.
Recommendation
In order to obtain efficient schedule risk management in EPC gas pipeline project this study proposes a number of recommendations:
- Experience project management team should be appointed to the selection EPC contractor
- The EPC contractor has to contribute audit procedure for detailed designer to select qualified designer effectively. In addition, review and approval by Project Management team (PMT) of both selection of detailed designer and approval of designed document
- The EPC contractor and subcontractor should contribute an effective and efficient safety management system
- An effective communication and coordination system between lower stake holder (e.g. EPC contractor, subcontractor, vendor, etc) should be set up
- The owners should have high commitment of all people involved especially top management commitment in all stage of project and hand over authority to make decision.
- The Risk Management Plan should be reviewed during the EPC phase as specified in the Project Management Plan to ensure that appropriate actions have been taken and followed up. Reviews should also occur at the commencement of a new project phase or if there are significant changes to the project scope or operating environment.
His thesis abstract is copied and posted.
Abstract
In order to adapt the demand of domestic gas consumption is being increased in very short time PetroVietnam has cooperated together with national and international petroleum companies to speed up the plan of developing and building new gas fields in the southeast sea and southwest sea of Vietnam. Therefore a lot of new pipelines will be installed to transport gas from field to shore of Vietnam. In oil and gas project specify gas pipeline project contains high risk during project execution because of interacting activities of many event in condition of limited time, human resource and budget and the participation of many different parties in the project with the role, responsibilities as well as different objectives make the project more complex. Additional, only four gas pipelines project that built in Vietnam. Due to the unique characteristic of these project, the risk management during project execution is became very importance activity because the risks effect on cost, schedule and quality of the project. Risk management is a key to successful project implementation The author has identified mayor significant risks which impact project schedule and has proposed appropriate strategies to reduce major risks schedule in EPC gas pipeline project by conducting a Framework on EPC Schedule Risk Management through a real gas pipeline project case study -Block B – Omon gas pipeline project.
The demand of domestic gas consumption is being increased in a very short time. Therefore, Petro Vietnam has cooperated with national and international petroleum companies to speed up the plan of developing and building of the new gas fields in the southeast sea and southwest sea of Vietnam. As a result, lot of new pipelines will be installed to transport gas from field to shore of Vietnam, and this process involves many risks. Due to the unique characteristic of this project, the risk management during project execution became very important activity because the risks may have effect on cost, schedule and quality of the project. Risk management is a key to successful project implementation.
For most effective and efficient risk management, it is recommend to plan, analyze and manage risk in all phases of project life cycle specifically from design to construction phase.
Mr. Pham Binh Lam made a case study which objectives were to: (1) describe key activities in EPC gas pipeline project ; (2) identify risk factor in implement the EPC gas pipeline project which may affect the project schedule; and (3) propose risk solution that can be used to manage in the EPC gas pipeline project
Conclusion
Based on the data collected mainly from Bloc B&52-Omon gas pipeline project of Petro VietNam Gas Corporation, the author has clarified that EPC gas pipeline project contains high risk during project execution. The very important stages are from engineering stage to construction stage because these stages influence the quality of gas pipeline project. There are a lot of risk factor impacts on the project schedule in these periods such as experience, knowledge and skill of owner, contractor, subcontractors, design change, and environment impact. Pipeline construction in the offshore environment as well as onshore environment which across many rivers and canals are difficult and dangerous activity which lead to accidents and incidents frequencies happen especially if this project have a long distance from offshore to onshore pipeline route. It will not only cause project delays but also directly and indirectly cause very high project cost.
Major risk factors which may affect EPC gas pipeline project schedule has been identified by and facilitated during the brainstorming session of key experience stakeholders in this project such as top management, project manager, site manager, HSE manager, office personnel and the author.
The author has proposed appropriate strategies to reduce major risks schedule in EPC gas pipeline project by conducting a Framework on EPC Schedule Risk Management through a real gas pipline project case study -Block B – Omon gas pipeline project.The results are shown in the table below.
