Delays in Construction Projects in Vietnam

Delays in construction almost happen in all projects in Vietnam especially those state-funded and which contractors are domestic. On the other hand, projects which were carried out by international contractors are less likely to suffer delay.

The responsibility for delay was not clearly defined; therefore, whenever delay happens, no one has to be blamed. Because of this, the owner often give contractors extended time to finish the project without any penalty. In very few cases, contractors were given more time but had to pay a penalty.

However, in general, delay and cost overrun are the biggest problems in bombing construction field in Vietnam. Truong Quang Dien made a case study which focused on the construction stage of the projects and the factors affecting it. The objectives of his paper were:

1. Recognizing frequency causes of delay

2. Defining effects of delay in progress of projects

3. Solutions to delay problem and how to deal with delay when it happens

Conclusion

The discussion about the delay in construction projects in Vietnam focused on frequency, severity and importance of the causes of delay, effects of delay and how the delay was solved.

The frequency and severity causes of delay were identified through previous research, present issues, and widespread contributions of construction field in Vietnam. The construction participants accorded inexact time, slow site clearance, slow issuance of government permits, poor site management and supervision, financial difficulties, incompetent subcontractor, and unforeseen factors, etc.

Slow acquisition was frequent cause of delay in almost construction projects in Vietnam, which affected to whole schedule of the project. In the Owner’s point of view the causes of delay were related to the responsibilities of both contractor and subcontractor.

This paper showed that owners and consultants realized that contract awarding to the lowest bidder was the frequent causes of delay. However, the contractors considered that the severe causes of delay were related to owners and consultants like: unclear responsibilities, owners’ slow decision making bout some changed works during construction.

One common cause of delay was Change Order initiated by owner during construction. Besides, there were many causes between two parties, such as progress payment delay from Owner, ineffective scheduling, poor site management and supervision, shortage of labors and difficulties in financing from contractor.

All parties agreed that the following causes rarely occurred and were less important: changes in government regulations, restrictions at site, effect of social and cultural factors.

In general, there were certain interrelationships among the problems. The top-ranked problems including occurrence were grouped under some major factors: site related issues, incompetent designers and contractors, poor estimation, poor site management and supervision, poor contract management, price fluctuations, and improper techniques. It was noted that the findings confirmed previous studies that most of the problems in construction projects were related to human behavior and management problems, and not technical in nature.

In order to mitigate delays in construction industry in Vietnam, all engineers should be required for competency training in terms of technical, and safety. Therefore, there was no more gap in planning, managing and organizing and safety; project feasibility study must receive a serious attention and must be done carefully especially on government funded projects.  In addition, contract management work should be the focus. Although Vietnamese government has regulated many decrees or circulars which ruled this work and published contract template, it always needs experienced parties to do contract work and suit template to real project conditions.

From the above causes, the effects of delay were cost overrun and party’s damages. Third parties were people who would get profit from operating or using the project.

Recommendations

To reduce delays, all parties should consider the following important factors:

1. Separate site clearance (acquisition) work from construction work and it must be finished before estimating cost and schedule for construction phrase and bidding work.

2. Make clear responsibilities among parties in the contract document and use CPM (Critical Path Management) to manage schedule during construction.

3. Make Planning and scheduling: they are continuing processes during construction and match with the resources and time to develop the work to avoid cost overrun and disputes.

Besides the three most above mentioned causes, the following points can be recommended by all parties in order to minimize and control delays in construction projects.

For the Owners

1. Progress payment should be made on time; otherwise, it impairs the contractor’s ability to finance the work.

2. Change orders should be minimized as much as practical during construction to avoid delays.

3. Avoid delay in reviewing and approving of design documents than the anticipated.

4. Check for all resources and capabilities, before awarding the contract to the lowest bidder.

For the Contractors

1. Shortage and low productivity of labor: enough number of labors should be assigned and be motivated to improve productivity.

2. Financial and cash flow problems: contractor should manage his financial resources, plan cash flow by utilizing progress payment and ensure financial during construction.

3. Site management and supervision: administrative and technical state should be assigned as soon as project is awarded to make arrangements to achieve completion within specified time with the required quality, and estimated cost.

4. Subcontractors and suppliers: selecting Subcontractors and suppliers with competence and experience and have also enough financial resources. Contractors should not select Subcontractors and suppliers with low bidding price.

5. Planning and scheduling: they are continuing processes during construction and match with the resources and time to develop the work to avoid cost overrun and disputes.

For the Consultants

Reviewing and approving design documents: any delay caused by the consultant engineer in checking, reviewing and approving the design submittals prior to construction phase, could delay the progress of the work. Inflexibility: Consultants should be flexible in evaluating contractor works. Compromising between the cost and high quality should be considered.

