idm-32 risk management for construction projects
DESCRIPTION
IDM-32TRANSCRIPT
ASSIGNMENT
COURSE TITLE: Risk Management In Infrastructure Projects COURSE NO. : IDM 32
ASSIGNMENT NO: TWO
ASSIGNMENT NAME: Risk Management in Infrastructure Projects
COURSE: IDM 32 Risk Management in Infrastructure Project
NAME: G.Harish
REG.NO:
NICMAR
NATIONAL INSTITUTE OF CONSTRUCTIONMANAGEMENT AND RESEARCH
PUNE
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INDEX
1. Introduction 5
2. Scope of the Project
5
3. Type of Project
3
4. Construction Risks
5
5. Project risks
6. Financial & Economic Ricks
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7. Construction Insurances
22
8. Recommendation & Conclusion
27
9. Bibliography
29
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1. Introduction
The construction industry is a volatile industry where the amount of black swan
events likely to occur are more. The crux of the problem is that the risks cannot be
predicted at the early stages of a project. But with effective project administration
process the risks can be minimized and can be kept within the desirable limits.
This assignment annotates the methods adopted by us (M/s Afcons Infrastructure)
for the prestigious Chennai Metro project which involves design and construction of
stations and associated twin tunnels of 5.5 kms.
2. Scope of Works:
The permanent and temporary works shall comprise the design and construction of
all works and services which are necessary to complete the underground section
including but not limited to the following
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a. Survey and investigation including soil investigation, topographic survey,
existing building survey, utilities investigation, existing water wells
investigation as necessary.
b. Site clearance, including tree felling, tree transplantation, fencing, barricading
and securing all the site areas and work areas.
c. The demolition of existing buildings, which may or may not be as shown on
the drawings. The exact numbers shall be confirmed by the Contractor
d. Twin bored tunnels of minimum 5.8 meter internal diameter for single track
railway, including access and ventilation shafts
e. Cross passages complete with auxiliary services and builders works
f. Cut and cover tunnels for cross over’s transitions.
g. Four ground stations at shenoy nagar, Anna Nagar east, Anna nagar Tower,
Thirumangalam including building services, Architectural builders works and
finishes.
h. Entrance, subways leading into stations including underground and above
ground structures which may require detailed feasibility studies and approval
from statutory authorities.
3. Type of Project:
This project is basically an “Engineering procurement and turnkey” project wherein
the contractor is responsible for his entire scope of works. The Contractor has to
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liaise with the concerned authorities and public bodies in order to execute the project
in a hassle free manner. Since Contractor is the solely responsible from the
commencement stage till the completion stage there are more risks which are likely
to occur. This project is financed through equity participation by the Government of
India, the government of Tamilnadu and the Japan international cooperation agency
(JICA).
4. Construction Risks
Since this is a large scale project and involves activities 30 meters below ground
level we had developed a procedure to eliminate the Construction risks. This risk
assessment will be reviewed by project senior Representatives and line
supervisors along with project OH & S manager in order to reduce the
Construction risk.
This risk assessment at project level is carried out for every new activity
executed, when the project is ongoing and the measures identified for risk
control will be recorded. The step wise procedure which we are currently
adopting for our project is explained below
a. Identification of Hazards
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The first step in work place occupational health and safety risk management
process is to identify the work place hazards. We had taken a list of work
place hazards which may lead to potential cause for risk and has mitigated it
successfully using the below step.
b. Method of Risk assessment
While execution the Contractor estimates the likelihood of an incident
occurring at the work place, bearing in mind existing control measures. Using
the descriptive scale in risk priority chart, nominate the likelihood of an
incident occurring at the work place.
c. Risk identification chart
To mitigate the risks we have adopted a risk identification table wherein all
the risks which occurs during construction phase or likely to occur are given
some score. Risk is nothing but likelihood multiplied by severity. The below
mentioned table clearly illustrates the risk rating adopted by us in our
Chennai Metro project.
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Table 1 illustrating the risk rating adopted by Afcons infra for CMRL project
Further being the main contractor for the project we also sublet the works to
some of the subcontractors. In that case we follow a checklist and would
emphasize the subcontractor to fill the checklist prior to the commencement
of works. This will enable the subcontractor to ensure safety precautions and
practices while working.
Since this project is being executed in the locations where more people are
passing by every day care has been taken by the Employer as well as the
Contractors. Therefore it is the responsibility of the main contractor to ensure
safe practices which may not cause any hindrance to the public and may
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reduce potential risks. The following checklist illustrates the safety practices
which a subcontractor should know before commencing the work in Chennai
metro rail project.
