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PPP LCH
Private partner’s risk response in projects
PPP low-cost housing projects
Surangkana Trangkanont and Chotchai Charoenngam
Department of Construction, Engineering and Infrastructure Management,
Asian Institute of Technology, Pathumthani, Thailand
67
Received 5 February 2013
Abstract Revised 26 April 2013
Accepted 2 May 2013
Purpose – The purpose of this paper is to identify the salient risks borne by private firms and to
investigate their effective risk response strategies in public-private partnership (PPP) low-cost housing
(LCH) projects in Thailand.
Design/methodology/approach – The paper employs grounded theory and case study
methodologies to extensively analyze ten private firms’ risks and their strategic risk mitigation. As
a result, the matrix of imperative risks’ root causes and the area of the project life cycle most exposed
to their impacts were proposed. This included the framework of the risk response strategy application.
Findings – The private firm’s risk mitigation strategies depended on the salient risks’ impact and the
private firms’ predictability and controllability of the risk outcome. This included the private firm’s
participating objectives and core business, decision maker’s risk attitude, risk perception, experience
of risk, and risk assessment skill, and the project life cycle phase of risk occurrence.
Practical implications – Under the same characteristics of the immature PPP market in developing
countries, the contractors’ effective risk management framework can be used as a guideline to
complement the contractors’ decision making on risk response strategy selection and resource
allocation in the PPP project life cycle.
Originality/value – Despite working under the familiar environment of construction risk and
generous payment method in PPP-LCH projects, only few contractors were successful. The
examination of risks borne and effectively responded by the private sector increases the likelihood
of the project success.
Keywords Thailand, Public-private partnerships (PPPs), Low-cost housing (LCH) projects,
Private firms, Risk response
Paper type Research paper

1. Introduction
A shortage of decent and affordable houses within a livable environment for urban
low-income groups (LIGs) has challenged both developing and developed governments
(UN-HABITAT, 2009). In order to solve the housing crisis, the governments have
adopted a variety of public-private partnership (PPP) project procurement methods to
deliver the houses (Abdul-Aziz and Kassim, 2011). However, many empirical studies
demonstrated that most PPP housing projects, especially in the developing world,
failed to enable urban LIGs to achieve housing accessibility (Gough and Tran, 2009;
Sufian and Mohamad, 2009; Susilawati and Yakobus, 2010; Waibel et al., 2007; Yap and
Wandeler, 2010) because various kinds of risk emerged at the different stages of the
project life cycle (Zhang, 2005a).
Thailand, one of developing countries, has faced an urban housing crisis since
the 1980s. In 2003, approximately 5,500 low-income communities with 8.25 million
inhabitants lived in poor quality and insecure houses in 300 cities (Boonyabancha,
2005). To alleviate this problem, the government introduced the first explicit housing Property Management
Vol. 32 No. 1, 2014
policy called the Baan Ua Arthorn (“we care”) program. The National Housing pp. 67-94
r Emerald Group Publishing Limited
Authority (NHA) was designated to be the program’s owner and sponsor. The program 0263-7472
target was to construct 601,727 low-cost housing (LCH) units nationwide within five DOI 10.1108/PM-02-2013-0008
PM years (2003-2008) (NHA, 2003). The NHA adopted the PPP method known as “turnkey”
32,1 to deliver LCH projects for urban LIGs.
Under the turnkey contract, the NHA motivated the private sector by guaranteeing
to buy 100 percent of project houses and providing an attractive payment method.
The advance payment was based on the number of housing unit quota rather project
houses. The NHA also paid for the land acquisition cost after the project proposal
68 was approved. After that, traditional progress payments were followed. These
payment methods aimed to support the contractors by easing up on their familiar risk
environment of a traditional project procurement approach such as construction risk.
The private sector’s obligation was to deliver the completed projects to the NHA on a
specific date. Because of these attractive investment environments, 98 private firms or
contractors participated in the program in order to develop 232 PPP LCH (hereinafter
called PPP-LCH) projects nationwide. The project size ranged from a minimum of
93 units to a maximum of 5,872 units (NHA, 2010).
The NHA adopted the turnkey method in order to achieve time saving and certainty.
The NHA expected the private sector to bring its innovation and efficiency to develop
the projects. However, despite working under the familiar risk environments and
generous payment method, there were only ten contractors whose entire projects
met the contract schedule. Among them, only three private firms undertook more
than three projects (NHA, 2010). Most contractors lost, while some went bankrupt or
were prosecuted. What kinds of risks caused the private sector, a core entity, to
underperform and how could only few successful contractors achieve the standard
of construction performance. These questions were then considered to be studied.
Consequently, this paper aims to identify the important risks and how they affected
the private sector’s performance in the PPP-LCH projects in Thailand. The successful
and unsuccessful practices of the contractors were studied in order to propose an
effective risk response framework. The findings are useful to private participants
aiming to participate in the PPP projects in other developing countries owing to the
same characteristics of an immature PPP market.
To identify the risks influencing the project’s success/failure, it is imperative to
define success attributes. The success criteria considered is based on the common
goals of the project development, which consists of meeting contract schedule,
budget, and specification. This includes the project objectives of completion
and profitability, and the corporate strategic goals of profitability, creditability, and
market share expansion. These success criteria were selected because they are
hierarchically interrelated in the private firm’s success determinants in the
organizational strategic plan.

