Factors Affecting the Performance of The International Construction Contractors (ICCs) Doing Business in Cambodia

International construction business is the kind which embodies with serious economic, social, and political ramifications leading to the failure of the international project success in term of time, quality and cost (Walewski, 2003). The difficulties such as client communication, understanding new market, avoiding local politics and supervising the diverse group of professionals are confronted by the international construction business (Kangari and Lucas, 1997). Moreover, the inability to understand the clients’ requirement affects the project success in international business (Ling et al., 2006). The increasing of the misunderstanding, delay and costs resulting from unfamiliar environment and different institution such as regulations, norm, and cognitive-cultural belief with diverse participant are critical things (Will and Levitt, 2010). As Han et al.,(2005) stated that the risk factors associated with overseas construction projects can diminish project profitability .There are many researchers found that the delay and cost are increased due to the confusion among project participants (Flyvberg et al., 2003; Miller and Lessard, 2000; Orr, 2005), and due to dispute resulting from different cultures (Ghopshal, 1987).

Mr. Hout Venghong made a research on an international construction contractor (ICCs) doing business in Cambodia in order to: (1) investigate the current practices of the factors affecting the performance of the international construction contractors doing business in Cambodia; (2) develop the causal relationships affecting the performance of ICCs model of each investigated factors and figured out how each contractor copes with; and (3) propose the recommendation and a framework to the international construction contractors to take into account in order to do business in Cambodia.

Research Findings

Investigated factors affecting the performance of the International Construction
Contractors (ICCs) doing business in Cambodia

Based on the data gathered, there are five factors influencing the decision making of the international construction contractors doing business in Cambodia taking to the account to strategize accordingly in order to execute the project lucratively. The current practices of the factors affecting the performance of ICCs doing business in Cambodia are:
(1) condition of the host country and project owner,
(2) international construction contractors’ ability,
(3) characteristic of organization and participation,
(4) entry mode, and
(5) Uncontrollable variables with nineteen sub-factors.

Develop the causal relationships affecting the performance of ICCs model of each investigated factors and figured out how the firms response to each factor

1. Cambodian Government policy. The government does not have clear procedure for project approval and construction law and regulation for the construction projects. The tax and custom system, still, are not transparent which can affect to the project schedule and performance as well. The unethical practice, construction law and regulation should be completely addressed the firm from the beginning of the planning stage. The procured materials have to be taken with high attention in order to meet the projects’ objectives to avoid delay and cost overrun. Lack of construction law and regulation with weak legal system leads the firm hiring a legal advisor or international lawyer to prepare the legal documents related to avoid the conflict during the projects execution. The legal advisor or lawyer is asked to involve after the international construction contractors awarded the contract.

2. The unskilled labor issue in Cambodia construction sector. This is a big problem challenging the international construction contractors, especially when the project is complex and very specialized. Because construction market in Cambodia is not really attractive yet. There are quite few tall buildings and complex projects in Cambodia. Consequently, this provides less opportunity to the local laborers to experience with similar project. Even the local labor cost is cheap but the problem is unskilled laborers who are mostly farmers, so they will quite the project to go back home.

3. Lack of local skilled engineers who are able to use English as official language, especially for technical terms in construction project. The knowledge of local engineers was considerably limited since they did not have a chance to involve with similar complex projects. The local contractors are lack of knowledge in quality control and they are mostly not qualified for either big projects or specific projects. The employment of the staffs has to be mixed because the local staffs need to coordinate at construction site between the local labors and foreign staffs. The research is also found that the entering of the international construction contractors is to consider market attractiveness with the local government support.

4. Owner delayed payment. It plays a crucial role to the quality of the project, delay payment will results to time delay.

5. No local financial institution to help the contractors or subcontractors. The lack of the big local contractors to join the international construction contractor is one constraint that the international firms do not want to do business in Cambodia. The firm has to ask for the home country contractor or the third country to execute the project. This is still riskier than joint venture with the big local contractor in case they find the suitable local contractor to make a joint venture.

6. Most of the projects are under loan or grant projects from ADB, World Bank or the other financial institution, therefore the international construction contractors did not want to bid the projects, because they are so competitive. On the other hand, the contractors who want to launch their projects with high quality to maintain their good reputation will not bid the public projects, because the project volume reflects to the skilled labors and many subcontractors to execute the project as well.

