Professional Documents
Culture Documents
Sivasubramanian
Director
2
Initiation
Feasibility study and evaluation
Design development/detailed design & preparation of bid
documents
Finalization of specifications or Terms of Reference (ToR)
Cost estimates and budget
Contract conditions
Approvals
Bidding
Pre-qualification / Issue of bid documents
Submission and opening of bids / bid evaluation
Letter of Acceptance / Performance security / Signing of contract
Construction, manufacture, installation and
commissioning
Operations and maintenance
Take over
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n
Turn-key contracts
Usually for large engineering projects, but not suited for non-
routine high-tech procurement
Fixed price or lump-sum contracts
Cost reimbursable contracts
Cost plus incentive fee
Cost plus fixed fee
Cost plus percentage of costs
Unit rate (piece rate or item rate) contracts
Time based contracts (remuneration + out of pocket
expenses, estimated over the period of contract)
Public private partnership (PPP)
Contract formats
Standardization of contract conditions (WB, ADB, FIDIC,
MoS&PI, etc.)
Use of INCOTERMS, etc.
4
Interpretation, applicable law
General rights, risks and responsibilities of the Client and
the Consultant
Performance security
Contract price and payment
Advances / Periodic or milestone based payments / Final payment
Commencement, delays and suspension
Technology, materials and workmanship,
measurement/testing and evaluation
Variations
Suspension or termination of contract either by Client or
the Consultant
Risk and responsibility, insurance and Force Majeure
Client’s taking over, defects Liability, warranties
Claims, disputes and arbitration 5
Issue of Bid Submission Issue of
Take over of
documents of bid Performance
works Rectification Certificate
Performance of Defects
security Original date
of completion
28
days 42 days Time for completion
21 days
21days delay
Base
Commencemen
date Return of
LoA t date Actual date of
Notify Performance
completion
defects Guarantee
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n
7
Unanticipated variations in costs, earnings and
cash flows
Bullwhip effect
Projects involve costs and benefits extending over a long
period of time
May be caused in terms of sources which are:
Project Specific
Competitive
Industry-Specific
Market
International
8
Standalone Risk
Easiest to measure (if at all)
Firm or Corporate Risk
Contribution of a project to risk of the firm
Market or Systematic Risk
Risk of project from the view of a diversified investor
9
10
Lifecycle Risk analysis
Allocate the risk to the part best able to manage it –
Optimum Risk Allocation
11
Category Coverage Usual Where to look in contract
Allocation provisions
Design Risk Green field projects Private Output specification,
and major duration, price and payment,
expansion availability, performance,
variations, defects liability
Pre- Land acquisition, Project Conditions precedent,
Construction utility shifting, Authority lease/license provisions,
Risk environmental indemnities to third party
clearances rights
Construction Cost and time of Private Output specification, work
Risk construction/ completion, duration,
Commissioning price and payment,
escalation, LDs, Authority
step in, compensation
events, termination
12
Category Coverage Usual Relevant contract
Allocation provisions
Operating Risk Availability Private Output specification,
Operating costs duration, price and payment,
Performance availability, performance,
variations, performance,
benchmarking, Authority
step-in, termination and
compensation
Demand/ Volume or usage Authority in Output specification,
Traffic Risk Annuity duration, price and
projects and payments, price variation
Private in
concessions
Residual/ Value at the time of Authority Handback arrangements,
Transfer Value termination or Transfer payments
Risk completion of
concession 13
Category Coverage Usual Relevant contract
Allocation provisions
Changes Change in law, Authority Changes to project
including political acts, variations + documents, changes in law,
change in law taxation Discriminatory compensation events, force
changes in law majeure, termination
Authority; payments
Contractor
variations +
general changes
in law private
sector
Project Credit, interest Private Price and payment, price
Financing Risk risk, servicing variations, insurance,
refiancing
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15
Sensitivity Analysis
Responses or sensitivity of NPV to variations in values of
specific underlying variables/parameters (usually one)
But does not tell us how likely such variation is?
Scenario Analysis
Factors around which scenarios are built are selected
Estimate values of each of the variables such as
investment outlay, revenues, costs, project life, etc. for
each scenario and calculate NPV and/or IRR for each
Best, worst and most likely (or normal) cases
16
Break Even Analysis
Minimum quantity at which loss is avoided.
Accounting Break Even point = (Fixed costs +
Depreciation)/Contribution margin
Cash Break Even Point = Fixed cost / Contribution
Simulation
Model the project including parameters and their
probability distributions
Values randomly generated in terms of probability
distribution and NPV plotted in terms of the model
Powerful and versatile technique
17
Decision Tree Analysis
Delineate the decision tree assigning probabilities
Evaluate the alternatives
18
Pay back period (computed besides NPV and IRR)
Risk adjusted discount rate
Certainty Equivalent method
Safety Margin
19
For further queries e-mail:
v.ssmanian@nic.in /
manianvss@gmail.com