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

20

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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