Recommendation

Based on analysis of current practices of the international construction contractors doing business in Cambodia, below is the summarized recommendation for the International Construction Contractors.




His thesis abstract is copied and pasted.
Abstract

This study aimed to investigate the factors affecting the performance of the international construction contractors (ICCs) doing business in Cambodia. Five firms in Cambodia were investigated through case study approach explanation building strategy as specific analytic approach in case study. The current practice factors/sub-factors were verified with nine industry experts and practitioners experienced in Cambodia construction industry. The administered research questions developed by a researcher being conducted with seven top management level of ICCs. In addition, the secondary data and the direct observation of the construction projects are carried out to get the supportive evidence to the result from the interview session. However, the short interview with the persons who were responsible at construction site was carried out during project direct observation. The research showed that the unethical practice, unclear tax and custom system, material availability, unskilled labor issues, lack of construction law and regulation, lack of legal system, unwillingness of local government support, different practices between the contractor and designer. From the finding, the response of the international construction contractors was pointed out with the each investigated factors accordingly. Objectively, the causal relationships affecting the performance of ICCs doing business in Cambodia was developed with the recommendation for better practices in Cambodia construction industry.

Key words: Factors, Performance, International construction contractors, Business,
Cambodia

Influence of Financial Risk for Project Financing throughout Real Estate Development Process: A Case Study of a High Rise Apartment Project in Vietnam

Many risks and opportunities occur in real estate market, especially during development phases (Mou, 2007). However, in Vietnam, there is a lack of knowledge about the influence of financial risk in real estate development process. Therefore, Mr. Nguyen Quoc Trung tried to research the influence of financial risk to project financing throughout development process. Furthermore, his study tried to explore relationship between the financial risk, the development process and the project financing to reduce its influence. The objectives of his study were: (1) to investigate the real estate development process in high rise apartment project and to indentify financial risk factors in each activity of process; (2) assessment the critical factor of financial risk on the development process and the influence of these factors to project financing throughout development process; and (3) purpose the conclusion and recommendation to reducing the influence of these factors on the project financing throughout the development process.

Research findings

1. The real estate development process and financial risk factor happen on this process in high rise apartment project

The first objective of this study is to find the financial risk and development process of high rise apartment project. After analyzing the data, it was found out that financial risk has 4 categories: legal risk, leverage risk, financing risk, inflation risk and risk of construction cost. While the development process of high rise apartment project includes 4 phases, there are project allocating, feasibility study, contract – license – commitment and execution and sell. The financial risk factor in each phase of development process is verified by expert and this supports for the developer, the real estate company and who related in development process of high rise project to get the overview picture of real estate development process and the financial risk happen in each step of process.

2. Assessment the critical factor of financial risk on the development process and the influence of these factors to project financing throughout development process

Base on the frame work, the development process and financial risk happen in each step of process. The researcher assessed all financial risk factors in each step of development process throughout the case study. This assessment was done by the development team of Project A, who directly manages this project. The assessment of influence of financial risk factor in development process and database of this project is analyzed to get the critical factor of financial risk on development process. The financial model of project is integrated with the critical factor of financial risk throughout development process for analyzing influences of critical factor of financial risk to project financing model throughout development process.

This finding shows the practice of development process in high rise apartment project and the influence of financial risk on development process. In this finding, the legal risk and leverage risk can lead to financing risk, inflation risk and risk of construction cost on the development process. Every activity of development process has relationship to each other. So, in each phase of project, the financial risk factor has impact to each other. This finding also shows the gap of perception of Real Estate Company about the influence of financial risk on development process. The Real Estate Company always wants to control the cost of the construction project but the real estate company forgets that the more important is the maximum profit of project. With this reason, the real estate company does not understand the demand of housing characteristic for project design of each segment in market. They always focus on the cost if this project is mid end or low end project. The delay for project operation increases the inflation cost and construction cost but decrease the profit of project.

3. Recommendation to reducing the influence of financial risk to project financing throughout development process.

The project financing in real estate development process is the key for successful project. To reduce the influence of financial risk in each phase of development process is the key for making decision for risk management. In order to achieve the maximum profit of project and control the cost of project, all of financial risk need to reduced and controlled. The recommendation to reducing the influence of financial risk to project financing model throughout development process is summarized in the table below.


His thesis abstract is copied andposted.

