Mark Wearen MInstCES ASCS MRICS MCIOB Bruce Shaw Presentation - DOF... · Need for Risk Management...
Transcript of Mark Wearen MInstCES ASCS MRICS MCIOB Bruce Shaw Presentation - DOF... · Need for Risk Management...
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CivilEx March 2009
Bruce Shaw
Government ContractsRisk Allocation
Mark Wearen MInstCES ASCS MRICS MCIOB
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Bruce Shaw Partnership
Bruce Shaw Partnership
Ireland’s largest Cost Management Firm
Offices in Dublin; Cork; Limerick; Belfast
European offices in London, Bucharest and Warsaw
Specialist divisions
– Civils; M&E; Healthcare; Retail; PPP; Consulting Services
Ireland’s largest cost database
Currently working on many of Ireland’s largest projects
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Bruce Shaw Partnership
Context of Risk Transfer - Why the new forms?
Key Aims
How are these aims to be achieved
Employer’s Perspective
Contractor’s Perspective
Presentation Overview
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Bruce Shaw Partnership
History of Cost Overruns
– Budget Vs Tender Vs Final Outturn
Consultancy Contracts
– Payment linked to construction outturn
Concern over Value for Money
Multiplicity of contract forms – inefficient
Why the New Forms?
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Bruce Shaw Partnership
Why the New Forms? - MCC
Review
Estimate
Time
Contingency, Budget and Project Delivery Stages
Prelim Planning Detailed Planning Implementation
Project Delivery - Stages
Contract Award
Final Account
Desired Budget Profile
Desired Contingency Profile
‘Overrun’
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Bruce Shaw Partnership
Greater Cost Certainty
Lump Sum Fixed Price Contract
‘Optimal allocation of risk’
– ‘the more comprehensive the information…the greater the risk transfer’
Value for money
– Quantification ?....see also optimal allocation of risk
More efficient project delivery – standard forms; fewer disputes ???
Risk Allocation, Key Aims
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Bruce Shaw Partnership
The Capital Works Management Framework
– Introduces a structured framework for project delivery from Preliminary Planning stage to close-out – Procedures and Contracts
– Defined procedures for the preparation of budgets
– Formats & Component listings • Risk Assessment • Inflation Provision
– Deliverables• Budget Templates • Risk Register
(Note : Appraisal stage covered by Cap Ex Guidelines – Feb 05)
How Aims are to be achieved
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Bruce Shaw Partnership
Risk Transfer………. to the Contractor as per the Contract includes
– Programme Contingency
– Design by Specialists
– PVC (first 36 months)
– Design of the Works – the adequacy of the Works Requirements
(D&B Only – Cl. 1.7 & Cl. 4.6.2 – also ‘Factual Errors’)
– All other risks not expressly allocated in the Contract
How Aims are to be achieved
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Bruce Shaw Partnership
Risk Transfer………….Optional as per Schedule K Compensation Events Risks
• Pricing Document (BOQ) differences >€500 (not in D&B)
– Lump Sum Option in practice
• Unforeseeable Archaeology
• Unforeseeable Ground Conditions (option not in D&B)
• Unforeseeable Utilities (option not in D&B)
• Unforeseen Utilitiy Owner Delays
If options are not completed – Risk lies with the Contractor
How Aims are to be achieved
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Bruce Shaw Partnership
Contractor carries all other risks not expressly allocated in the Contract (Articles 3 and 4)
This includes Unforeseeable Ground Conditions/Unforeseeable Utilities Risk under the D&B Contract
Article 4 states:
‘The Contractor has included in the initial Contract Sum allowances for all risks, customs, policies, practices, and other circumstances that may effect it’s
performance of the Contract, whether they could or could not have been foreseen, except for events for which the Contract provides for adjustment of
the initial Contract Sum.’
How Aims are to be achieved
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Bruce Shaw Partnership
Schedule K risks which are carried by the Employer include :
• Change Order (includes impossibility in Emp Design Only - Cl . 4.5.4)
• Factual Errors (Emp Design Only)
• Late Instructions (Emp Design Only)
• Failure to allow occupation
• Employers Personnel on site…unforeseeable
• Breach of Contract
Price Variation – Employer Risk after 36 months & Hyperinflation
How Aims are to be achieved
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Bruce Shaw Partnership
Lump Sum Fixed Price with Cost Certainty except for :
– Compensation Events (includes Breach)
– Price Variation (in strictly defined circumstances)
– Value Engineering Proposals (Cl. 4.8) – Savings Only
(Note Employer powers to set-off and withhold amounts – Cl. 10.9 and Cl. 11.4)
How Aims are to be achieved
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Bruce Shaw Partnership
Contract achieves Risk Transfer
Fixed Price Lump Sum should be achievable as intended….
However Employers need to focus on :
– Pre and Post Contract Risk and Value Management
– Quality of ‘information about the Site’
– Comprehensively developed design information
Risk Allocation, Employers Perspective
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Bruce Shaw Partnership
Employers need to focus on :
- Quality of Contract Documents
- Consideration of project specifics when allocating optional risks as per Schedule K
- Working with the Contract – pro-active risk mitigation
• Issue Directions not Instructions
• Implement Requirements of the Contract
Risk Allocation, Employers Perspective
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Bruce Shaw Partnership
Employers need to focus on :
– Records – sufficient to protect the Employer (use Cl. 10.3.4)
– Contractor has an obligation to mitigate (Cl. 10.1.1) - MONITOR
– Reciprocal Co-operation – Employer also to mitigate (Cl. 4.1)
Risk Allocation, Employers Perspective
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Bruce Shaw Partnership
Risk Transfer
– ‘The governing principle is that risks should be allocated
to whichever party is best placed to manage them’
• Unforeseen Archaeology not a compensation event ?
• Any other consents…
– Quality of ‘information about the Site’
– Comprehensively developed design information
Risk Allocation, Contractors Perspective
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Bruce Shaw Partnership
Need for Risk Management Strategy
– Risk Register
– Quantified Risk Assessment
– Regular review and Updating
Contract Administration - Resources
– Notices (Cl. 10)
– Submissions required under the contract (e.g. programme)
Risk Allocation, Contractors Perspective
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Bruce Shaw Partnership
Commercial Aspect– Initial Message from the industry – tender levels would increase..– Actual tender levels were not as envisaged (building and civils)
Factors – tender levels…..– Competition – industry capacity– Current Market Conditions and Forecast Workload– Improved Efficiencies – better value– Contract possibly not as onerous as industry believed ?
Risk Allocation, Contractors Perspective
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Bruce Shaw Partnership
Future Scenario
– Are tender levels reflecting risk transfer as per intention ?
– When will risk transfer provisions be tested ?
– When rather than if……
Risk Allocation, Contractors Perspective
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Bruce Shaw Partnership
To achieve Aims – comply with DOF CWMF Guidelines
From Early Planning to Review
– Systematic approach to design development and cost planning
• Value Management Strategy
• Risk Management Strategy
Comprehensive Design & Realistic Outturn Projections
Level of Factual Information – consider additional expenditure
Optimise Risk Transfer – reflecting the stated principles
Prices to reflect Risk Transfer
Pro-active post-contract risk mitigation from both parties
Key Points – Old and New…
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Bruce Shaw Partnership
Concluding Thought
‘The pessimist sees difficulty in every opportunity. The optimist sees
opportunity in every difficulty.’
Winston Churchill
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Bruce Shaw PartnershipCivilEx March 2009
Bruce Shaw
Government ContractsRisk Allocation
Mark Wearen MInstCES ASCS MRICS MCIOB
Thank You….