Abstract

In construction project management, delay means the finish date of the project is beyond the date stated in contract. When delay happens, cost often increases because of inflation or other factors. Most construction projects in developing countries, including Vietnam, are suffering two problems: delay and cost overrun.

For the owner, delay means cost more for capital and loss of income from operating the outcome of the project. For constructors, delay means cost more for construction work because spending on materials, labors and vehicles will increase.

Completing project on time and within in-plan cost is an indicator of efficiency in project management. However, construction progress is often changed and affected by unforeseen factors such as: contractor-related problems: Poor site management and supervision, Financial difficulties, Incompetence subcontractors; owner-related problems, design-related and slow site clearance, etc.

This report will try to find out which reasons are main reasons for delay in Vietnam based on previous researches and personal experience of author. Also, solutions for this problem will be mentioned in chapter IV as a suggestion of author.

Contract Clauses in the EPC Contract

Normally, for building a polyester plant, the Owner will sign an EPC (Engineering, Procurement and Construction included pre – Commissioning and Commissioning and training) contract with the EPC contractor. In the petrochemical and polyester industry, there is no any EPC Contractor in Vietnam who can execute a full EPC project. Therefore the EPC contractor is selected and awarded by the international bidding. The major factors for executing an EPC project are the contract clauses which are normally stipulated too generally with unclear understanding and interpretation when having disputes between the contractor and the owner. Therefore, studying the method to develop the effective clauses in the EPC contract is necessary to simplify and make involved parties to understand and interpret clearly during the contract negotiation prior to the EPC contract signing and commencement. The understandable and applicable contract clauses properly will help an EPC project to be executed smoothly and effectively.

In order to minimize the interfaces and risks between the separated contractors and the Owner during executing a polyester project, Owners normally prefer to award and sign an EPC contract with an EPC contractor. However, this project delivery method will take a lot of time to make bidding, clarification, explanation and get the mutually agreement on the contract clauses between the contractor and the Owner. The following problems are normally involved with the EPC contract clauses:

1. Take time to make the bidding, clarification and finalization before contract signing;

2. Wrong understanding and interpreting of stipulated clauses in the contract;

3. Conflict between contractor and the Owner during project execution.

An EPC contract is generally applied for developing a polyester 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, Vu Dinh Duy made a case study which focused on the following issues related to EPC contract:

1. To study EPC contract process and management from literature review;

2. To study the contract clauses in EPC polyester project;

3. To study the implementations of the contract clauses and their performance with reference to project advantages and problems.

Conclusion

EPC Contract, known as the “Lump-sum Turnkey Contract”, “package deal”, or Engineering, Procurement, Construction and Commissioning Contract, places the duty to design, procure, construct and commissioning solely on the Contractor. The term “Lump-sum Turnkey” tends to mean the most extreme form of placing design, procurement, construction and commission responsibility on the contractor such that after completion the Owner need only turn the key to commence operation of the Plant or Constructed facilities.

The use of EPC Contract results in a considerable reduction of intervention by the Owner in design, procurement, construction and commissioning process throughout the Project. The role of the Owner will consist primarily of contract administration, such as supervision, review and/or approval of critical works of detailed designs, procurement of long-lead items etc.

Lump-sum pricing method is often used for EPC Contract and enables the use of fixed payment by stages of completion. Lump-sum pricing and fixed installment payments provide the Owner with greater certainty in overall cost as well as in the timing of payment.

Advantages of EPC Contract

The EPC Contract makes contractor entirely responsible for the whole project regarding detailed design, procurement, construction and commissioning. The Owner receives a completed project in accordance with his performance specification.

The Owner does not need to worry about co-coordinating contractors effectively and avoids claims resulting from lack of interface definition.

In addition, single-point responsibility can also reduce the opportunity for claims by the contract. The Contractor must deliver the works that are fully operational to the specifications of the Owner; any defect or default is automatically his responsibility except where the contract provides otherwise. Everything relating to the works can, thus, be concentrated in a single point of responsibility – the contractor.

With lump-sum pricing method, this system reduces front-loading by the contractor and encourages rapid completion. Also, it facilitates financing, as lender will have greater certainty of financial exposure and the timing of draw-downs.

The control given to the contractor should facilitate implementation of new and better approaches to design, developed through his experience and expertise. The contractor will have an intensive to implement such time saving changes under the turnkey structure.

Since the designer, purchaser, constructor work as a team, they are more likely to identify critical flaws in the design at an earlier stage, ensuring avoidance or mitigation of the flaw when such action is more effective. This team approach will help avoid many design, procurement, construction, commissioning risks which a separate designer, purchaser, constructor would not be able to identify, The joining of the design, procurement, construction and commissioning task under on contractor may also reduce the number of disputes which arise between the contractor and Owner.