2. The previous studies of risk management in PPP projects

A variety of risks and uncertainties often hold the government back and cause the
consortium to go bankrupt (Chan et al., 2011). Risk is traditionally distinguished
from uncertainty. The outcome of risk can be quantified by using probabilities, while
the outcome of uncertainty cannot be quantifiable (Davidsson, 2010) or predictable
(Storrud-Barnes et al., 2010). However, in project management practice, it is impossible
to take into account every future event in the whole project life cycle during a project
feasibility study (Zou et al., 2008) and the contractual phase (Fischer et al., 2010).
Therefore, risk and uncertainty are not different (Chan et al., 2011; PMI, 2004).
Although risks can be opportunities or threats (Davidsson, 2010; PMI, 2004; Zou et al.,
2008), most studies of PPP projects considered risks as causes of project cost overruns
and delays (Akintoye and Chinyio, 2005; Chan et al., 2011; Fischer et al., 2010; PPP LCH
Heravi and Hajihosseini, 2012; Ke et al., 2010a). PPP-LCH projects are no exception. projects
Effective risk management contributes to project success. Different risk
management processes have been proposed. Most of these processes involve
risk identification, categorization, analysis, mitigation, control, and monitoring in the
project life cycle. The majority of PPP projects were aborted before the contract was
completed because of high transaction and procurement cost and lengthy delays in the 69
negotiation (Cheung et al., 2010). The studies of risk management on the projects were
focussed on risk identification, classification, and allocation in the contractual phase in
order to solve these problems. The public sector entity sought to shift risks associated
with delivering infrastructures and services to the private sector entity in the situation
where the private sector was judged better able to assume responsibility for the
delivery (Dixon et al., 2005). Simultaneously, a financial incentive in recovering an
equitable cost of risk was offered to the private sector in return.
Bing et al. (2005) have identified three categories of risk factors in PPP projects,
namely macro, meso, and micro level risks. Macro level risks are associated with
country-specific factors such as political, macro-economic, legal, social, and natural
risk groups. Meso level risks are concerned with project-specific factors in terms of the
project development and operation such as risks in project selection and finance,
design, construction, operation, and residual risk. Micro level risks have been allocated
into the relationship among stakeholders of the projects. These risk factors were listed
in the risk register and quantified in terms of financial consequence in the risk matrix.
The risk allocation process framework in PPP/PFI contract procurement has been
proposed. Meanwhile, they identified what risk factors should be allocated to each
party. Since then, the studies of risk allocation as a risk management tool in PPP
projects have prevailed.
Roumboutsos and Anagnostopoulos (2008) and Ke et al. (2010b) have used the
questionnaire which was developed by Bing et al. (2005) to investigate preferred risk
allocation in Greece, and in China and Hong Kong, respectively. Ke et al. (2010a) and
Chan et al. (2011) have developed their questionnaires to examine preferred risk
allocation in China. Jin (2011) has proposed an adaptive neuro-fuzzy inference system,
combining the strengths of fuzzy logic, and artificial neural networks to apply to risk
allocation decision-making processes. Medda (2007) has used a game theory approach
to examine a bargaining process for risk allocation in PPP transport agreements.
Abednego and Ogunlana (2006) and Heravi and Hajihosseini (2012) have proposed
a proper risk allocation strategy in Indonesia and in Iran on toll road projects,
respectively, through case studies. Zou et al. (2008) have developed a risk allocation
framework for the PPP project life cycle from three transportation projects in China
and Australia.
Besides risk allocation studies, Fischer et al. (2010) have proposed an integrated
risk management system for each PPP stakeholder in the project life cycle.
Grimsey and Lewis (2004) contributed risk mitigation and monitoring for the public
sector. According to these previous studies, few studies of the private sector’s
risk management were found despite the fact that it needs to undertake further
commitments and assumes much broader and deeper risks than a mere contractor
(Zhang, 2005a). For this reason, this study aims to investigate and develop a conceptual
risk management framework of the private sector in order to propose an effective
risk response. The process of risk management proposed by Fischer et al. (2010) was
adopted because the impact of an allocated risk might be beyond the capacity of
PM private entities and some risks may occur unexpectedly in the project life cycle.
32,1 The process consists of risk identification, categorization, analysis, mitigation, control,
and monitoring.

3. PPP-LCH project development in Thailand

To understand all implications, it is necessary to identify the contractual structure
70 and the private sector’s scope of work in PPP-LCH project development because risks
have an effect on the activities of the stakeholders in the project life cycle and vice
versa. The PPP procurement method applied was “turnkey”. Its contractual structure
was depicted as Figure 1. The sources of project capital finance were supplied by a
government subsidy and loan by the NHA. The NHA was a project sponsor and owner
who sold LCH units to LIGs. A private firm or contractor delivered PPP-LCH projects
that provided a livable environment to the NHA on a specific date. The private firm’s
obligations were land acquisition, doing feasibility studies, presale of the housing
units, design, construction, and construction financing. The number of projects/houses
developed depended on the contractors’ authorized capital and bid bond.
The process of the project development can be seen in Figure 2. The figure is used
as the analytical framework of risk investigation in PPP-LCH project development.
The activities on solid line were essential, while those on dash-dot lines depended on
contractors’ requirement. The solid line with the sequence number presented the
contractors’ activities.
During the conceptual and preplanning phase, the NHA created an attractive
investment environment through a payment method of housing quota advance
payment and a guarantee of 100 percent house purchasing. The contractors submitted

Government Private
subsidy placement
(18%) (82%)

Subsidy agreement Loan agreement

Sale and
purchase
agreement
LIGs NHA
(End-users) (Program sponsor)

Project A1-An
Turnkey contract
Loan Project B1-Bn
agreement
Lenders Private firms
(project development) Project C1-Cn

Project D1-Dn
Land acquisition
Construction contract
agreement ..
.
Contractors Land owners
Project ...1-...n
Figure 1.
Supply contract
The contractual structure
of PPP-LCH projects Suppliers
 Design and Project Completion phase
Conceptual and Preplanning phase Contractual, Financing and Land Acquisition phase
Construction phase

L/G 15% of housing quota units

for advance payment bond
Commercial
Bank NHA Target group
Securities or asset deposit

6
Project land
acquisition &
cost payment 5

Turnkey
15%
2 contract/
performance
Off take
bond Milestone
L/G 5% of housing quota units for bid agreement
bond and contractors’ prequalification progress
payment
Securities or asset deposit Sale and Rent-to-own
4 purchasing agreement
Project location selection and SMT or presale 7 Inspection agreement
Contractors
The No. of project housing reservation double
number of project housing unit construction
Design
and Mortgage loan
Construction agreement
3
Tender
Target group Bid bond 8
prequalification
deposit on and quota PPP-LCH NHA
quota basis contract Project transfer
projects
with 2 years of
performance
1
5 guarantee
Express of Bidding 15% advance
Interest document 15% advance
payment bond
review payment on
on quota basis
quota basis
deposit
NHA’s guarantee
NHA repurchasing of
default risks