Recommendation
In order to obtain efficient schedule risk management in EPC gas pipeline project this study proposes a number of recommendations:
- Experience project management team should be appointed to the selection EPC contractor
- The EPC contractor has to contribute audit procedure for detailed designer to select qualified designer effectively. In addition, review and approval by Project Management team (PMT) of both selection of detailed designer and approval of designed document
- The EPC contractor and subcontractor should contribute an effective and efficient safety management system
- An effective communication and coordination system between lower stake holder (e.g. EPC contractor, subcontractor, vendor, etc) should be set up
- The owners should have high commitment of all people involved especially top management commitment in all stage of project and hand over authority to make decision.
- The Risk Management Plan should be reviewed during the EPC phase as specified in the Project Management Plan to ensure that appropriate actions have been taken and followed up. Reviews should also occur at the commencement of a new project phase or if there are significant changes to the project scope or operating environment.
His thesis abstract is copied and posted.
Abstract
In order to adapt the demand of domestic gas consumption is being increased in very short time PetroVietnam has cooperated together with national and international petroleum companies to speed up the plan of developing and building new gas fields in the southeast sea and southwest sea of Vietnam. Therefore a lot of new pipelines will be installed to transport gas from field to shore of Vietnam. In oil and gas project specify gas pipeline project contains high risk during project execution because of interacting activities of many event in condition of limited time, human resource and budget and the participation of many different parties in the project with the role, responsibilities as well as different objectives make the project more complex. Additional, only four gas pipelines project that built in Vietnam. Due to the unique characteristic of these project, the risk management during project execution is became very importance activity because the risks effect on cost, schedule and quality of the project. Risk management is a key to successful project implementation The author has identified mayor significant risks which impact project schedule and has proposed appropriate strategies to reduce major risks schedule in EPC gas pipeline project by conducting a Framework on EPC Schedule Risk Management through a real gas pipeline project case study -Block B – Omon gas pipeline project.
Tuesday, 7 June 2011
Quality Management System for Construction Material Testing: A case study of Jupiter Inspection J/S Company
In recent years, there are many modern infrastructure which have been constructed with high-technology in Vietnam. However, the technical management is not caught up with the development of actual construction. Many serious accidents are still taken place causing numbers of deaths. Therefore, the management of construction work has been more and more taken into account. One of the solution for enhancement of construction work quality is to strengthen the inspection of construction quality by expanding the network of laboratory and auditing centers in all regions and industries in the country.
The activities of these laboratories have positively contributed to the construction quality and timely being into operation for the planning, design, construction and acceptance of such works as bridge and road, infrastructure, industrial and civil works. The development of civil industry, in general, and the activities of laboratories, in particular, are the reasons for the establishment of Quality Management System (QMS).
Ms. Nguyen Thi Vui made a case study, which objectives were to: (1) study QMS of company; and (2) evaluate the effectiveness of the QMS
Conclusions
Based on the result of the study, the quality management system in Jupiter Company was based on the ISO 9001:2008 requirement system. These are:
a) an organization structure, responsibility and authority in QMS which are regulated under the applied Law,
b) procedures of QMS (Operating procedure, Supporting procedure, and system management procedures),
c) resources for performing all activities in QMS,
d) document system, and
e) leadership representative of quality management system.
In general, although, there are some difficulties in the implementation of QMS, but still it has some remarkable effect such as follows:
1. Making the company manage the quality and operation of production line and trading activities systematically and in a planned method, in order to minimize and exclude all cost arising after inspection, as well as cost of maintenance and repeating of work.
2. Making company increase the efficiency and reduce cost of supply of means and facilities for people doing the job according to correct procedures from the beginning. As well as having close control, then the quantity of repeated work and cost for corrective actions carried out for defective products are limited, due to lack of control and reduction of consuming for time, material, human resource and money.