Disadvantages of EPC Contract:

Loss of control. The overall supervision role of the Owner is absent from the EPC Contract. The EPC model generally contemplates less day-to-day intervention. Under the EPC contract, it may be more difficult for the Owner to exercise his variation power properly. He may be distanced from the design, procurement, construction activities, reducing his understanding of the process used and his ability to verify for a variation and whether a variation proposed will affect the performance of the finished works.

The contractor will want to execute the works within the parameters of the Owner’s requirements for the least cost possible. The contractor in a EPC contract may be tempted to under-design the project in order to cut his costs and save on time.

Cost of risks. Under the EPC contract the Owner benefits from an increased amount of the risk of the project being placed on the contractor. However, depending upon market forces, a contractor will attempt to increase the contract price in accordance with the increase in risk. Where there is little competition, the Owner may have to assume the cost of the increased risk placed on the contractor. Thus the Owner may end up paying a higher overall price for the project due to the degree of risk that is placed on the contractor and the need for the contractor to price such risk.

So that, EPC contracts nowadays become popular in construction projects, especially in oil and gas sector. However, together with the advantages, EPC contract also exposes its disadvantages and is quite complicated in terms of legal issues, therefore the Owner and the EPC Contractor shall have enough experiences and knowledge to understand lump sum contract characteristics from the perspectives of both the contractor and the Owner in order to avoid their faults and mitigate the risks during contract execution.

The EPC contract also come many new risks that are often severe, due to the complex nature and high cost frequently associated with this type of project. Understanding the risks and some of the other unique characteristics of EPC contracting is critical to a successful project where both the owner and the contractor obtain the high rewards for the risk.

Abstract

The Vietnamese Textile and Garment (T&G) industry consists of around 2.000 enterprises (25 State owned enterprises, 1.500 private enterprises and 450 reign direct investment enterprises) with over 2 million employees involved. Vietnam is ranking the 10th largest textile and apparel export countries in the world. The industry generates an economy contribution of 8% to country’s GDP. The T&G industry is employing 12% of national industrial workforce, holding the second position in export turnover and making the contribution of 14% to country‘s export turnover. Average growth rate from 2002 - 2007 is about 18% per year.

Therefore, valuable arguments for the implementation of a Polyester fiber project:

1. Saving of foreign currency due to substitution of imported Polyester staple fiber and filament;

2. Creation of new employment for qualified labor;

3. Further strengthening of the textile industry in Vietnam as a second largest export earner after crude oil; 

4. Establishment of the whole polyester esterification, polycondensation, spinning and fiber drawing process through introduction and transfer of state-of-the-art technology;

5. First step in the Vietnamese synthetic fiber industry to extend the business into the upstream petrochemical industry, e.g. production of PTA;

6. Stable and long term local supply of staple fiber to the domestic downstream textile industry including the improvement of quality due to close cooperation between domestic companies.

Normally, for building a polyester plant the Owner will sign an EPC (Engineering, Procurement and Construction included pre – Commissioning and Commissioning and training) contract with an EPC contractor. In the petrochemical and polyester industry, there is not any EPC Contractor in Vietnam who can execute a full EPC project, therefore the EPC contractor is selected and awarded by the international bidding. The major factors for executing an EPC project are the contract clauses which are normally stipulated too generally with unclearly understanding and interpreting when having disputes between the contractor and the owner. Therefore, studying the method to develop the effective clauses in the EPC contract is necessary to simplify and make involved parties to understand and interpret clearly during the contract negotiation prior to the EPC contract signing and commencement. The understandable and applicable contract clauses properly will help an EPC project to be executed smoothly and effectively.

The sensitive clauses in the EPC contract are also needed to focus in order to minimize the conflicts and risks between the EPC contractor and the Owner. This study will also discuss on point of view and how to managing the EPC contract of Dinh Vu Polyester project and focus on the following issues related to EPC contract:

i. To study EPC contract process and management from literature review;

ii. To study the contract clauses in EPC polyester project;

iii. To study the actual Dinh Vu polyester project Contract implementation.

Subcontractor Management in LPG Truck Loading Projects

Even though a large portion of a construction project is usually performed by subcontractors, the issues concerning about the subcontracting practice are rarely acceptable (acknowledged) and the ways to improve subcontracting practice are seldom debated.

Project delays are due to many reasons such as poor communication, lack of resources and other factors. Most of vast projects usually have problem with time and cost control. Vu Van Ngu made a case study which main objective was to find out “How main contractors manage subcontractors including procurement, cost, quality, scheduling and safety aspects?”

Conclusion

In this case, it was found out that there are many factors that influence subcontractor management such as tender preparation, subcontractor selection, and contract with subcontractor, and subcontractor scheduling management etc. In this case, the most important factor is tender document preparation. The tender document was prepared but it was insufficient and unclear because of poor design and inexperienced person was assigned to prepare tender document. Due to these reasons, the subcontractor evaluation and subcontractor selection were influenced and consequence of further sequences occurred.    

