Risk Management in the Chinese Construction Industry

There has been an increase in research on risk management practice in the construction industry. However, little research has been conducted to systematically investigate the overall aspects of risk management on the perspectives of various project participants. This paper reports the findings of an empirical Chinese industry survey on the importance of project risks, application of risk management techniques, status of the risk management system, and the barriers to risk management, which were perceived by the main project participants. The risk management strategies adopted in the Three Gorges Project were also studied. The study reveals that: Most project risks are commonly of concern to project participants; the industry has shifted from risk transfer to risk reduction; current risk management systems are inadequate to manage project risks; and lack of joint risk management mechanisms is the key barrier to adequate risk management. Future studies should be conducted to systematically improve the risk management in construction by different approaches that facilitate equitable sharing of rewards through effective risk management among participants. Such studies should also consider the establishment of an open communication risk management process to permit the corporate experience of all participants, as well as their personal knowledge and judgment, to be effectively utilized.     

Partnering Mechanism in Construction: An Empirical Study on the Chinese Construction Industry

Partnering and its principles have increasingly been introduced to the construction industry to improve the efficiency of project delivery. However, little research outlines the mechanism behind its application. This paper presents the findings of a study that was conducted to develop and test a partnering model that reveals the relationships between the critical success factors (CSFs) of partnering and demonstrates their importance to construction. With support of data collected from the Chinese construction industry, this study has revealed strong correlations among partnering CSFs, risk management, total quality management (TQM), use of incentives, and project performance. It is concluded that project success is the outcome of the interaction between a variety of techniques, and that partnering, associated with incentives, is a basic management method through which risk management and TQM can be strongly improved.     

Project Management in the Chinese Construction Industry: Six-Case Study

Originating from the West, project management was introduced into China after the country’s economic reforms in the 1980’s and has since spread quickly throughout the whole country, particularly in the construction industry. However, despite the wide adoption of project management practices by construction organizations and the growing recognition of the importance of project management as an enabler of organizational success, empirical studies on project management in the context of the Chinese construction industry have been inadequate. This paper presents the results of an empirical study of six Chinese construction organizations in order to come to a more comprehensive and sophisticated understanding of project management practices in the Chinese construction industry. The findings revealed: (1) a good appreciation of the role of projects and project management and satisfaction with current project management practices; (2) 11 key aspects of project management implementation; (3) 12 resultant value and benefits; and (4) five aspects of the main challenges facing the organizations. Meanwhile, variations in project management practices and the resultant organizational value were identified, first between the three owner- and the three contractor-case study organizations, then between the two construction contractor organizations and the one design contractor organization.     

Model for Fostering Trust and Building Relationships in China’s Construction Industry

Trust is an underlying psychological condition that can cause cooperation or risk-taking. Trust is considered as a predominant feature and a central mechanism in business transactions, especially among Chinese. Trust-based relationships create advantages in conducting business such as lowering cost, shortening duration, and improving performance. Indispensable conditions for trust to arise are relationships and risks. Different risks surface as a result of different levels of relationships. Sustained trust is therefore fostered by various means to counterbalance those risks. In order to assess the links between distinct trust-related features, a model is constructed and tested through a questionnaire survey in China. The findings generally support the model in terms of explaining the dominant relationships, inherent risks, and trust-fostering tools. It is recommended that firms adopt the refined model and utilize successful practices verified in this paper to foster trust and relationships and in turn secure project success.     

Relational Contracting and Teambuilding: Assessing Potential Contractual and Noncontractual Incentives

Integration in construction projects implies alignment of both structural arrangements and operational mechanisms, in order to effectively coordinate and streamline the combined efforts of various interacting parties, for improved project outcomes. Appropriate use of relational contracting (RC) principles may help achieve such integration. As such, the aims of the reported study are to examine the relative usefulness of various potential strategies and factors, to provide suitable contractual and noncontractual incentives, for building a RC culture, and nurturing effective teamwork in construction. Results from statistical analyses of 83 questionnaire responses from Hong Kong are presented. These results attribute various degrees of importance to different factors and strategies, both for RC and teamworking. The outcomes also suggest the need for a highly interactive and consolidated approach, both for propagating RC and building integrated project teams. It is observed that trust and trust based operational and contractual arrangements can effectively provide the required incentives, for implementing various RC-based working arrangements in construction. These should extend to assessing “relational” attributes during team selection, under cliental initiative and top management support. Outcomes of this study are expected to benefit both industry practitioners and researchers, in exploring, designing, and implementing suitable RC-based working arrangements.     