ABSTRACT

The real estate company always want maximum the profit and minimum the cost of project. With this purpose, the real estate company manages the financial risk to get the profit and control the cost. The real estate development process is complex project and very risky. In this process, the financial risk impact to project financing dramatically. With this reason, the influence of financial risk to project financing throughout development process is studied to support the real estate company and actor related in development process in order to make solution reducing the influence of financial risk to achieve objective of project.

This research was conducted to fulfill the three objectives. (1) to investigate the real estate development process in high rise apartment project and to identify financial risk factor in each step of development process; (2) to assess the critical factor of financial risk on the development process and the influence of these factors to project financing throughout development process; (3) to purpose the conclusion and recommendation to reducing the influence of these factors on project financing throughout the development process.

The result of this study found that the perception of Real Estate Company do not correspond with the influence of financial risk. The financial risk factor impact the both source of fund and use of f

und of project which is included the project financing model throughout each phase of development process. All of consequence of risk factor is show in execution and sale phase. This makes profit of project decrease dramatically and increase the construction cost. This study also shows that Vietnam has not yet created a convenience environment for the real estate business.

Key words: Real estate, development process, project financing, financial risk, risk factor, case study, Vietnam

Life Cycle Cost Analysis for Hydropower Projects

Life cycle cost is a key economic figure resulted from condensing an almost overwhelmingly large quantity of data (Pelzeter et al, 2007). The accuracy and sensitivity of these data can be difficult to analyze to become reasonable inputs for life cycle costs assessment.

For hydropower projects, there is a master plan to develop these projects in almost every country. However, because of the available budgets, the projects are needed to be ranked in order to decide which projects are necessary, economical and beneficial more than others. Life cycle cost analysis is one of the useful ways in decision making process and long term planning of the project. So, different projects are needed to compare their life cycle costs and incomes. Because of the various factors that can affect on hydropower projects, the uncertainty and the risks are high and difficult to predict.

Mr. Kyaw Min Thu made a case study which major objectives were to: (1) compare the life cycle costs and net present values of hydropower projects/plants with different types of turbine; and (2) identify the major cost contributors in life cycle cost of each project,
Conclusions

In this research, life cycle cost analysis of hydropower projects installed different types of turbine are conducted on the costs incurred in the hydropower plants to determine the most beneficial technology in terms of cost effectiveness. The hydropower plants for this research are selected among the hydropower plants in Thailand which are operating under management of EGAT. To conduct the analysis, all accessible cost data are collected and the researcher followed the cost categories of responsible agencies. All the costs incurred in the selected hydropower plants that can be accessed are considered and then converted into the same period to analyze. The costs data are converted in the same unit (thousand baht per year) at the end of each year within the analysis period.

Moreover, the energy generated data from each selected hydropower plant are collected and calculated the incomes of the power plants each year using the average energy sales price. The incomes getting from the energy generation are considered and calculated as one of the parameters in life cycle cost analysis for wider perspective to determine the outputs. The net present values of the hydropower plants are achieved from the costs and incomes incurred each operation year in the hydropower plants. The analysis’s results are converted into cost per capacity and cost per energy as the capacity of the hydropower plants can affect the results of the analysis.

Among factors influencing the selection of the turbine types of hydropower plants, the result of life cycle cost analysis can be just one of those factors. A final decision may include a number of additional factors outside the LCCA process, such as availability of funding, capability to perform the required construction, expertise and experiences with a particular turbine type and so on.

1. Comparison of Life Cycle Costs of Hydropower Plants

As the capacities of the hydropower plants that can get enough data to conduct analysis are different, the analysis is performed to get the values for unit capacity and unit energy generated for each hydropower plants.

Based on the data analysis for three types of hydropower plants with three different types of turbine, the Francis turbine power plant is more cost-effective than other two types of power plants with respect to the life cycle cost per installed capacity, life cycle cost per energy, net present value per installed capacity and net present value per energy.

The Kaplan turbine hydropower plant and Pelton turbine hydropower stand as decreasing order with respect to their life cycle costs per installed capacity, life cycle costs per energy generated and net present values per capacity and energy generated by the Pelton turbine plant has the larger values than that of Kaplan turbine plant. Thus, the Pelton turbine hydropower plant is more favorable than that of Kaplan plant in terms of cost-effectiveness.