The main contractor and subcontractor have responsibility in management of project scheduling, project quality, project cost, and project safety. However, the role of subcontractor is most important. If the selected subcontractor have past experience for the project, have good management system, have enough capability to carry out the project such as equipment, tools, labor, they can complete the project by themselves. The main contractor only supports the subcontractor; it can’t replace management of subcontractor. The main contractor subcontract because of its not capable to carry out the project, or it is not specialized in the subcontracted field.

 

Recommendation

Based on the problems, it can be said that the management of subcontracting firm almost depended on the Main contractor organization such us their capabilities, their experience, their management system. If their people don’t have experience and capability, these problems normally happened:

1. They can’t properly prepare the tender document which leads to difficulty in subcontractor evaluation.

2. They can’t select the right subcontractor especially that some people base their decision on their and not base on the actual requirement written in the tender documents and biding submitted by the bidder. The subcontractor selection actually is a sensitive issue.

3. They can’t prepare sufficient contract in which all risks have been considered, possible events mentioned together with solving solution.

4. They can’t manage the subcontractor’s schedule because they don’t know how to control their schedule.

5. They can’t monitor and control the quality of the project because they don’t know exactly the quality requirements applied for the project.

6. They can’t control the cost and safety.

 

In tender document for tender:

1. The tender document is very important for bidders in preparation of document for submission. The main contractor should assign competent person to carry out this works and all tender documents should be reviewed carefully before issuance. If Main contractor do not have people who have enough experience, the main contractor should hire expert from outside.

2. When preparing the scope of work, main contractor have to check and totally understand all contents of the detailed design, any missing content or unclear content/ differences should be explained, added in tender document or request subcontractor to check and propose their solution/ methodology in submitted documents as option.

3. Evaluation form is very important for evaluation. It should be reviewed carefully by well-experienced people. It should indicate key factors based on which we can evaluate exactly in order to choose the right subcontractor.

4. In order to use for further reference, those document should be stored in systematic manner.

 

In subcontractor selection

1. Members of evaluation team should be carefully selected. They have to read and understand configuration of project and all its requirements. He/ she should know what major factors influence to project, what are minor factors which can be discussed, clarified, adjusted in negotiation step. 

2. In addition, members of the evaluation team have to understand the requirements in the legal documents such as law, decree…

3. Members of the evaluation team should have negotiation skill, should be flexible, shouldn’t be rigid during negotiation, should know how to ask subcontractor to understand capabilities and past experience of subcontractor which we intend to select.

4. Members of the evaluation team should have equitable behavior.

 

In Subcontractor contract

1. During negotiation, all responsibilities of each party should be detailed and clear.

2. The scope of work should be cleared; any ambiguous issues shall be raised and discussed until both parties understand the same meaning.

3. Payment term, milestone should be defined in details; any documents which are necessary for payment should be specified.

4. Main contractor, subcontractor should predict situations for impact cost, impact schedule and set out feasible rules for implementation.

5. Main contractor should assign a person to manage the contract ensuring that it is controlled according to commitment between parties.

 

In subcontractor scheduling management

1. The main contractor should assign personnel to control project schedule (Project schedule controller), update and report to project manager every week or when necessary. Base on report of inspector, project schedule controller should calculate achieved schedule and comparison with targeted schedule. The calculation result will serve as evidence for giving necessary solution.

2. The inspector of main contractor should go to the site regularly to inspect and record the exact quantity done by subcontractor.

3. The main contractor should carefully review the schedule of subcontractor, make sure it is feasible and includes any possible risks.

4. A solution to settle delaying schedule of subcontractor should be given in the contract. The main contractor can take over subcontractor’s responsibility to recover project schedule when the subcontractor is not able to catch schedule.

In subcontractor quality management

1. The main contractor shall assign experience inspectors to control quality of project.

2. The design document provided by client should be detailed, sufficient, indicated the criteria, and the standard applied. The design document of subcontractor should be reviewed and approved by main contractor when necessary.

3. Main contractor should check and approve construction procedures, especially inspection and test plan (ITP) content in the procedures.

4. Main contractor should require subcontractor set up quality team and control quality by themselves.

 

In subcontractor cost management

1. The payment should be based on completed quantity; this quantity should be strictly controlled.

2. Any impact cost should be checked, approved, and controlled strictly.

 

In subcontractor safety management

1. The safety should be emphasized at the start of the project and maintain through the project.

2. The safety should be reminded regularly.

3. The risk assessment is always useful.

4. The permit to work should be applied for hazardous work.

Abstract

Because of the increased project complexity and the highly competitive nature of the construction industry, a construction project often is executed by several subcontractors. Hence, effectively managing the numerous subcontractors involved in a construction project becomes a crucial challenge for the general contractor in ensuring timely project completion with acceptable quality.

