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 CONSTRUCTION MANAGEMENT AND RESEARCH PUNE

INDEX
1. Introduction 2. Scope of the Project 3. Type of Project 4. Construction Risks 5. Project risks 6. Financial & Economic Ricks 7. Construction Insurances 8. Recommendation & Conclusion 9. Bibliography 29 27 20 22 3 5 5 5

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

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 overs 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

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.

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

reduce potential risks. The following checklist illustrates the safety practices which a subcontractor should know before commencing the work in Chennai metro rail project.

Table 2 illustrating risk mitigation checklist issued to subcontractors

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 Employers 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 Contractors 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 Contractors 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

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is no 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) iv) Operational Risks: Faults during execution of works 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-DoCheck-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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