2. Major Cost Contributors in Hydropower Plants

The present values of each cost categories involved in total costs of hydropower plants for each year are calculated to find out the contributors and their ratios in the life cycle costs. The researcher follows the responsible agencies in categorization the costs incurred in the hydropower plants.

In every plant, the life cycle costs spent for civil structures are the largest in the life cycle costs for the whole plants, in other words, life cycle costs of civil structures are major cost contributors in whole life cycle costs of hydropower plants. However, taking account only the operation and maintenance costs, the costs incurred for the electromechanical equipment are the larger than for the civil structures.

In terms of costs per capacity and energy generated, for each cost category, the hydropower plants can be arranged as Kaplan, Pelton and Francis turbine hydropower plant in decreasing order.

According to the results of the analysis, Francis turbine power plant has the least cost per energy generated in all cost categories so Francis turbine is the most favorable among hydropower plants with different types of turbine.

Thus, life cycle costs of civil structures in the analysis period are the major costs contributors in all types of plants while the operation and maintenance costs of the electromechanical equipment are major cost contributors among the total operation and maintenance costs of hydropower plants

His thesis abstract is copied and pasted.
Abstract

The hydropower projects are needed relatively large amount of investment relative to most of the other projects in construction industry. Thus, the decision making on selecting the technologies using in the hydropower plants are needed to analyzed well because of the costs incurred in the whole life of the plant come from the decisions made before starting construction and operation of the plant. Life cycle cost analysis is worth to be conducted as it can give the results not only on the initial costs but also on the costs in the whole life of the studied assets.

In this study, the objective is set to conduct the life cycle cost analysis for the hydropower plants which are installed different types of turbines. The life cycle cost analysis for each type of plant is carried out and the results are shown as per capacity and per energy generated of the plant. The main components of the inputs, which are historical data from hydropower plants, are gathered from the representative agencies. The comparisons of the results of the analysis are performed to select the most cost-effective technology for the hydropower plants in long term basis.

As the results of the analysis, it is found that Francis turbine hydropower plant is more cost effective over than other types.

Factors Affecting Operation and Maintenance Costs of Ho Chi Minh City Condominium Projects

The management of condominium project during the operation stage is an emerging problem for project owners. Normally, the owners focus on development stage and construction stage of the project. They mainly concern in problems related to planning, design, and execution (Arditi & Nawakorawit, 1999a).

In order to recommend to owners or property managers appropriate solutions to control and reduce O&M expense. Mr. Duong Quang Minh made a study which, first, will develop operation and maintenance cost system of existing condominium projects. The purpose is to identify the most important costs in this system. Second, the study will investigate the reasons that cause the cost. Thus, the three main objectives of his study were to: (1) build a generic framework for operation and maintenance cost system of existing condominium projects; (2) find out and assess factors affecting on operation and maintenance cost of existing condominium projects; and (3) recommend solutions to reduce or control the impact of the factors that influence on O&M costs.

Conclusions

For Objective 1

The study analyzed cost data from five case studies to identify the most important cost of operating condominiums. Each cost was given a brief definition, its components, and characteristic. Then, the study developed the generic framework of operation and maintenance cost of condominium projects. The framework is benchmark to compare O&M costs between condominiums.

From the benchmarking, the study found that cost for condominium management is the highest cost with about 46.42 percent of total O&M cost. In addition, energies supplying for common activities of condominium are also high with about 18.26 percent of electricity consumption and about 9.23 percent for water consumption. Also, costs of cleaning and waste disposal are high by about 9.61 percent and costs for maintaining lifts are 6.01 percent.

The reasons behind this high cost include:

1. Management cost: The reason may be inappropriate choices between in-house or out-source employment.

2. Energy consumption cost (Electricity and water supply): There are three main reasons that cause high expense for this cost center such as general facility influences, installation of an old-fashion technology in the facilities, and maintenance policy including lack of daily inspection and preventive maintenance.

3. Maintaining lift cost: Maintenance costs of lifts are costs connected to planned maintenance works to the lifts in the common areas of condominium.

4. Cleaning and waste disposal cost: Reasons that may cause cleaning service cost is lack of design specification of cleaning tasks and inappropriate choice of construction material, specially decorated material.

Objective 2

There is no significant difference between in-house and out-sourcing employment condominium managers. In general, both managers pay attention into reducing operation and maintenance costs. However, based on characteristic of each employment type, the condominium managers have different maintenance strategy to perform the maintenance task effectively. Therefore, they have different perception about the factors that influence to O&N costs.