Public
agency
designation

Government housing
policy Government
Ad hoc project
approval Bank
procedures
projects

of risk investigation in
The analytical framework
Figure 2.

development
71
PPP LCH

PPP-LCH project
PM an expression of interest letter and reviewed the bidding documents. This included the
32,1 preparation of bonds for the project participation. The prequalification of private firms
mainly relied on its financial capacity. The government supported the projects by
constituting fast track project approval procedures during the project execution
and providing the ad hoc housing finance to LIGs through government banks.
In the project contractual phase, a contractor deposited the security of 5 percent of
72 LCH unit quota value to the NHA as a bid bond, and submitted the implementation
plan and innovative construction method. Then, a quota contract was signed. There
was no competitive bidding. Only the certified location and presale or soft market test
was needed for project approval. Once the location was approved and presale presented
that the number of demands doubled the number of the constructed housing units, then
the turnkey contract was signed. A 15 percent performance bond, based on project
value, had to be deposited to the NHA.
In the financing and land acquisition phase, the qualified contractors had to deposit
15 percent of the advance payment bond if they required advanced payment. In addition,
100 percent of land price was paid for land acquisition at the project contract approbation.
Finally, at the construction phase, the traditional progress payment was adopted.
During the project design and construction phase, the NHA stipulated output
specification and provided housing prototypes to the contractors. The roles of NHA
staff shifted from full-time supervision to inspection. The contractors mobilized
its innovative construction technology to structural design and construction. This was
facilitated by fast track procedures of environmental impact assessment (EIA), facility
installation approval, and the project permission from the local authorities.
After the project completion, the project was transferred to the NHA. The
contractors guaranteed for latent defect correction due to poor workmanship for two
years. The NHA sold the houses to the beneficiaries registering in presale activity and
acted as a coordinator between government banks and the beneficiaries. The NHA
also repurchased the housing units in the case of the beneficiaries’ default. Besides,
“rent-to-own” agreements were made available to ensure the LCHs had been delivered
to the beneficiaries.

4. Research methodology
To achieve the research objectives of identifying imperative risks and how they
affected the private sector’s performance and investigating effective risk response in
the project development, the effective and ineffective practices of the contractors were
explored by using grounded theory (GT) and a case study. Risk involves an activity or
decision and risk management must be optimized (Akintoye and Chinyio, 2005).
The study involving human decision making and action is complicated. GT method is
suitable because it is renowned for its application to human behavior. Under this
method, the conditions of specific settings, which lead human to make decision and
action, are considered. GT also has a set of established guidelines for generating
cause-and-effect relationship. These guidelines are consistent with the major research
interest which lies in the identification, categorization, and exploration of the
connection of contractors’ risk and risk response. Thorough GT analysis is an iterative,
process-orientated, and analytical procedure. The procedure involves systematically
asking of generative and concept-relating questions, memoing, theoretical sampling,
systematic coding procedure, and constant comparative method until theoretical
saturation is reached (Strauss and Corbin, 1994, 1998). Meanwhile, the case study is
applied to explore the phenomena of the contemporary situation (Yin, 2003). Each
contractor or project firm was a unit of analysis. Thorough data analysis PPP LCH
employs the GT coding strategy and cross-case analysis to identify imperative projects
risks borne by the private firms. Then it is followed by the logical diagram technique
to understand the dynamics of those risk occurrences in order to provide an
insightful explanation. The investigation of effective risk management was done in
a similar manner.

4.1 Data collection

73
4.1.1 Semi-structured interview template. Literature based on risk definition and
management in several previous studies of PPP projects was reviewed to develop
a semi-structured interview and create theoretical sensitivity during data collection.
The scopes of questions of objectivity in the semi-structured interview, shown in the
list below, aimed to investigate what and how the intrinsic and extrinsic risks impeded
the project output, project outcome, and business success. The questions related
to how the contractor mitigates these risks were asked according to interviewees’
response. To achieve the research reliability, the research data collection protocol were
also developed.
Questions for project company participants:
. Why did your project company participate in the PPP-LCH project?
. How did your project company develop the PPP-LCH projects?
. According to projects supervised/involved by you, how do you measure project
performance? What results did you get?
. According to the results (success/failure), what contributed to the project’s
success/why did project fail? What are your thoughts on the success/failure
on this matter?
4.1.2 Sampling. Purposive sampling was adopted in order to investigate contractors’
risks and risk mitigation strategies. According to personal relationship, two top
managements, key informants of the NHA staff, were directly involved in the program
establishment and implementation since 2003, were introduced and subjected to an
in-depth interview. The purpose of these interviews was to gather a holistic view of the
program’s risks. The interview was succeeded by providing the terms of reference
(TOR), turnkey contractual agreements, and program progress reports, pointing out all
contractors in charge. These coupled with both formal and informal documents from
other sources, such as The Office of the Auditor General (OAG) of Thailand, previous
studies relating to the program, and newspaper articles were examined.
According to a list of contractors in charge, the cases were selected based
on the contractors’ performances and their project completion and/or termination. The
interview permission was requested through e-mail, postal mail, and telephone.
Ten contractors agreed to participate in the in-depth interview of this study. These
contractors were different in terms of the company’s size, competency, ethnicity,
experience, and objectives achievement. Collecting data bases on the diverse
characteristics of the cases and finding their replication logic lead to the research
results’ external validity (Yin, 2003). The participant selection criteria were the senior
management directly managing the company’s PPP-LCH projects. Each company
profile was reviewed through documentation and the company’s web site before the
interview session. In addition, in some cases, project sites were visited. The profiles
of each contractor based on core business, authorized capital, engagement period,
PM the number of the projects or housing units, and the position of interviewees were
32,1 shown in Table I.
To ensure the creditability of data collected from these case studies, the other 11
NHA program team members who were experts on the phenomena, which were often
mentioned by the research participants, were requested to introduce their point of view.
This included the other three project firms failing to meet their contract schedule and
74 two groups of tenants in the different projects of certain cases were also interviewed.
After that, the data gained from case interviews were compared to the data obtained
from NHA’s key informants, those three project firms, the tenants, the observation of
the project site visits, and the secondary data of NHA’s and OAG’s documents. The data
collection of multiple sources of evidences, known as “triangulation” method, was
aimed to eliminate possible biases held by case interviewees. Gathering data on the
same topic through a variety of means are a technique of validating research finding
(Corbin and Holt, 2005).