3. Increase the competition with other company due to the proper QMS. The company is now well qualified for bidding and might take part in many large and important projects such as Project for Expressway of HCM City – Long Thanh – Dau Giay; Ben Luc – Long Thanh Expressway; Trung Luong Can Tho Expressway. At the same time, it creates jobs for foreign countries such as TOA (Japan), BCOM (France), Hyder (UK), SMEC (Australia) Hanshin (Korea) Wilbur Smith (USA), and Nipon Koei (Japan).
The company’s prestige has improved in terms of quality security from the professional level of staff, document system, accuracy of equipments, making the test results with high accuracy. Besides, the progress of the project is always satisfactory with planned handing over schedule and then meeting the customer’s requirements as well.
In short, QMS is a correct solution, a unique way for the development and stability of the company. When QMS is supplied, internal force (organization) and external force (customer) will have mutual link in terms of benefits and responsibility, a solution for the benefits of many parties.
Her thesis abstract is copied and posted.
Abstract
The report expresses the key issues in Quality Management System (QMS) that known as the critical factor for organizations wants to develop and survive in the construction work.
This study, which refers to the theories and the standards system, has expressed the concept of quality in construction, the QMS in organization, requirements for QMS in construction materials testing and its benefits.
The study based on theoretical considerations as well as practical experience gained in the materials testing process. To ensure the correct identification of substances, to ensure that the processes undertaken.
Report the findings of a research study, which was undertaken to examine the underlying factors affecting the quality of a construction project. It also aims to identify factors that show a strong correlation to good quality performance. The aim of this report is to improve the quality of materials testing services and to define common quality assurance criteria.
The activities of these laboratories have positively contributed to the construction quality and timely being into operation for the planning, design, construction and acceptance of such works as bridge and road, infrastructure, industrial and civil works. The development of civil industry, in general, and the activities of laboratories, in particular, are the reasons for the establishment of Quality Management System (QMS).
Ms. Nguyen Thi Vui made a case study, which objectives were to: (1) study QMS of company; and (2) evaluate the effectiveness of the QMS
Conclusions
Based on the result of the study, the quality management system in Jupiter Company was based on the ISO 9001:2008 requirement system. These are:
a) an organization structure, responsibility and authority in QMS which are regulated under the applied Law,
b) procedures of QMS (Operating procedure, Supporting procedure, and system management procedures),
c) resources for performing all activities in QMS,
d) document system, and
e) leadership representative of quality management system.
In general, although, there are some difficulties in the implementation of QMS, but still it has some remarkable effect such as follows:
1. Making the company manage the quality and operation of production line and trading activities systematically and in a planned method, in order to minimize and exclude all cost arising after inspection, as well as cost of maintenance and repeating of work.
2. Making company increase the efficiency and reduce cost of supply of means and facilities for people doing the job according to correct procedures from the beginning. As well as having close control, then the quantity of repeated work and cost for corrective actions carried out for defective products are limited, due to lack of control and reduction of consuming for time, material, human resource and money.
3. Increase the competition with other company due to the proper QMS. The company is now well qualified for bidding and might take part in many large and important projects such as Project for Expressway of HCM City – Long Thanh – Dau Giay; Ben Luc – Long Thanh Expressway; Trung Luong Can Tho Expressway. At the same time, it creates jobs for foreign countries such as TOA (Japan), BCOM (France), Hyder (UK), SMEC (Australia) Hanshin (Korea) Wilbur Smith (USA), and Nipon Koei (Japan).
The company’s prestige has improved in terms of quality security from the professional level of staff, document system, accuracy of equipments, making the test results with high accuracy. Besides, the progress of the project is always satisfactory with planned handing over schedule and then meeting the customer’s requirements as well.
In short, QMS is a correct solution, a unique way for the development and stability of the company. When QMS is supplied, internal force (organization) and external force (customer) will have mutual link in terms of benefits and responsibility, a solution for the benefits of many parties.
Her thesis abstract is copied and posted.