Recommended solutions to reduce or control the impact of the factors that influence on O&M costs

For new condominium projects, property manager is usually the one that handles all the defects or design faults after the completion of construction stage. Base on accumulated experiences in handling the defects from different building projects, the property manager can feed back what they have suffered from the experiences to the project team. Besides, as the property manager's role is to manage the property, they usually meet the tenants that propose many expectations or requirements to make better living condition of condominiums. These expectations may be valuable information for the owner to make the right decision when investing in new condominium project. In order to better manage the project, property manager should:

• Select appropriate in-house or out-sourcing staff to perform maintenance tasks efficiently
• Imply conservation energy program in order to control and reduce energy consumption
• Pay attention in the management of maintenance task for lift system
• Pay attention in the management of cleaning tasks

The recommendations for the first finding are shown in the below.

There are two recommendations for condominium managers. One is for in-house employment condominium and another for out-sourcing condominium.

For in-house employment condominium, if the condominium owners decide to employ in-house staff to perform the maintenance task, they should invite maintenance specialists to give their advisories during the design stage in order to reduce the maintenance costs as well as operation costs. On the other hand, if there is no participation of maintenance experts in the design process and there are many problems occurring during the operation stage, the project owners should use external staff to perform the maintenance work.

For out-sourcing employment condominium, there is a strong wish of out-sourcing condominium manager about the provision of construction material information. In order to perform maintenance tasks efficiently, the project owner should ask the designer that provides the specification about the characteristic of construction material using for the project. Especially in the case that project owner decides to use out-sourcing staffs.

His thesis abstract is copied and pasted.

Abstract

High-rise residential property management sector in Vietnam is still staying at the early stage of development. There is lack of maintenance concept of building development because most of project owners are only attracted in completion project. Condominium managers have not appropriate maintenance policy for the completed building, and it deteriorates faster than expected service year. Maintenance issues become emerging problems that should be concerned. This study aims to investigate practical management of condominium projects in Ho Chi Minh City through management of operation and maintenance expenditures.

Around the areas of HCMC, the researcher visited many exiting condominiums that have been operating since year 2000. In achieving these objectives, opinions of in-house employment condominium managers and out-sourcing employment condominium managers were sampled through structured questionnaires. The data collected were analyzed using descriptive and inferential statistics. There is a difference between condominium manager’s perception about two sub-factors affecting on operation and maintenance cost. They are “Lacking of involvement of maintenance experts during design stage” and “Materials selection does not comply with the client's activities due to inadequate accurate material information source”

On the other hand, real cost data were also collected from five condominium projects. The purpose the study was that identified the most important O&M costs of condominium by comparing costs among condominiums. Benchmarking was established to compare cost each other. The result of comparison was that found out six most important cost including management cost, electricity consumption, water consumption, cleaning and waste disposal, and lift maintenance cost. After all, the study proposed many solutions that not only help condominium managers managing their assets better but also help other participants concerning about maintenance issues for developing new projects.

Factors Affecting Constructability Practices in Hydropower Construction in Nepal

Nowadays, the construction industry lacks constructability, which causes many problems, such as increased cost and time required for constructing a project, reduced productivity of project personnel and equipment, and low-quality construction (Nima et al., 2002). In this connection, it is worthwhile to investigate the drawbacks of the existing practices and application of constructability concepts.

Systematic application of constructability concepts will enhance constructability of a project. Consequently, schedule, quality and cost are optimized and all the parties are benefitted from the project. Nepal is practicing constructability concepts in hydropower development however these concepts are not recognized with importance by the key practitioners. Mr. Mukesh Khadka made a case study which objectives were broadly divided into following three parts:

i. To find out constructability concepts and implementation barriers applicable for different phases of hydropower project namely conceptual planning, design and procurement, and construction/field operation.

ii. To identify the degree of importance, level of application and major implementation barriers of constructability concepts in hydropower construction in Nepal.

iii. To propose recommendations for the effective application of constructability concepts in the hydropower project construction in Nepal.