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Table 2 illustrating risk mitigation checklist issued to subcontractors
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4.1 Traffic management plan:
Since metro rail project is carried out in localities where there is a public and
transportation movements it becomes necessary for the Contractor to carry out
the works in such a manner that there shall not be any disruption to road and
pedestrian traffic. Afcons has prepared its traffic management plan based on the
construction methodology in coordination with Employer’s Representative and
in conjunction with Chennai traffic police authorities. We have complied strictly
with approved plan during construction of our works.
In order to reduce the risks related to traffic congestion our designer has proved
for a minimum of two lanes of traffic in each direction which may require
temporary road decking wherever necessary and the Contractor has to ensure
that it is being well maintained and safe at all times.
The Contractor has taken into account that the construction of the stations may
have to be done in phases to ensure that the traffic management plan provides the
minimum requirement of traffic lanes and footpaths in each direction.
5. Project specific risks
Unforeseen ground conditions are the main cause of delay and cost overruns in
infrastructure industry. Underground uncertainty demands extensive efforts for
risk reduction and management.
a. During the pre-commencement stage the Contractors team has elaborately
studied the contract documents pertaining to this contract and understood the
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obligations of each parties. This is very important practice to be adopted as
most of the risks are unattended and threatens the parties due to a fact that the
parties of the Contract are not clear about their obligations.
b. The Contractor has clearly made a feasibility studies about the source of funds
and has clearly estimated the cost towards the project in order to avoid the
financial risks which may likely to occur in any big construction project.
c. The Contractor has submitted his project management plan in order to ensure
satisfactory execution, achievement of milestones and timely completion of
works. The Contractor has submitted a detailed works programme showing
the sequence of activities incorporating all the milestones set forth by the
Employer for timely completion of the project.
d. The above step is very important step in order to mitigate risk as the
Contractor’s project management plan will clearly illustrate and demonstrate
the procedures, processes, organization, and nature and inter relationship of
main activities including the timing for exchange of information.
e. In order to mitigate financial related risks the Contactor has been demanding
bank guarantees (Advance bank guarantees, Retention Bank guarantees and
performance ban guarantees) from their sub contractors to ensure smooth
performance of the subcontract. Sometimes the subcontractor may become
lackadaisical while executing the works. In order to have a hold on the works
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of the subcontractor we had taken guarantees from the banks of
subcontractors.
f. The project involves number of other interfacing contractors the Contractor
has submitted the interface management plan for the adjacent works which are
being executed by some other contractor. This will enable the Contractor to
execute the works in a smooth and effective way rather than disputing with
the interfacing contractor.
g. Weekly interface meetings are conducted in order to mitigate the risks related
to interfacing contractors. The meetings are mainly conducted to address the
current issues and to find solutions to the problems addressed.
6. Financial & Economic Risks
In order to eliminate the financial risks the contractor has drafted a condition
in his contract agreement entered with the employer to make payments
through LC (Letter of Credit).
There are so many advantages of using Letter of credits. It considerably
reduces the production risk, for the situation when the Employer cancels or
changes his order. In case if the materials are being exported to the project site
there is a chance to get financing for the production or purchase of goods (pre
export finance). The employer cannot refuse to pay due to complaint of goods
supplied.
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In case if the client is not accepting the LC payment then emphasis should be
given to the quantum of payment
For example if a Contractor is going to supply gantry and other mechanized
equipments to a project site, then he can draft certain conditions so that there
is a constant cash flow. For example say supply of Gantry can be split into.
15%* mobilization advance.( We can utilize it for procuring steel and starting
fabrication (first lot)
20% against first inspection by clients at Fabrication Yard itself.
15% against second procurement lot of steel.
Balance 50% divided into stage payments against deliveries at site.
E.g. say we have planned 5 deliveries for total supply then 10% against each
delivery. This will maintain a healthy cash flow and will be effective in cost
control.
There are also lots of possibilities that the prices may escalate and which can
considerably affect the meagre margin of the Contractor. In those cases the
“Escalation clauses”, “Variation clauses” and “Subsequent legislation “clauses can
be of great advantage. This will reduce the financial risks of the contractor.
Therefore the Contractor’s team should be vigilant and should clearly understand the
obligations set forth in the contract agreement and should be able to negotiate the
terms and conditions with the Employer from the pre tender stages itself. There is no
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point in complaining once the contract agreement is mutually signed by both the
parties.