Abstract
The report expresses the key issues in Quality Management System (QMS) that known as the critical factor for organizations wants to develop and survive in the construction work.
This study, which refers to the theories and the standards system, has expressed the concept of quality in construction, the QMS in organization, requirements for QMS in construction materials testing and its benefits.
The study based on theoretical considerations as well as practical experience gained in the materials testing process. To ensure the correct identification of substances, to ensure that the processes undertaken.
Report the findings of a research study, which was undertaken to examine the underlying factors affecting the quality of a construction project. It also aims to identify factors that show a strong correlation to good quality performance. The aim of this report is to improve the quality of materials testing services and to define common quality assurance criteria.
Monday, 6 June 2011
Insurance and Surety Bonds: A Case Study of Petrochemical, Oil and Gas Projects in Myanmar and Thailand
Human beings, business firm, organization, government and society want security but everybody and property cannot be fixed and established because risk is generally underlying those. Risks can be easily understood among the projects, but they are difficult to describe. Construction projects require many resources such as financial capital, human resources and material resources. It is very important to mitigate the construction risks, and complete the project with target time and necessary quality. Analyses of the various risks and understanding of these risks are very important to mitigate these risks. The insurance company is of primary significant of the risk management. It shows that insurance is a form of risk management primarily used to avoid against the risk of a contingent loss (Tsanakas and Desli, 2005 cited in El-adaway and Kandil, 2009). Insurance is determined as the equitable risk transferring. The insured need to pay equitable insurance rates called premium to insurance company (Harrington and Niehaus, 2004 cited in El-adaway and Kandil, 2009).
The insurance premium payment is a major cost of project. If insurance is used, the premium must be paid in advance. If any losses happen in project, the project can get indemnification. However, the using of insurance can get loss of premiums. Therefore, the contract manager and risk manager need to consider about insurable risks. All kinds of insurable risks are not insured. Bunni (2003) mentioned that classification of risks on the basic insurability is shown in figure below.
There are many risks in the construction project. Each project activity may be its own risks such as occurrence of physical damages, accidents, materials delivery delays, unforeseeable problems, unforeseeable site conditions, natural hazards, political affects, etc. These risks will affect to the client, contractor, design professional, employees, third party and public. For instance, the contractor cannot be able to finish the project with contract price because of the economic situation and changes, the site condition changes, the difficulties of resources and others. Therefore, contractor’s default is one of the most important risks in construction projects (Arditi et al. 2000 cited in Al-Sobiei et al. 2005).
Contractor’s risks cannot be eliminated by the client, but it can be partly or totally transferred to the bonds (Al-Sobiei et al. 2005). When the project meets the unforeseeable contractor’s failure, it is very difficult to finish on time because the projects may have financial difficulties, delays and others. However, the surety bonds can provide to the client as a guarantee to complete the project and defaulting financial payment from the contractor (Russell, 1990; Mills, 2001).
Ms. Kyawt Phyu Phyu made a case study which objectives were to : (1) study insurable risks which can be managed using insurance and surety bonds; (2) study the insurance and surety bonds in oil & gas and petrochemical projects; and (3) develop a framework on risk and insurance
Conclusions
Objective 1
It was found out that there are many kinds of risks in oil and gas and petrochemical projects. Their risk management (risk transfer) approaches are the insurance, surety bonds and other approaches. However, most of the appropriate risk transfer approaches are the insurance and surety bonds and the detailed conclusion for objective-2 are described in table below.
Objective 2
it was found out that most of the projects don’t have the same insurances and surety bonds because of their project nature, project types, different project parties, different risks management system. The insurance premiums are also different relating with risks, project types, company background and others. If the risks are high, insurance premiums are also high. There are eleven (11) kinds of insurance and four (4) kinds of bonds on petrochemical and oil & gas project in this research according to case study.