Managing subcontractors does not simply involve asking them to allocate resources (labor, material, and machinery/equipment) into the jobsite whenever an activity is scheduled, and then pushing them to speed up the work without a clear consciousness of schedule risk. Factors (or uncertainties) such as weather, labor, site conditions, material delivery, and equipment breakdown can influence the time performance of subcontractors, affecting total project duration.

But almost General Contractor is leak of management sub-contractor and it caused many difficulties and conflicts during performance, management of projects.

The most difficulty of sub-contractor management is deviation scope of work between sub-contractors, controlling schedule and interfacing between subcontractors.

In managing project subcontractors, a general contractor must determine the items of work to be subcontracted, select subcontractors, set subcontract agreements, and control the subcontractors during construction.

Integration of Gas Gathering System in Oil Field Development Project - A Solution for Oil Field Early Development

Petroleum operations demand advanced scientific technology and huge investment capital. This operation may bring high profits, but with huge risks and in some cases lead to loses. Because of the high commercial value and profits from crude oil, contractors still accept risks when entering this operation.

In some cases, during the oil field development execution, through the estimation of the field development economic efficiency model, contractors may face with the risks of loses because of high investment costs, and economic efficiency rate is lower than expected. Thus, the commencement of the operation may be prolonged by contractors. One of the solutions to solve this problem is to reduce the investment costs as much as possible by applying old technology, and deduction of equipment costs.

In the oil field development, economic efficiency is based on the field reserve and production profile for both oil and gas. And the investment for a gas pipeline system to transport to onshore shall only be considered if the gas field reserve has commercial value; otherwise, contractors shall cut off the investment for export gas facility system. Gas extracted during oil production shall be used as fuel gas, gas lift, gas injection and flaring.

Environmental issue in oil and gas exploration and production operations in recent years became big problem that all governments who proceed these operations in the world should be concerned. Regulations for environment protection, usage of natural resources have been closely amended, especially the Provision of prohibited gas flaring in the Law on Petroleum ratified by Vietnam Parliamentary. Because of this Provision, in the oil field development plan, contractors must consider method for export gas in the field equipment system. These results in the increase of investment may become an obstacle in the field development execution by contractors.

Environment protection is not only the contractor’s responsibility but also the government Vietnam, namely PetroVietnam, a state owned enterprise involved in petroleum operations. Furthermore, PetroVietnam should find the right way to speed up the execution of the field development.  

The right way to settle the prolongation of field development in such case is the participation of owner’s enterprise in the construction of the gas gathering pipeline system by method of cost sharing, integrating the gas gathering pipeline system project with the oil field development project. Pham Minh Nga made a case study which focus were the following subjects:

1. Description of Oil Field Development process and its issues.

2. Integration necessity of gas gathering system in oil field development project. 

3. Solution chosen to execute the integration.

Conclusion and Recommendation

The petroleum operation has complexity and requires advanced scientific technology marvels with high investment costs, especially the offshore oil exploration and production activities. This is the operation that brings to the operator huge economic profit from the high oil commercial value. However, the economic efficiency of this activities depend much on the field development planning relating to the execution of interactive activities in  all stages from exploration, drilling and production operations, reservoir engineering and well logging, and enhanced oil recovery.  An Oil Field Development Plan should be formed and appraised based on the objectives: acceptable technical technology, economic efficiency, appliance to international practices in enhanced oil recovery optimism, conformity with Regulations of Law on environmental protection, and preservation of natural petroleum resources.

Nowadays, Regulations of Laws on petroleum operation have been amended and supplemented to conform to the realistic requirements for environment, resources preservation, technology application,  enhanced oil recovery optimism, those which, both the owners’ body and contractors must be followed. Besides, the owner’ enterprise should have responsibility to instruct contractors in the execution and find method to resolve problems with the purpose of encouraging contractor in promoting the oil field development. The participation of the owner’s enterprise in coordination with contractors in the execution of FDP is an important factor to contribute to the success of the FDP.

With the example of this case study, Integrating Gas Gathering Facility Project in Oil Field Development Project, it has been realized that this is a reasonable solution for speeding up the Offshore Oil Field Development which is similar to HST-HSD and TGS Oil Field Development Projects in Bach Ho Basin.    

It is of a realistic proof that the alternative is the best solution for Projects in the area which have like circumstances and condition, but it may be defect and in-economic if it is applied in various projects without careful consideration. Therefore, finding out an acceptable solution for resolving any issue or problem, it should be decided based on the reality and overall analysis and evaluation.  