4.2 Data analysis

4.2.1 Open coding. The first stage of risk management is risk identification. Interview
content of each respondent was recorded and transcribed verbatim. The interview
contexts reflecting key points of risk factors were coded as the identified risks.
For example, in case F, the interviewee said, “According to TOR, we thought the
project price excluded Value Added Tax (VAT), therefore, the results of feasibility
study made the project attractive.” This key point was coded “TOR misinterpretation”
as a risk factor. The rationale of coding and interpreting were noted in order to develop
a case study database and research archive. The results of risk identification by each
case lie in the project life cycle as shown in Table II.
4.2.2 Cross-case analysis. By coding as mentioned, 48 risk factors were identified.
Risks in each case were compared to one another in terms of similarities and
dissimilarity. The repetitions of risks faced by each case were counted. The frequency
of risk occurrence reflected the phenomena of risks in the PPP-LCH projects as shown
in the last column of Table II.
4.2.3 Axial coding. To achieve risk categorization and analysis, the risk factors
were grouped according to their commonality in terms of the source. After that, each
group was labeled and risk factors within the same risk category were linked to
one another by using axial coding. For example, the project unit reduction, project
cancellation, and the progress payment delay was derived from the political change
due to a military coup. These risks were put into the same unit and named as political
change. As a result, there were ten risk groups borne by the private sector as presented
in the Figure 3. Among these risk groups, political changes, economic crisis,
contractual risk, NHA’s culture, NHA’s incompetency and inexperience in PPP projects,
and incompetent and inexperienced contractors were emphasized as significant
risk categories. The impacts of these risk categories seriously affected the contractors’
performance as risk analysis was shown through the case study interviewees’
perception.
4.2.4 Logical diagram technique. According to the salient risk categories, the causal
relationships of each imperative risk group were constructed using the logical diagram
technique. Events, activities, risk occurrence, potential problems, and the consequence
were linked to one another and placed on the project life cycle. The results are shown in
a matrix of risks’ root causes and the area of the project most exposed to the effects
of such risks as shown in Table III.
 Authorized capital No. of project execution
Company Core business (million baht) Engagement period (total housing units) Interviewee position

A Public building construction 400 Jan. 2004-Nov. 2007 6 (5,056) Project manager
B Concrete production 126 Apr. 2004-Apr. 2006 3 (6,364) Project director
C Property development 20 Apr. 2004-Dec. 2006 4 (7,320) Project director
D Property development and public 20/4,922 Feb. 2004-May 2008 23 (54,413) Project director/project
construction (consortium) director
E Property development 47,882 Sep. 2006-Feb. 2010 5 (6,324) Special project development
director
F Production of prefabricated rigid 300 Jan. 2006-Dec. 2008 3 (2,529) Senior admin. and
air ducts and light bulbs accounting manager
G Public infrastructure construction 300/7,000 Apr. 2006-Aug. 2009 8 (7,536) Project managerial
and Automobile dealer consultant
(Consortium)
H Property development 1,350 Feb. 2006-Jun. 2010 9 (16,112) Project manager
I Property development and 60 Aug. 2006-Feb. 2010 3 (4,619) Country manager
Construction
J Construction and property 30/120 Apr. 2006-Jun. 2010 2 (4,544) Project manager
development (consortium)

interviewees’ position
projects

Case study profiles and

75
PPP LCH

Table I.
 76
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32,1

Table II.

by open coding
Risk identification
in PPP-LCH projects
Company
Project development Total number of hits
phase Risk factors A B C D E F G H I J of a certain risk factor

Conceptual and TOR misinterpretation | 1

preplanning
Specification misinterpretation | 1

Contractual Contractual risks (ambiguous scope of work | | | | | | | | | | 10

after project termination, deficient
documentations, and the NHA’s right
to add any clauses for NHA’ benefits)
Land acquisition, design Technology investment | | 2
and construction Design over specification | 1
Lack of construction technology knowledge | | | | | | | 7
Inconsistency between production and | 1
construction work
Lack of cost control | 1
Progress payment delay | | | | | | | 7
Project units reduction and project | | | | | | | 7
cancellation
Unreasonably increasing of fuel price | | | | | | | 7
Supplier’s inability to supply materials | | | | | | | 7
The bankruptcy of company in host country | 1
Informal nominated suppliers | | | 3
NHA’s lack of supervision standard | | | | | | 6
Shortage of skilled labor | | | 3
Partnership risk | 1
Informal change order | | | | | 5
Specification obsoleteness | 1
Inability to manage lead time | 1

(continued )
 Company
Project development Total number of hits
phase Risk factors A B C D E F G H I J of a certain risk factor

Environmental impact assessment (EIA) law | | | | | | | | | | 10

approval process
Change in environmental impact assessment | | | | | | | 7
(EIA) law
Facilities and infrastructures approval | | | | | | | 7
process
Working capital shortage | 1
Construction material shortage and high | | | | | | | 7
price
Condominium registration fee increasing | 1
NHA’s delay in the construction activity | | | | | | | 7
approval process
Flood | 1
Monsoon | 1
NHA’s lack of understand PPP concept | | | | | 5
NHA’s staff high autonomy | | | | 4
NHA’s lack of cooperation within organization | | | | | | 6
Incidental expense | 1
Incompetent NHA’s staff | | | | 4
Lack of cooperation between NHA and other | | | 3
government agencies
Inadequate capacity of NHA’s staff | 1
NHA’s staff self-prevention | 1
Project completion Competition among PPP-LCH projects | | | | 4
and transfer
LIG’s low affordability | | | | | | | | | 9
Inconsistency between LIG’s affordability and | | | | | | | 7
installment
Stringently eligible borrower criteria | | | | | | | 7

(continued )
projects

77
PPP LCH

Table II.
 78
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32,1

Table II.
Company
Project development Total number of hits
phase Risk factors A B C D E F G H I J of a certain risk factor