(i) Recommendation Insurances for offshore pipeline project
The recommendation insurances for offshore oil and gas projects according to case study are:
1. Construction All Risk Insurance
2. General Third Party Liability Insurance
3. Marine Hull and Machinery Insurance
4. Protection and Indemnity Insurance
5. Worker’s Compensation Insurance
6. Transportation Insurance
(ii) Recommendations Insurances for Transportation and Installation Offshore
Facilities Projects
The recommendation insurances for transportation and installation offshore facilities projects according to case study are:
1. Construction All Risk Insurance/ Erection All Risk Insurance
2. General Third Party Liability Insurance3. Worker’s Compensation Insurance
4. Marine Hull and Machinery Insurance
5. Protection and Indemnity Insurance
6. Transportation (Marine Cargo) Insurance
7. Builder All Risk Insurance
(iii) Recommendation Insurances for Urea Fertilizer Factory Projects
The recommendation insurances for Urea Fertilizer Projects according to case study are:
1. Construction All Risk Insurance/ Erection All Risk Insurance
2. Transportation Insurance
3. Fire and Exploration Insurance
4. Worker’s Compensation Insurance
5. General Third Party Liability Insurance
(iv) Recommendation Insurances for Refinery Projects
The recommendation insurances for refinery projects according to case study are:
1. Construction All Risk Insurance/ Erection All Risk Insurance
2. General Third Party Liability Insurance
3. Worker’s Compensation Insurance
4. Construction Plant and Equipment Insurances
5. Business Interruption Insurance
(v) Recommendation Surety Bonds for Petrochemical and Oil and Gas Projects
In petrochemical and oil and gas projects, bid bond is needed in the bidding stage. In the construction and operation phases, performance bond (bank guarantee) and advance payment bond are important according to case study.
Objective 3
Main types of insurable risks in petrochemical and oil and gas projects are loss of life and personnel injury, material damage, material in transit and contractor’s risks. The insurable risks for oil and gas projects are collusion, oil pollution related with marine property. The researcher shows the detailed level of respective insurable risks in below figure. The project’s participants transfer these kinds of insurable risks to insurance and surety bonds, and the detailed descriptions are mentioned in figure below.
Her thesis abstract is copied and posted.
Abstract
There are many uncertainties, risks and probability and possibility of loss of chance in every firm, business, projects and human beings. The oil and gas project and petrochemical projects have many uncertainties and risks because these projects are related with geological risks, probability of existing oil, oceanography, and others. Insurance and surety bond are very important in projects because they can protect the risks, contractor’s default, and the project can get the financial and performance security. This study is emphasizing on insurable risks with appropriate types insurance and surety bonds.
This study emphasizes on the case study approach on petrochemical and oil and gas projects. The study was conducted to two oil and gas projects from Myanmar, two urea fertilizer projects from Myanmar and two refinery projects from Thailand to study types of insurable risks, insurance and surety bonds.
The insurance premium payment is a major cost of project. If insurance is used, the premium must be paid in advance. If any losses happen in project, the project can get indemnification. However, the using of insurance can get loss of premiums. Therefore, the contract manager and risk manager need to consider about insurable risks. All kinds of insurable risks are not insured. Bunni (2003) mentioned that classification of risks on the basic insurability is shown in figure below.
There are many risks in the construction project. Each project activity may be its own risks such as occurrence of physical damages, accidents, materials delivery delays, unforeseeable problems, unforeseeable site conditions, natural hazards, political affects, etc. These risks will affect to the client, contractor, design professional, employees, third party and public. For instance, the contractor cannot be able to finish the project with contract price because of the economic situation and changes, the site condition changes, the difficulties of resources and others. Therefore, contractor’s default is one of the most important risks in construction projects (Arditi et al. 2000 cited in Al-Sobiei et al. 2005).
Contractor’s risks cannot be eliminated by the client, but it can be partly or totally transferred to the bonds (Al-Sobiei et al. 2005). When the project meets the unforeseeable contractor’s failure, it is very difficult to finish on time because the projects may have financial difficulties, delays and others. However, the surety bonds can provide to the client as a guarantee to complete the project and defaulting financial payment from the contractor (Russell, 1990; Mills, 2001).