Abstract

In many decades, crude oil and natural gas have become essential energy resources in the industrial development of all countries in the world. It has been enormously forcing the development of petroleum operations. The life cycle of petroleum operations includes exploration and development, production, refining, marketing, transportation distribution to the end-user, and final utilization. New scientific technologies have been increasingly applied in all life cycle of petroleum operations.

Even though petroleum operations have been based on solid scientific excellence and engineering marvels, only recently has it been discovered that many of the practices are not environmentally sustainable. Practically all life-cycle activities of hydrocarbon operations are accompanied by undesirable discharges of liquid, solid, and gaseous wastes, CO2 emission by gas flaring which have an enormous impact on the environment.  For example, during drilling, water-based drilling muds and cuttings are discharged overboard, whereas during production, the major discharge is produced water.   The ecological impacts of these discharges, including habitat destruction and fragmentation in both terrestrial and aquatic environments, are now recognized as major concerns associated with petroleum and natural gas developments. Consequently, reducing environmental impact is the most pressing issue today and many environmentalist groups are calling for curtailing petroleum operations altogether. By developing new technologies that guarantee sustainability in hydrocarbon operations, these problems have been solved in environmentally acceptable, economically profitable, and socially responsible manner.

Besides, petroleum operations must be commenced in conformity with the Law and Regulations relating to the economical usage of all natural resources. Thus, either enterprises or contractors involved in petroleum operations have great responsibility for the planning, appraisal, approval or commencement of oil field development project in compliance with the regulations of environment, technology, preservation and economical use of petroleum.

With this study, an acceptable solution for the integrating the Gas Gathering Pipeline System with Block 16-1 Te Giac Trang and Block 15–2/1  Hai Su Trang -  Hai Su Den Offshore Vietnam Field Development Project have been chosen to undertake with the purpose of encouraging the early development of such offshore Oil Fields and commencing the economical use of associated gases. 

Owner’s Project Cost Management Approach

Based on the reports from the local media, most projects which first applied in Vietnam and performed by Vietnamese organization were delayed, had cost overrun or not financially vital due to lack of appropriate cost management approach. Nguyen Sinh Khang made a case study which was expected to provide the respective project owner especially the company which is performing the first underground oil storage cavern project in Vietnam with sound cost management approach. The objectives of the were to:

1. study the issues in cost management of construction project especially of underground oil storage cavern project in Vietnam

2. provide recommendations on how the problems can be managed and the frame work for owner’s project cost management approach covering whole span of the project from pre-contact stage to post-contract stage

Conclusions

For the project especially for the large-scale and complex project like underground oil storage cavern, the cost overrun shall occur due to three reasons such as: incomplete and inadequate drawings and specifications, the Owner’s change to project requirements and changes from Contractor. In spite of the efforts made by Owner, Owner’s Consultants and Contractors, there are considerable factors that made cost overrun inevitable and numbers of the factors are out of their responsibility and ability.

The followings are the Owner’s common factors that cause the problem in cost management of the project:

1. Lack of management policy on report and control practices;

2. Improper estimating techniques and/or standards leading to impractical budget;

3. Fault sequence commencement and completion of activities and/or events;

4. Unexpected material cost escalation;

5. Poor scope of work definition or inadequate WBS (Work Breakdown Structure)

6. Selecting Contractor with the lowest tender price;

7. Improper planning system resulting in ineffective action or cost;

8. Improper comparison of  actual cost and planned cost;

9. Unexpected and unplanned technical issues;

10. Delays and disruption resulting prolongation cost.

The conclusions of this study are as follows:

1. For Owner’s Cost management of pre-contract stage:

   i. The Owner normally selects Consultant or Contractor who proposes lowest bid regardless of experience, quality or expertise;

   ii. Scope of work of Consultant or Contractor is poorly planned and defined;

   iii. Low accuracy is inherent in the approved cost estimate;

   iv. Tight approved budget is included in the overall scheme;

   v. Value engineering (VE) is not carried out during design phases especially in the initial phase of the project.

2. For Owner’s procurement strategies:

  i. Traditional method of procurement based on the clear separation of design and construction is deployed.

   ii. Price-based, lump-sum and specification contract in which Contractor is required to estimate the quantities and subsequently to calculate tender sum based on the owner’s drawings and specifications is deployed.

   iii. Risk access is not carried out for decision making especially in selection of project delivery system.