Housing mortgage finance criteria constraints | | | | | | | | | 9

Inflexible housing installment method | | | | | | | | | 9
Additional clause of sales performance | | | | | | 6
guarantee bond
Not allow the period of performance | | | | | | | | 8
guarantee
Additional clause of EIA guarantee bond | | | | | | | | 8
High unemployment rate | | | | | | | 7
Interest rate escalation | | | | | | | 7
 Technology investment (2)
Design over specification (1) Specification misinterpretation (1)
Specification obsoleteness (1)
Project unit reduction and project
Inability to manage lead time (1)
cancellation (7) Inadequate capacity of NHA’s
Change to traditional facility and Inconsistency between production staff (1)
infrastructure approval process (7) and construction work (1)
Change to traditional Incompetent NHA’s staff (4)
TOR misinterpretation (1)
EIA approval process (10)
Competition among
Increase in condominium
Progress payment delay (7) Lack of cost control (1) Flood (1) PPP-LCH project (4)
register fee (1)
Inconsistency between LIGs’ Lack of construction technology NHA‘s lack in understanding
Change in EIA law (7) Monsoon (1)
affordability and housing installment (7) knowledge (7) PPP concepts (5)

Incompetent and inexperienced NHA incapability and

Political changes (38) Relative law risks (8) Environmental risks (2)
contractors (12) inexperience in PPP projects (15)

Risks borne by private sector

in PPP-LCH projects

NHA staff’s The limitation of

Contractual risks (22) Economic crisis (23) administration (9) NHA culture (17) construction industry (3)

Additional clause of EIA guarantee bond Informal change Shortage of skilled

NHA’s delay in the NHA’s lack of supervision standard
(8) order (5) labor (3)
construction activity (6)
Not allow the period of performance Informal nominated approval process (7)
guarantee (8) LIGs’ low housing suppliers (3) NHA’s lack of cooperation within
affordability (9) NHA staff’s self- organization (6)
preservation (1)
Additional clause of sales performance Incidental expense Lack of cooperation between NHA
guarantee bond (6) Interest rate escalation (7) (1) and other government agencies (3)

Demand risk (7) NHA’s staff

Stringent eligible borrower
criteria (7)
Inflexible housing
installment method (9)
high autonomy (4)
Suppliers’ inability to
supply materials (7)
Construction material High unemployment rate
shortage and high price (7) (7)

Housing mortgage finance Unreasonably increasing of

criteria constraints (9) fuel price (7)

through axial coding

projects

relationship among risks

analysis and the
Risk categorization and
Figure 3.
79
PPP LCH
 80
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32,1

Table III.

sector’s performance
risks affecting private
The causal relationship of
the evolution of the salient
Contractual,
Conceptual and financing and land Design and Project completion The performance of
Risks Risk evolution preplanning phase acquisition phase construction phase phase private sector

Political changes Potential Ad hoc project Project subsidy Project design Sale and purchase Project delay and
problems or risk permission approval interpretation Project construction agreement cost overrun
occurrence procedures and housing Turnkey contract Project loss due to
on activity basis installment schedule project unit
Government housing Construction reduction
policy establishment technology Business loss due to
investment construction
technology
investment
Working capital
shortage
Risk impacts Contract termination Project cancellation/ Inconsistency
project unit reduction between LIGs’
Progress payment affordability and
delay installment
Inconsistency between
contract schedule and
project approval
procedures
Economic crisis Risk occurrence Project construction Sale and purchase Project delay
on activity basis agreement Project cost overrun
Risk impacts Suppliers’ inability to High unemployment
supply materials rate
LIGs’ low housing
affordability

(continued )
 Contractual,
Conceptual and financing and land Design and Project completion The performance of
Risks Risk evolution preplanning phase acquisition phase construction phase phase private sector

Contractual risks Potential Ad hoc project Additional Project transfer Project cost overrun
problems or risk permission approval contractual clauses
occurrence procedures and housing
on activity basis installment
Presale or soft market
test (SMT) – artificial
demand
Risk impacts EIA guarantee
Sale performance
guarantee
Not allow the period
of performance
guarantee
NHA’s cultures Risk occurrence Project design Project delay
on activity basis Project construction
Risk impacts NHA’s delay in
construction activity
approval process
Lack of cooperation
between NHA and
other government
agencies
NHA’s lack of
supervision standard
NHA’s lack of
cooperation with
organization

(continued )
projects

Table III.
81
PPP LCH
 82
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32,1

Table III.
Contractual,
Conceptual and financing and land Design and Project completion The performance of
Risks Risk evolution preplanning phase acquisition phase construction phase phase private sector

NHA’s Potential Public agency Project approval Project design Project transfer Project delay and
incapability and problems or risk designation Project construction cost overrun
inexperience occurrence
in PPP contract on activity basis
arrangement
Risk impacts NHA’s incompetency Incompetent NHA’s Competition among
and inexperience in PPP staff PPP-LCH projects
contract arrangement NHA lack of
understanding PPP
concepts
Inadequate capacity of
NHA’s staff
Specification
obsoleteness
Incompetent and Potential Bidding document Tender Project design Project delay and
inexperienced problems on review prequalification Project construction cost overrun
contractors activity basis
Risk impacts TOR misinterpretation Incompetent and Design over-
Specification inexperience specification
misinterpretation contractors Lack of cost control
Inability to manage
lead time
Inconsistency between
production and
construction work
Lack of construction
technology knowledge
Similarly, the process of private sector’s strategic risk management and PPP LCH
implementation was analyzed by using GT and a case study. The contractors’ risk projects
response strategies and implementations, including project and business performance,
were demonstrated and compared in Table IV. The contractors familiar with the
construction industry and the entrants preferred risk absorption strategy to others.
The entrants desired to learn by doing because they underestimated risk impacts.
The private developers preferred the risk transfer strategy. These results implied that 83
risk response strategies depended on the private firm’s core business, objectives, and
capabilities. This included top management’s perception, attitude, and experience on
risks. Consequently, the logically systematic process of private firms’ effective risk
management was depicted in Figure 4.