Ms. Kyawt Phyu Phyu made a case study which objectives were to : (1) study insurable risks which can be managed using insurance and surety bonds; (2) study the insurance and surety bonds in oil & gas and petrochemical projects; and (3) develop a framework on risk and insurance
Conclusions
Objective 1
It was found out that there are many kinds of risks in oil and gas and petrochemical projects. Their risk management (risk transfer) approaches are the insurance, surety bonds and other approaches. However, most of the appropriate risk transfer approaches are the insurance and surety bonds and the detailed conclusion for objective-2 are described in table below.
Objective 2
it was found out that most of the projects don’t have the same insurances and surety bonds because of their project nature, project types, different project parties, different risks management system. The insurance premiums are also different relating with risks, project types, company background and others. If the risks are high, insurance premiums are also high. There are eleven (11) kinds of insurance and four (4) kinds of bonds on petrochemical and oil & gas project in this research according to case study.
(i) Recommendation Insurances for offshore pipeline project
The recommendation insurances for offshore oil and gas projects according to case study are:
1. Construction All Risk Insurance
2. General Third Party Liability Insurance
3. Marine Hull and Machinery Insurance
4. Protection and Indemnity Insurance
5. Worker’s Compensation Insurance
6. Transportation Insurance
(ii) Recommendations Insurances for Transportation and Installation Offshore
Facilities Projects
The recommendation insurances for transportation and installation offshore facilities projects according to case study are:
1. Construction All Risk Insurance/ Erection All Risk Insurance
2. General Third Party Liability Insurance3. Worker’s Compensation Insurance
4. Marine Hull and Machinery Insurance
5. Protection and Indemnity Insurance
6. Transportation (Marine Cargo) Insurance
7. Builder All Risk Insurance
(iii) Recommendation Insurances for Urea Fertilizer Factory Projects
The recommendation insurances for Urea Fertilizer Projects according to case study are:
1. Construction All Risk Insurance/ Erection All Risk Insurance
2. Transportation Insurance
3. Fire and Exploration Insurance
4. Worker’s Compensation Insurance
5. General Third Party Liability Insurance
(iv) Recommendation Insurances for Refinery Projects
The recommendation insurances for refinery projects according to case study are:
1. Construction All Risk Insurance/ Erection All Risk Insurance
2. General Third Party Liability Insurance
3. Worker’s Compensation Insurance
4. Construction Plant and Equipment Insurances
5. Business Interruption Insurance
(v) Recommendation Surety Bonds for Petrochemical and Oil and Gas Projects
In petrochemical and oil and gas projects, bid bond is needed in the bidding stage. In the construction and operation phases, performance bond (bank guarantee) and advance payment bond are important according to case study.
Objective 3
Main types of insurable risks in petrochemical and oil and gas projects are loss of life and personnel injury, material damage, material in transit and contractor’s risks. The insurable risks for oil and gas projects are collusion, oil pollution related with marine property. The researcher shows the detailed level of respective insurable risks in below figure. The project’s participants transfer these kinds of insurable risks to insurance and surety bonds, and the detailed descriptions are mentioned in figure below.
Her thesis abstract is copied and posted.
Abstract
There are many uncertainties, risks and probability and possibility of loss of chance in every firm, business, projects and human beings. The oil and gas project and petrochemical projects have many uncertainties and risks because these projects are related with geological risks, probability of existing oil, oceanography, and others. Insurance and surety bond are very important in projects because they can protect the risks, contractor’s default, and the project can get the financial and performance security. This study is emphasizing on insurable risks with appropriate types insurance and surety bonds.
This study emphasizes on the case study approach on petrochemical and oil and gas projects. The study was conducted to two oil and gas projects from Myanmar, two urea fertilizer projects from Myanmar and two refinery projects from Thailand to study types of insurable risks, insurance and surety bonds.