3. For Owner’s Cost management of post-contract stage:

   i. Owner’s cost-management and monitoring procedure  lacks the following characteristics:

   ii. Cost is not forecasted before decision making ;

   iii. Cost-recording system is not cost-effective to operate;

   iv. Actual cost is not subject to variance analysis;

   v. Time and quality do not implicate in the cost.

   vi. Change management – Valuing variations:

   vii. The proper recording system for changes is not established and applied;

   viii. Traditional method of valuing variation which is based the valuation on the rates or prices specified in Bill of Quantity (BofQ) or schedule. Normally, those rates or prices were quoted at the time of tender.

   ix. Changes to the project arise due to:

        a. Inadequate briefing from the owner;

        b. Inconsistent and late instruction from the Owners;

        c. Incomplete design;

        d. Lack of careful planning at design stage;

        e. Lack of coordination of specialist design work;

        f. Late clarification of complex details;

   x. Claim management:

  xi. The delay claims on extension of time and cost of prolongation from Contractor is not solved effectively and in amicable way. 

   xii. The Contractor often submits the claims due to the main following reasons :

       a. Inadequate time and planning before project commencement;

       b. Inviting the tender on incomplete drawings;

       c. Introducing extensive changes to the project;

   d. Inadequate site investigation – deep basement; pilling, earthwork, tunneling or unforeseen ground condition;

      e. Extensive changes to contract standard form;

      f. Owner’s inference with the timing and sequence of construction.

Recommendation for management improvement

For the project with the similar condition as one in the case study, the recommendations are as follows:

1. Value-for-money mechanism should be in place to evaluate quality and price of the bid.

2. For any contract, the scope of work should be clearly defined.

3. Proper methods with the different degree of accuracy for each stage of the project shall be used.

4. The budget should be used positively to ensure that the design stays within the scope of the original scheme.

5. The factors to be considered during cost estimate shall be:

a. Land acquisition including legal fees;

b. Owner’s organization cost allocated to the project;

c. Site investigation;

d. Insurances;

e. Consultant’s fees including engineering;

f. Equipment procurement and installation;

g. Construction cost;

h.Taxes;

i. Contingencies and risks;

j. Financing and legal cost.

6. Comprehensive value management (VM) should be in place all the time.

7. Design and Build shall be deployed.

8. Price-based bill of quantity (BofQ) with milestone payments is applied.

9. Sound risk management procedures should be in place all the time to access the risks so that unacceptable risks could be transferred to relevant Contractor or Insurer by contractual commitment. Who-life costing technique could be used where possible.

10. Costs should be forecasted before decisions are made to allow consideration of all possible actions;

11. Cost-recording system should be simple and cost-effective to operate;

12. Actual costs should be subject to variance analysis to determine the reasons for any deviation leading to cost overrun;

13. The costs implication of time and quality should be incorporated into the decision making process.

14. Parties should keep comprehensive and detail records of the factors relevant to the variation.

15. Change consequences shall be mitigated by:

a. Setting up clear project objectives;

b. Timely change instructions;

c. Practically-completed design;

d. Adequate planning at design stage;

e. Adequate coordination of specialist design work;

f. Timely clarification of complex details.

16. The variation valuation procedure in which the parties need to have skilled negotiation and be prepared to adopt a give-and-take attitude in order to bring a satisfactory claim settlement.    

17. Parties should keep comprehensive and detail records of the factors relevant to the variation.

18. The variation valuation procedure in which the parties need to have skilled negotiation and be prepared to adopt a give-and-take attitude in order to bring a satisfactory claim settlement. 

19. Owner’s project management team should be equipped with knowledge of construction technology, construction law, term and conditions of the contract, contract administration, project-planning system and negotiation skill.

20. The following actions shall be required to avoid the claims:

a. Adequate plan made by competent Owner’s engineer and/or Consultant;

b. Availability of verified and completed drawings and specifications prior to bid;

c. Minimize and eliminate the unnecessary changes to the project;

d. Application of Value Engineering and/or Whole-life Costing and/or Risk Access techniques to analysis the changes to project;

e. Comprehensive site investigation in which the scope of site investigation shall be given by Consultant or Engineer who use site investigation data for engineering works;

f. Usages of relevant contract standard form set forth by recognized organization such as FIDIC, ICI ..etc.

g. Relevant Coordination procedure between Owner and Contractor.

Abstract

As the same context of the projects which were first applied technology, construction methods or project size in the developed countries, the project of this kind or the likes in Vietnam cannot meet or exceed the stakeholder expectations due to many unforeseen reasons.

The role of the organization performing project of this kind of project is of great importance because its performance could bring the success or failure to these projects. In Vietnam, the regular phenomenon is that project planning and control of this kind of project is always under expectation due to the lack of project management competence from the organization performing project especially lack of appropriate cost management approach. Those shall have bad consequences to the direct or indirect stakeholders. Therefore, to be equipped with the most adaptable project planning and control system for this kind of project is required by and from the organization performing project and project team member also.

As mentioned above, the need of workable cost management approach for the project of this kind is critical. This report shall therefore address this development by underlining, prioritizing and specializing some aspects of owner’s construction project cost management approach and shall give some recommendations on or suggest some guidelines for this kind of project and specific project as descriptions in case study.