5. Results
5.1 The evolution of imperative risk borne by the private sector
According to the matrix of risk’s root causes and the area of the projects most exposed
to the effects of the imperative risks, the potential problems of political changes derived
from the fast track of project approval procedures which were set up during the
preplanning phase. Their impact occurred in the project execution and completion
phase. Similarly, the potential problems of contractual risk lie in the ad hoc project
approval procedure of EIA permission (whose traditional approach is costly and
lengthy) and presale activity in the preplanning phase. The impacts of contractual risk
played an important role in the completion phase. In contrast, the activities creating
potential problems or being risk occurrence of economic crisis, NHA’s culture, and
incompetent and inexperienced contractors and their impacts mostly lie in the
same phase. These risks were unexpected. Their occurrences and impacts cannot be
distinctly separated.
According to NHA’s incapability and inexperience in PPP contract arrangements,
some activities causing potential problems and their impacts were in the same phase.
The consequences of these risk occurrences were unforeseen. Contractors tolerated
the uncontrollable situation of conforming to NHA inspection in the design and
construction phase and competing among the various projects during the project
completion phase. Among these risks, the impact of political changes had an effect on
the private sector’s project and organizational objectives. Meanwhile, the other risks
affected only the efficiency of project development.

5.2 The private sector’s risk response

According to the effective risk management framework, in the conceptual and preplanning
phase, risk identification was based on contractors’ obligations according to bidding
documents. Risk analysis focussed on risk’ impact and contractors’ risk controllability
and predictability of risk consequence. Risk elimination through non-participation may
be adopted after the risk analysis. Contractor’s core business and capability were
determinants to select risk transfer or absorption strategy. The risk transfer was changed
to the risk absorption once the contractors had learned current construction technology.
During the contractual, financing, and land acquisition phase, the contractors
calculated cost-benefit analysis in order to propose the best and final offer to the NHA.
Once the projects were approved, risk monitoring and a controlling system were
set up through project team or subcontractor selection criteria.
During the design and construction phase, risks were monitored in terms of the
occurrence of unidentified risks and risk impact beyond expectation. This occurrence
 84
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32,1

Table IV.

performances
The contractors’ risk

implementations, and
response strategies and
Contractor’s risk response strategies and implementation
Project development
Company Risk elimination Risk transfer Risk absorption performance Business performance

A Abandon the Subcontractor Construction as core Meeting time, cost, Profit

remaining project selection criteria business and specification
unit quota Reputation Technology transfer Projects’ profit
Experience Project team competencies
Capability Good relationship with
public client
Efficiency improvement
Effective resource usage
Focus on one housing type
and location
B Abandon the Subcontractor Meeting time, cost, Profit
remaining project selection criteria and specification
unit quota Affiliate Projects’ profit
C Abandon the Subcontractor Meeting time, cost, Profit
remaining project selection criteria and specification
unit quota Affiliate Projects’ profit
D Real estate development/ Meeting time, cost, Profit/loss
construction as core and specification
business Projects’ profit/projects’
Project team competencies profit
Efficiency improvement
Effective resource usage
Too big to be failed
Focus on one housing type
and specific location

(continued )
 Contractor’s risk response strategies and implementation
Project development
Company Risk elimination Risk transfer Risk absorption performance Business performance

E Property development Time and cost overrun Achieve participation

as core business but meeting specification strategic goal of profit
Subcontractor selection Projects’ profit and business creditability
criteria (rehabilitation)
Experience
Financial soundness
Budgeting control
Open book management
Trust development
Diverse subcontractors
F Subcontractor selection Inexperience in Time and cost overrun Achieve participation
criteria construction work but meeting specification strategic goal of market
Experience Underestimating risk Project’s loss share expansion of
Poor technology transfer existing products but
Lack of interaction and organization’s loss
cooperation among project
team members
Project manager’s poor
communication skill with
public client
Inefficient improvement
Ineffective resource usage

(continued )
projects

Table IV.
85
PPP LCH
 86
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32,1

Table IV.
Contractor’s risk response strategies and implementation
Project development
Company Risk elimination Risk transfer Risk absorption performance Business performance

G Inexperience in building Time and cost overrun Profit/loss

projects but meeting specification
Project consultant’s expert in Project’s profit
property development
Project team competencies
Efficiency improvement
Effective resource usage
Misunderstanding public
client’s requirements
H Property development Time and cost overrun but Profit
as core business meeting specification
Subcontractor selection Project’s profit
criteria
Experience
Financial soundness
Budgeting control
Diverse subcontractors
I Property development and Time and cost overrun but Achieve participation
building construction as core meeting specification strategic goal of oversea
business Project’s loss market penetration but
Rigorous cost control organization’s loss
Effective resource usage
Efficiency improvement
Adaptability
J Design over specification Termination of all projects Bankruptcy/profit
Inadaptability
Poor cost control (parent
company’s bankruptcy)
 Conceptual and Preplanning phase Contractual, Financing and Land Acquisition phase Design and Construction phase Project Completion phase

Express of interest Project proposal submission

Subcontractor management Project transfer
Bidding document review Negotiation with public client Risk monitoring Risk monitoring

Risk identification Cost-Benefit Analysis

Beyond expected Beyond expected
Unidentified risks Unidentified risks
impacts of identified risk risk impacts
Risk analysis Best and final offer

High impact? No Approval? Yes Re-negotiation Re-negotiation

with the client? with the client?
Award of contract
No Yes No Yes
Yes Controllability?

No Implement risk Implement risk Symmetric risk sharing Propose compensation Symmetric risk Propose compensation
absorption strategy transfer strategy with subcontractor for risk cost to the client sharing with for risk cost to the
Unpredictable subcontractor client
consequences?
Set risk monitoring and Set risk monitoring and Compensate risk cost to
No Accepted by
controlling system controlling system the subcontractor Compensate risk cost
subcontractor?
to the subcontractor
Yes No Yes Project team selection Subcontractor selection
and designation criteria establishment Yes
No End of obligation
Select risk elimination strategy Risk absorption
Subcontractor evaluation
Budget allocation
and selection
Non-participation Organization objective reivew Future market
Allocating risks to Ex-post project risk evaluation
subcontractor
Construction as Profitability Project abandonment
core business? End of obligation
Accepted by
No
subcontractor?
Propose compensation Propose compensation
Risk absorption Risk absorption
No Yes for risk cost to the client for risk cost to the client
Yes
No Yes No Yes
Beyond
organization Award of subcontract Re-negotiation Re-negotiation
capability? with the client? with the client?

