Civil Engineering Project Management (4th Edition)

36 Civil Engineering Project Management
Risk 8, failure to get labour, is usually shouldered by the contractor, mainly
because this lies within the ability of the contractor to control, and not the
employer.
Usually any requirement that the contractor should shoulder all or most
risks arises because the employer prefers to have a fixed financial commitment,
or because he has only a limited allocation of funds which he has
no authority to exceed. Some overseas governments will not authorize any
expenditure above the tendered sum. This fixing of the price and placing all
or most of the risks on the contractor can be expected to lead to generally high
prices. Also if unexpected circumstances occur which the contractor has not
allowed for, he may tend to adopt ‘short-cut’ methods which do not produce
the most satisfactory work, or he may be forced to finish the work at a loss.
For complex projects, and perhaps where major cost reimbursement or target
cost projects are envisaged, a formal risk assessment may be necessary in which
a risk register is set up, defining how each risk is to be dealt with and which
party is to carry the liability should the risk occur. In summary this may involve:
• identification of risks likely to arise by discussion between all interested
parties involved;
• analysis of each risk as to likely frequency, severity of impact on cost and
delay, both maximum and minimum;
• identification as to who is best able to manage the risk and/or who should
carry the costs which may arise;
• definition of risks falling on the contractor so that he can include for them
in his prices or insure against them.
The analysis of risks may be accompanied by a mathematical probability
exercise to try to assess the most likely outcome for the employer’s financial
planning purposes. As a general principle, it is usually best not to pass to the
contractor risks which are most difficult to assess as regards likelihood or cost,
since a contractor may then need to increase his price substantially to protect
his position, causing the employer to pay for a risk which may never arise.
3.4 Producing an initial cost-estimate of a project
At an early stage an employer will want to know the probable cost of his
intended project. Usually no realistic figure is possible until a feasibility study
of the project has been completed; before that only an ‘order of magnitude’
figure or ‘budget estimate’ can normally be quoted. Three main methods of
producing this are as follows:
• by reference to the cost of similar projects;
• by sketch layout and component costing;
• by use of cost curves if available.
The first assumes a record is available of the cost of past projects undertaken
by the employer’s engineer, or perhaps costs taken from the technical press.