Delay Causes in Sub-Projects of the Ho Chi Minh National Highway Construction Project

Vietnam has been remarkably successful in expanding infrastructure construction project.

During the execution of Highway construction project, the construction time, cost and quality of a project were commonly considered as key factors of project success. The project time can be evaluated as the very important factor in the project management work because it affects directly on the profit and investment effect of project. The project investment effect will be reduced significantly if project time delay happens.

The procedures of the project management in general and the time management in particular in Highway construction project has been improved to apply in Vietnam for recent years as at that point Vietnam carried out the open-door policy to attract FDI (Foreign direct investment) projects. However, many problems have been revealed due to the deficiency of the proficiencies in project management, such as: project delays take place usually in the development projects due to Poor planning and controlling; poor Finance Competence of the contractors; unfair contract conditions included unfair and non strictness treatment of contract delay; poor competence of supervision consultant; deficient transmission among other parties, weather condition, resettlement policy or other factors. It is found out that more than 70% of the Ho Chi Minh highway construction sub-projects have the problems with project time delays.

Normally, the success of a project is measured if it was completed punctually, with reasonable cost and quality. It is proved that the completion of every construction project will be on time and under budget only if it has been managed efficiently and effectively. Particularly, several previous researchers demonstrated that at least a half of project delay causations can be avoided by a proficient policy in project management.  Nguyen Dinh Duong made a case study which main objectives were to:

1. identify the delay causes in the Ho Chi Minh highway construction sub-projects which were completed up to now or under construction.

2. To develop a framework to control and prevent delays in the remaining or under construction sub-projects of the Ho Chi Minh highway construction project.

Conclusion

Time delays in construction projects are a global phenomenon. The time delays commonly occurred in most of construction projects and the highway construction projects are not exception.

A case study (the studying sub-project) has been conducted to investigate the delaying factors, causes and solutions for controlling and preventing the delay of the Ho Chi Minh highway construction sub-project. The analyzed results of this study pointed out that there are nine delaying factors and numerous delaying causes in the studying sub-project.

A framework with solutions is proposed for controlling and preventing the delay of the studying sub-project. The result implemented on the studied sub-project proved that the solutions proposed for controlling and preventing the time delay during the construction are implemented successfully.  Effect of applying the solutions to control and prevent delays during the construction of the studying sub-project resulting in the rate of the work progress of the studied sub-project has been improved quickly and at the end, completion period of the studied sub-project has been maintained between 15 months as the original plan.

Effect of controlling and preventing the project delay will come more effectively if solutions proposed are applied since the project preparation, detailed design and contractor selection phases etc.

Recommendation

The HCM NH construction project is a great and very important highway construction project in Vietnam. HCM NH project is around 2667 kilometers long including two phases. The first phase was started in 2000 and planned to complete in 2010 with cost estimated of around 2.3 billions USD. Up to now, 57 sub-projects of the first phase HCM NH construction project have been completed or being implemented. A larger number of this sub - projects (about 70%) have encountered with time delay. In accordance with the approved plan, the second phase of the HCM NH construction project was implemented since 2010 to 2020 with cost estimated of around 15 billion USD and divided in a lot of sub-projects.

Based on the actual delaying situation of the first phase sub-projects and result of successful implementation on the studying sub-project, this report recommends strongly application to control and prevent delays in the remaining HCM NH construction sub-projects.

Abstract

In general, project completed with destined time, cost, and quality is the basic target of construction project management. The Ho Chi Minh National highway (HCM NH) construction project is a great and very important highway construction project in Viet Nam. HCM NH project is around 2667 kilometers long, does not include the West branch with the length of 500 kilometers from Khe Gat – Quang Binh province to Thach My – Quang Nam province. Cost estimated of the first phase is around 2.3 billions USD by Vietnamese Government for the two carriageway lanes standard. The first phase was started in 2000 and planned to complete in 2010. After that, from 2010 to 2020, the HCM NH will be improved step by step to standard of the high-speedway with the cost estimated of this phase is about 15 billions USD. For the purpose of performance arrangement, this project is divided into the HCM NH construction sub-projects. Regrettably, up to now, most the HCM NH construction sub-projects cannot be finished within intended time, budget and resources.

Normally, time delay always happened in Ho Chi Minh NH construction sub-projects. This report summarized the delay causes factors involved in the Ho Chi Minh NH construction sub-projects. This report will be conducted by using qualitative early researches. Through a case study on the road construction sub-project connecting the HCM NH to the Lan Ong commemorative area, the data will be collected to analyze the facing problems. It was discovered from this study that there were many factors causing project time delays in the studying sub-project. From the case study, effective solutions for controlling the delays will be investigated. Finally, a framework for controlling and preventing delays in Ho Chi Minh NH construction sub-projects in the future is proposed.