Yes No
Beyond expected Beyond expected
Unidentified risks Unidentified risks
risk impacts risk impacts
Select risk transfer strategy
Organization objectives of technology Risk monitoring Risk monitoring
transfer or new market penetration?
Design and Construction Project transfer
Select risk absorption strategy
projects

management framework
Figure 4.
Contractor’s effective risk
87
PPP LCH

in PPP-LCH projects
PM led to re-negotiation with the NHA for compensating risk cost. In the case of inability
32,1 to re-negotiate, risk mitigation of risk absorption strategy was to increase the capacity
of production and to improve the efficiency and effectiveness of resource usage.
For risk transfer strategy, risks were reduced by symmetric risk allocation to
subcontractors. If the subcontractors did not accept the risks, the organization
objective was reviewed to decide the next risk response strategy.
88 After the project completion, the risk monitoring, re-negotiation, and symmetric
risk allocation were implemented until the contractors were free from their obligations.
The review of organization objectives was omitted due to no harmful risks. The ex-post
project risks were evaluated in order to develop the project archives which were used to
identify and analyze risks in the future projects.

6. Discussions
6.1 Risks borne by the private sector
6.1.1 Political changes. The impact of political change, derived from the emergence
of a military coup, comprised of five main items, namely change to traditional EIA law
approval process, change to traditional facility and infrastructure approval process,
project unit reduction and project cancellation, progress payment delay, and inconsistency
between LIG’s affordability and housing installment. The establishment of opponent
government led to more traditional approaches of those approval processes, reinterpretation
of the project subsidy, and reduction of project housing units. Consequently, the delay of
projects and progress payments was widespread. Private firms suffered from investment
risk of project development and construction technology.
This finding reconfirms the studies of Tam (1999) in Thailand and Zou et al. (2008)
in China. Unstable governments had given contractors a painful experience within PPP
projects. On the other hand, the finding presents the difference between the political
risk allocation and risk bearing. The studies of unstable government risk allocation
pointed out that this risk factor should be solely allocated to the public sector (Bing
et al., 2005; Ke et al., 2010a; Roumboutsos and Anagnostopoulos, 2008) rather than
shared or allocated to the private entity.
6.1.2 Economic crisis. The impacts of economic crisis were composed of high
unemployment rate, supplier’s inability to supply material, and LIG’s low housing
affordability. The most important exogenous cause of economic crisis was the rise
of oil prices due to the speculation in the world market and interest rate escalation.
The fluctuation of energy price caused a change in the demand due to the reduction of
LIG’s purchasing power. It also affected the productivity of the projects. Furthermore,
the escalation of interest rates coupled with the conventional approach of housing
mortgage conditions, which arose from political change, brought about a demand
risk. As a result, the impact of economic crisis caused an additional clause of sale
performance guarantee bond and project delay and cost overrun. The demand risk,
which was solely allocated to public sector, become sharing with the private firms.
This consequence had never been identified in the previous studies.
6.1.3 Contractual risks . The impacts of contractual risks consisted of EIA and sales
performance guarantee bonds and not allow the period of performance guarantee.
Contractual risks were mainly derived from the additional contractual clauses due to
risk impacts beyond the public client’s capability and an unexpected risk. Contractors
were allowed to build the projects in parallel with a request for EIA approval.
The change in traditional EIA approval procedures made the NHA apprehensive of
contractors’ desertion of the EIA obligation because LIGs move into the projects.
The NHA therefore added the EIA guarantee bond clause into the contract. The period PPP LCH
of performance guarantee was not deducted. Furthermore, the unexpected risk of projects
artificial demand was claimed for the additional clause of the sales performance
guarantee bond. Actually, demand risk was mainly derived from the limitations of
housing mortgage and economic crisis. Owing to the contractual clause of “The NHA
has a right to add the agreements, if it is to the NHA’s benefit,” the contractors had to
abide by the amended contract. This clause and artificial demand have never been 89
mentioned in the PPP studies. Most contractual risk in the previous studies pointed out
the ambiguous agreement (Abdul-Aziz and Kassim, 2011), conflict or imperfect
contract (Chan et al., 2011), lack of project termination clause (Heravi and Hajihosseini,
2012), and improper contract (Ke et al., 2010a). Demand risks in previous studies
were derived from competitions due to lack the rights of the project executive and
market demand change due to change of socio-economic and demographic conditions
(Chan et al., 2011; Ke et al., 2010a).
6.1.4 NHA’s culture. The impact of NHA’s culture consisted of lack of cooperation
within the organization and with other government agencies, lack of a supervision
standard, and NHA’s delay in the construction activity approval process. Thai cultural
values are reflected in terms of ego-orientation and the expectation of people to be mild
and modest (Knutson et al., 2003) and resulted in the high autonomy trait of the NHA’s
staff. NHA staff demanded that their interpersonal communication should not be
placed in an embarrassing or shameful situation. These cultural values coupled with
inexperience in PPP project arrangements brought about NHA staff’s non-cooperation
within the organization. The NHA therefore lacked a supervision standard. In addition,
public agencies’ cultural traits, in terms of “self-preservation” (Gallimore et al., 1997),
coupled with NHA’s lack of understanding of PPP concepts and multi-faceted roles
caused some NHA staff to follow the traditional procedures. Consequently, private
entities incurred excessive time and cost.
6.1.5 NHA’s incapability and inexperience in PPP projects. The impact of NHA’s
incapability and inexperience in PPP projects consisted of its lack of understanding
PPP concepts, competition among PPP-LCH projects, and incompetent and inadequate
capacity of NHA staff. Lack of understanding PPP concepts caused NHA to organize
the contractors’ presale activity in the same region in the preplanning phase.
Rather, the NHA should have had the quantity of demand projection in each area in
order to control LCH supply in the contractual phase. Consequently, the projects were
competing with one another in the completion phase. In additional, the policy
pressurized NHA to suddenly increase the mass volume of LCH units nationwide. With
the existing capacity, the number of projects inspected by each NHA staff was high.
During the project design and construction phase, the private firms therefore faced
several problems such as delay in revising and approving the design documentations.
The finding on public client’s incapability and inexperience in PPP project coheres with
the study of Sanghi et al. (2007), Mahalingam (2010), and Zhang (2005b).
6.1.6 Incompetent and inexperienced contractors. The impact of incompetent and
inexperienced contractors consisted of lack of construction technology knowledge for
mass production, inability to manage lead time, inconsistency between production
and construction work, TOR misinterpretation, lack of cost control, and design
over-specification. The participation of the private sector was expected to bring its
marketing skill and the innovative structural design and construction technology to
complete the project within a specified date. However, few contractors had mass
housing production technology knowledge.
PM Risks were higher for foreign contractors and subcontractors because of
32,1 unfamiliarity with the construction codes and business practice of the supply chain
in the Thai construction industry. This finding is consistent with the study of Rebeiz
(2012). Foreign private firms faced the problems of local practices. New domestic
contractors’ risks increased due to figuring out the market of the public infrastructure
provision, the procedures of request for approval, the integration of production
90 and construction works, and geotechnical conditions. The result of incompetent and
inexperienced contractors echoes the study of Chan et al. (2011). The inability of
concessionaire should be allocated to the private firms.