Friday, 3 June 2011
Orientation Risk Management Model for Pre-Bidding Process in Low-Income Housing Projects With Public Private Partnership in Vietnam
Although PPP is not a new approach to access infrastructure capital mobilizing in the world, this model has just applied in Vietnam since 2000s (DPI, 2010). The incompletion framework of PPP is one of the barriers that private sector could not be accessed to low income housing projects. As a result, there are only 6 projects which have been launched until 2009 Ngan Ha (2010, Jan 21), and all of them had an investor collection process without tendering process. This reality is not only “crowding out” private participation but also increasing the overall risk to the GOV in its PPP program (WB, 2008).
In order to improve this situation, in early 2010, GOV issued new 108 Decree to replace 78 Decree which was applied before. Thus, PPP procurement process is now clearer than before. Project partner must be selected through transparent tender bidding & negotiation phase. Hence, with the new regulation, risk evaluation plays a critical role in pre-bidding period.
Nevertheless, according to World Bank report (2008), in Vietnam current situation, ‘projects are not very well developed before they are bid out’. This is a key point needed to be thoroughly comprehended by stakeholders if they do not want to be ineffective of PPP program.
Mr. Vu Tuyet Mai made a research to find out the answer for the following questions:
1. What are the risks included in pre-bidding process for every aspect of PPP stakeholders who have difference objectives, functions, risk perception, how to manage those risks properly based on stakeholder’s competence and experience?
2. What is the existing risk management model which is used by stakeholders in the PPP low income housing projects running without bidding process in Vietnam?
3. What are the basic differences and how to capture the new risk management model from existing one?
The objectives of his research were to: (1) investigate risk factors can occur in pre-bidding stage for stakeholders of PPP low-income housing projects when apply the new regulation in Vietnam; (2) find out the existing critical risk factors in pre-bidding stage of low-income housing project in Vietnam; and (3) develop the risk management model in pre-bidding stage to help PPP stakeholders to achieve individual and project objectives under the new regulation.
Conclusion
Even though PPP model is familiar to infrastructure projects in general and low income housing project in particular around the world, it was just piloted in Vietnam recently, and now is in the improvement process. In parallel with gradual correction of policy system is the comprehension of related partners in project structure about risk management orientation. Hence, the goal of this thesis is pursuing this orientation to partly contribute to the completion process.
The result of the first objective is that the risk factors can face stakeholders in LIHPs would be investigated follow bidding process which should be applied in PPP practices. Thus, public sector plays the most important role in pre-bidding process and takes responsibility of social outcome. As a result, they take 19 risk factors in whole pre-bidding process, much higher if it will compare with 7 risk factors of private sector and debt funder.
The result of objective number 2 is that although all LIHPs in Vietnam now have not applied bidding regulation, those were analyzed exposed the real process of investor selection and their risk management related. In other words, those showed the evidences of real risk factors occurring now. Also, the ways stakeholders managed them and their result have been investigated.
For the last objective, the orientation model not only reduces many risk factor sprang from current selection process, but also recommend the solution to solve the risk related with policy and regulation in Vietnam now.
His thesis abstract is copied and posted.
Abstract
Risk management issue becomes more and more important in low income housing projects in Vietnam, especially in the transitional period of improvement of policy in recent years. Pursuing the suitable risk management model in pre-bidding process which needs to be applied from now as ruled in new regulations is the main propose of this thesis. In order to catch up requirements in pre-bidding, every stakeholder has to face with some determined risks to meet their needs. Moreover, current investment condition in low-income housing projects has contained many existing risk. Therefore, combination between risk simulation in pre-bidding and risk occurring could show the orientation of risk management model for the near future.