For our project our Head office tendering team has been put on shoulder to shoulder
with planning and cost control from pre tender stages itself. They have negotiated
the terms and conditions which are unfavourable to the Contractor in terms of
financial and economic factors and have vetted the contract agreement in such a way
that the contract is bilateral and not unilateral.
7. Construction Insurance
The insurance sector has reacted drastically to the infrastructure industry after
experiencing losses for up to 500% against premiums earned in 2001. Consequently,
insuring infrastructure projects has become a challenging process around the world
where auditable Risk Management practices are becoming mandatory. This trend is
having a global impact that has reached most of the Indian projects. Since our
project is a large scale project we have taken major insurances in order to mitigate
risks. The contractor should decide his insurance based on the nature of the projects.
Being a main contractor for AFCONS there are two insurances which we have taken
for Chennai Metro Rail project
i) CAR-Contractors All Risk Policy- Comprehensive protection against loss or
damage to contract works.
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ii) TPL- Third Party Liability Insurance- Against third party property damage and
bodily injury
So during the pre award stages itself while assessing the project risks the perils to be
included in the insurance should be decided.
7.1 MAJOR PERILS IN CAR INSURANCE AN OVERVIEW:
i) Location perils: Fire, Burglary, and Theft
ii) Handling risks: impact damage due to falling objects, collision
iii) Human elements: Riot, strike, terrorism, Negligence
iii) Operational Risks: Faults during execution of works
iv) AOG- Act Of God perils: Earthquake, Rockslide, Landslide etc
7.2 EXCLUSIONS IN CAR POLICY:
i) Third party liability perils shall not be included in CAR policy.
7.3 THIRD PARTY LIABILITY INSURANCE:
Covers Third party Liabilities arising from various business exposures such as those
arising from Premises( General Liability ), Products and Completed operations,
Advertising and Personal injury and also provides Supplemental payments, thus
ensuring complete protection to the insured against Liability issues.
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7.4 LEGISLATVE PRINCIPALS BEHIND PREMISIS LIABILITY LAW IN
INDIA ( FOR TPL POLICY)
Body of law which makes the person who is in possession of land or premises
responsible for certain injuries suffered by persons who are present on the premises.
Under the premises liability law of most jurisdictions it is necessary to determine if
the plaintiff was an "invitee", a "licensee", or a "trespasser".
The defendant's duty to the plaintiff can vary significantly depending upon how the
plaintiff is classified.
Invitee: - A person who is invited to enter or remain on the premises for a
commercial benefit to the possessor of premises, or for a purpose directly or
indirectly connected with business dealings with the possessor.
An invitation may be either express or implied.
A premises owner owes the highest duty of care to an invitee.
Licensee:-A person who is invited to enter or remain on the premises for any
purpose other than a business or commercial one with the express or implied
permission of the owner or person in control of the premises.
A social guest is considered to be a licensee, not an invitee.
Trespasser: - A person who goes upon the premises of another without an express
or implied invitation, for his or her own purposes, and not in the performance of
any duty to the owner.
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If the premises owner is aware of the presence of trespassers, the premises owner is
obligated to exercise ordinary care in relation to the safety of a trespasser.
7.5 EXCLUSIONS IN THIRD PARTY LIABILITY:
i) The consequential loss shall not be covered in the third party liability insurance.
ii) The loss, damage, cost or expenses of whatsoever nature directly or indirectly
caused by resulting from or in connection with any of the following
a) War, invasion acts of foreign enemies, hostilities or warlike operations.
b) Any act of terrorism
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Conclusion
Risk management is very vast and cannot be covered in a nutshell. This is just an
outline for the procedures adopted by Afcons for Chennai metro rail project. The
risks are project specific and may vary from project to project. Therefore it becomes
hard or fast rule to conduct Systematic risk management for infrastructure Projects.
It described the main elements that constitute the process and its documentation
through a Risk Register and its role as a live document throughout the project. This
guideline provides the launching scenario for further upgrade of Risk management
practices as detailed as a project might require. Its structure follows the Plan-Do-
Check-Act model widely used in Total Quality Management and the ISO
management systems standards, to facilitate systems integration in order to avoid
communication bottlenecks and bureaucracy. It can be said that Risk Management is
“rocket science” as this methodology is used to place astronauts in the space, but its
procedures are straightforward and based mainly in common sense. The present
guide illustrates that Risk Management does not need to be complex to be effective.
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PLUMBER
BIBLIOGRAPHY / READINGS:-
1. Afcons project Contract- Chennai Metro Rail project
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