6.2 Effective risk response strategy and implementation

6.2.1 Risk elimination strategy and implementation. Although the adoption of risk
elimination strategy results in loss of opportunity and provides advantages to the
organization’s competitors, it is the best strategy in some circumstances. The private
firms faced a high impact of unidentified risks. They were unable to predict risks’
outcome and control them, particularly, risks of political changes. Risk elimination at
the contractual and the preplanning phase by non-participation aims to avoid
becoming trapped in the project execution phase and protects the organization from
loss or bankruptcy. Furthermore, the private firms facing the impasse of project
transfer strategy due to subcontractors’ desertion of the projects abandoned their
projects to cut loss. The critical factors of the application of risk elimination strategy
depend on the decision maker’s risk attitude, risk perception, experience of risk,
and risk assessment skill. Meanwhile, the organizational objectives emphasize on
profitability rather than foreseeing the future market.
6.2.2 Risk transfer strategy and implementation. The application of risk transfer
strategy aims to benefit from the technology transfer and to allocate design and
construction risks to the other private parties who best can manage the risks in a
cost-effective manner. The risks were primarily controlled through setting up
subcontractor evaluation and selection criteria. Subcontractor’s qualifications were
focussed on financial soundness, experience, reputation, and capabilities. Then risks
were monitored and controlled through subcontractor management. The subcontractor
management relied on effective relationship management based on transparency and
good governance of the contractors. Subcontractor’s drivers and constraints were
clearly understood. Prime contract requirements, public client’s project management
practice, subcontractor’s obligations, and the process of invoice and payment
consistent with the prime contract were explicated to the subcontractor.
6.2.3 Risk absorption strategy and implementation. The risk absorption
strategy was chosen when the contractor was in the position to manage risk at
the lowest cost. Location selection according to plant’s proximity and accessibility
was important to evaluate transportation cost. To mitigate the risks of project cost
overrun and delay, sound integration plans of production, logistics, and construction
management were needed. Technical and communication skills and comprehension
of the public client’s requirements, constraints, cultural traits, and project
management practices are crucial qualifications of a contractor’s project manager
and team members.

7. Conclusions and recommendations

Despite working under attractive investment environments, only few private firms
were able to meet the PPP-LCH project schedule in Thailand. By applying GT
methodology and a case study to ten private firms, the research presented the private PPP LCH
sector’s risk and effective risk response within the projects. It is clear that the projects
complexity and obscurity of imperative risks borne by private enterprise were derived
from the volatility of political environments, economic crisis, contractual agreement,
public client mistrust, and the deficiency of the private firms itself. These important
risks were analyzed in the way of cause-and-effect connection with the other imperative
project components. A risk matrix of the root causes and the areas of the project life 91
cycle most exposed to their impacts were proposed. This systematic proposition
demonstrated the practical risk analysis according to the integration of risks’ root
causes and impacts and work breakdown structure. It also facilitated the analysis
of risk management strategy carried out by the contractors.
The contractors’ effective risk management framework addresses the logical
implementation of risk response strategies. The future market was not the public
works; to avoid risk, the contractors simply abandoned the projects. Risk transfer was
successful by applying subcontractor selection criteria and subcontractor management
through a relationship management and mutual trust development. The effective risk
absorption strategy depended on the integration plan of project location and housing
type selection and the managements of production, logistics, and construction.
The project team’s competencies were also crucial. Besides the technical expertise and
the collaboration of project team members, the project team’s comprehension of
public client’s constraints, cultural traits, and project management practices and
communication skill are the major issues.
Although this study presents the contractors’ risks and effective risk response in
PPP-LCH projects in Thailand, the results could be applied in other PPP infrastructure
projects in the developing world because of the similarity of immature PPP markets.
To mitigate risks, the private sector should:
. use the logically systematic framework of contractor’s effective risk
management as a guideline to complement the private sector’s decision
making on strategic risk response selection and resource allocation in the
project life cycle;
. select its risk response strategy in accordance with its capabilities rather than
opportunities, otherwise the opportunities become threats;
. select the strategic entry mode of joint venture to overcome local industrial
business practices in the case of the cross-country/industry entrants;
. apply open book management and domino theory in risk transfer strategy in
order to achieve the transparency and the equitable risk allocation among
private entities;
. understand the public sector client’s limitations and facilitate its requirements as
much as possible in order to develop trust from a contractual reward and
punishment basis to knowledge-based trust according to past experiences of
working together as a way to conquer the public sectors’ self-preservation
cultural trait; and
. build and maintain the relationships with the politicians of both government and
opposition parties in order to anticipate country-specific risks because most
PPP policies in developing countries are driven by politicians and political
patronage rather than public interest.
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