Conclusions

1. Identification of constructability concepts and implementation barriers

For Nepal, thirty-six constructability concepts suitable for hydropower projects are identified out of which seven concepts are suitable for implementation during conceptual and planning phase, twenty-one concepts for design and procurement phase, and last eight concepts are suitable during construction or field operation phase. In hydropower industry, 49 implementation barriers were obtained from expert review and play key role to deter the implementation of constructability concept.

2. Identification of degree of importance, level of application and major implementation barriers

The result of this study confirmed that six concepts are very important constructability concepts in overall respondents’ opinions. The very important constructability concepts are (1) provide detail and clear design information, (2) investigate the impacts of design on safety during construction, (3) documentation of works of good contractors based on quality and time, (4) carry out thorough investigation of the site, (5) evaluation, documentation and feedback of the issues of the constructability concept, and (6) technical specification. Remaining thirty constructability concepts is accepted as important constructability concepts for hydropower construction in Nepal.

The research has also revealed that none of the concepts are being highly applied in hydropower construction in Nepal. All constructability concepts are believed as concept with medium application except three concepts namely, (1) innovation on temporary construction materials/systems, (2) employ any visualization tools such as 3D CAD to avoid physical interference, and (3) design to avoid return visit by trade which fall into category of concepts with little application.

During the study, major constructability implementation barriers were identified and ranked as top ten implementation barriers. These barriers were further grouped into three dimensions named as (1) Ineffective communication and coordination, (2) Socio-political influences, and (3) Insufficient resources using factor analysis. Ineffective communication and coordination between parties may cause conflicts that could eventually impact the project constructability adversely leading to dissatisfaction of the project parties, reworks, variation orders and claims. Not following the execution plan of the project may hamper the critical path of the project thereby causing the time and cost overrun of the project. Socio-political influences are the major barriers of hampering implementation of constructability concepts. Disruption by local people and road strikes imposing various reasonable and sometimes unreasonable causes seriously hamper the project constructability. Insufficient resources due to limited project budget also hinder the implementation of constructability concept. Due to lack of incentives given to the employees, it is very difficult to implement the constructability improvement concepts as employees are the key player for applying them.

Recommendations

Further study is recommended for the following subjects:
• Further study considering large number of hydropower projects of various sizes, different financing models and identification of specific barriers for each constructability concept is necessary in milieu of developing guidelines for hydropower projects

• Further study can be extended to find the detail procedures for effective application of those constructability concepts in hydropower construction and to find the most suitable contracting approach which facilitates effective constructability application.

• A study on suitability of constructability issues in various kinds of contracting approach can be done.

His thesis abstract is copied and pasted.

Abstract

Nepal has favorable condition to develop numerous hydropower plants yet it is facing eighteen hour load shedding per day during dry season. Traditional approach adopted in Nepal for hydropower construction involves many problems such as design changes, reworks, poor safety practices, time delays, cost overruns, disputes, claims which hampers constructability of the project. In this context, it is worthwhile to conduct research which focuses on investigation of the degree of importance and level of application of constructability concepts and identifying the major barriers hindering effective implementation of those concepts. The findings would be appropriate for the preparation of baseline required in constructability improvement guideline for hydropower construction in Nepal.

Thirty-six constructability concepts and forty-nine implementation barriers related to hydropower construction in Nepal were selected for detail study after extensive literature review and expert verification. Through questionnaire survey, opinions on those constructability concepts and implementation barriers were collected from fifty-three managers/engineers associated with hydropower developers, consulting firms and construction companies involved in hydropower construction in Nepal. The quantitative data gathered were then analyzed using various statistical techniques to conclude and recommend further studies. The result of this study revealed that six constructability concepts were accepted as very important concepts by overall respondents and the remaining concepts were considered to be important. To the contrary, none of the concepts are being highly applied in hydropower construction in Nepal. Further, ten major constructability implementation barriers were identified and grouped as ineffective communication and coordination, socio-political influences, and insufficient resources using factor analysis.

The effective implementation of constructability concepts in hydropower projects in Nepal can be attained by developing guidelines for the application of those concepts. For preparation of the guidelines the concepts identified by the study need to be verified with hydropower projects of various sizes and different financing models and detail procedures for applying those concepts should be documented. Also, identification of specific barriers for each constructability concept is necessary in milieu of developing guidelines for hydropower projects.

Keywords: constructability, buidability, implementation barriers, hydropower, Nepal

Effective Pricing Negotiation Strategy of Variation Claims in Commercial Building Construction

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.

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