The thesis used methodology of case study analysis. After finding out risk factors in pre-bidding and verifying by experts, two most typical projects that run by PPP scheme have been chosen to analyze. The result of study shows that low-income housing project in Vietnam were challenged by many risk factors. They were caused by either current process of investor appointment or existing vague regulation and policy. For this reason, the thesis oriented the risk management model in order to reduce the main risks factor and transfer some risks to the sector enable to manage well. Obviously, this model needs to be perfected gradually through project by project and period by period. At least, the first model of risk management can help stakeholder to optimize their interest in low-income housing project with applying bidding process instead of investor selection before.
In order to improve this situation, in early 2010, GOV issued new 108 Decree to replace 78 Decree which was applied before. Thus, PPP procurement process is now clearer than before. Project partner must be selected through transparent tender bidding & negotiation phase. Hence, with the new regulation, risk evaluation plays a critical role in pre-bidding period.
Nevertheless, according to World Bank report (2008), in Vietnam current situation, ‘projects are not very well developed before they are bid out’. This is a key point needed to be thoroughly comprehended by stakeholders if they do not want to be ineffective of PPP program.
Mr. Vu Tuyet Mai made a research to find out the answer for the following questions:
1. What are the risks included in pre-bidding process for every aspect of PPP stakeholders who have difference objectives, functions, risk perception, how to manage those risks properly based on stakeholder’s competence and experience?
2. What is the existing risk management model which is used by stakeholders in the PPP low income housing projects running without bidding process in Vietnam?
3. What are the basic differences and how to capture the new risk management model from existing one?
The objectives of his research were to: (1) investigate risk factors can occur in pre-bidding stage for stakeholders of PPP low-income housing projects when apply the new regulation in Vietnam; (2) find out the existing critical risk factors in pre-bidding stage of low-income housing project in Vietnam; and (3) develop the risk management model in pre-bidding stage to help PPP stakeholders to achieve individual and project objectives under the new regulation.
Conclusion
Even though PPP model is familiar to infrastructure projects in general and low income housing project in particular around the world, it was just piloted in Vietnam recently, and now is in the improvement process. In parallel with gradual correction of policy system is the comprehension of related partners in project structure about risk management orientation. Hence, the goal of this thesis is pursuing this orientation to partly contribute to the completion process.
The result of the first objective is that the risk factors can face stakeholders in LIHPs would be investigated follow bidding process which should be applied in PPP practices. Thus, public sector plays the most important role in pre-bidding process and takes responsibility of social outcome. As a result, they take 19 risk factors in whole pre-bidding process, much higher if it will compare with 7 risk factors of private sector and debt funder.
The result of objective number 2 is that although all LIHPs in Vietnam now have not applied bidding regulation, those were analyzed exposed the real process of investor selection and their risk management related. In other words, those showed the evidences of real risk factors occurring now. Also, the ways stakeholders managed them and their result have been investigated.
For the last objective, the orientation model not only reduces many risk factor sprang from current selection process, but also recommend the solution to solve the risk related with policy and regulation in Vietnam now.
His thesis abstract is copied and posted.
Abstract
Risk management issue becomes more and more important in low income housing projects in Vietnam, especially in the transitional period of improvement of policy in recent years. Pursuing the suitable risk management model in pre-bidding process which needs to be applied from now as ruled in new regulations is the main propose of this thesis. In order to catch up requirements in pre-bidding, every stakeholder has to face with some determined risks to meet their needs. Moreover, current investment condition in low-income housing projects has contained many existing risk. Therefore, combination between risk simulation in pre-bidding and risk occurring could show the orientation of risk management model for the near future.
The thesis used methodology of case study analysis. After finding out risk factors in pre-bidding and verifying by experts, two most typical projects that run by PPP scheme have been chosen to analyze. The result of study shows that low-income housing project in Vietnam were challenged by many risk factors. They were caused by either current process of investor appointment or existing vague regulation and policy. For this reason, the thesis oriented the risk management model in order to reduce the main risks factor and transfer some risks to the sector enable to manage well. Obviously, this model needs to be perfected gradually through project by project and period by period. At least, the first model of risk management can help stakeholder to optimize their interest in low-income housing project with applying bidding process instead of investor selection before.
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