Risks in Chinese Construction Market—Contractors’ Perspective

With China’s entry into the World Trade Organization (WTO), the Chinese construction market will be increasingly open and finally become part of the international market. Because of different social and economic systems, as well as different historical and cultural backgrounds, contractors are likely to encounter different risks in different markets. Based on questionnaires and case studies, this paper adopts an importance evaluation index and makes an importance evaluation of various risks encountered by Chinese contractors when contracting for projects in Chinese markets. This paper also makes comparisons between and analyses of the research findings and related available investigation results. The Cox–Stuart trend increase test method is applied in the current research, the results indicating that the variance corresponding to the importance index value tends to increase as the risk event importance decreases. This tendency shows that those investigated tend towards unanimity in terms of higher importance risk events. This paper also examines the reliability of the questionnaires by means of Cronbach’s Alpha Coefficient. The research shows that the main risk currently encountered by Chinese contractors in domestic markets includes owner’s irregular behavior and government departments’ interference in construction markets. China’s accession to the WTO has provided greater opportunities for international contractors to enter the Chinese construction market. Therefore the research results described in this paper can provide valuable data enabling international contractors to gain a better understanding of the potential risks in the environment of the Chinese construction market.     

Incorporating Contractual Incentives to Facilitate Relational Contracting

Construction projects are undertaken by many parties, all with their own goals and motivations which may not always be aligned. Furthermore, they are governed by contracts, which do not necessarily produce win-win outcomes. The aims of this study are (1) to compare the views of contractors, clients, and consultants on factors facilitating and deterring relational contracting (RC); and (2) to investigate the use of contractual incentives to increase the effectiveness of RC. Structured questionnaires were sent by post to randomly selected construction industry players in Singapore to find out factors that enable RC and the barriers that impede the formation of RC. The results show that RC can be facilitated by having top management support, alignment of project objectives, relationship building, and most importantly, appropriate contractual incentives. In most instances, contractors gave a lower level of importance to many of the factors than clients and consultants. It is concluded that more contractual incentives should be provided in contracts in order to evoke the desired relational approaches.     

Float Allocation Using the Total Risk Approach

Float ownership is one of the controversial issues in the litigation of delay claims. As float time does not always affect the overall project completion time, many believe that this time can be used by any of the project parties and that it does not belong to a particular party. This study introduces the “total risk approach” for float allocation, a new approach that integrates several current approaches to allocate float among project parties. The approach is based on the basic concept that the party who has the greatest risk in a project should be entitled to float ownership and deserves compensation from other project parties who increase the risk associated with the project by consuming the float. This new approach takes into consideration the changes in float that may occur as a result of actions that delay or accelerate the project’s schedule.     

Awarding Construction Contracts on Multicriteria Basis in China

China’s entry to the World Trade Organization (WTO) will allow both domestic and overseas construction firms to compete under the same market conditions. This development will lead to a more rigorous participation from overseas construction professionals in the Chinese construction market. Nevertheless, this participation can only be effective or successful when there is a proper understanding about the construction procurement practice in China. The Chinese construction practice has its own characteristics, such as governmental regulations, professional qualification systems, and procurement systems. These characteristics present a different practice in awarding construction contracts from that in the West. This paper investigates the characteristics of construction business environment in China and identifies the key parameters used in assessing contractors’ competitiveness for awarding construction contracts in the market. The parameters are useful tools for assisting contractors in identifying their strength and weakness, thus reengineering actions can be adopted for improving competitiveness. A case study is used to demonstrate how these multiple parameters are used in the process of awarding contracts in the local market.     

Enhancing Total Quality Management by Partnering in Construction

Total quality management (TQM) has increasingly been introduced into the construction industry across many countries as an improvement strategy, but there are many barriers impeding its effectiveness in implementation. Many researchers pointed out that partnering can facilitate TQM application, yet the quintessential nature on the linkage between the two techniques is still not clear due to a lack of rigorous verifiable empirical evidence. With support of the data collected from a survey of the Chinese construction industry, together with a case study of the Three Gorges Dam Project, this study reveals the mechanism of how partnering, associated with incentives, can enhance the implementation of TQM into the construction industry. It is concluded that partnering can enhance TQM largely due to enhancing the links across the boundaries of organizations within a trust environment; and the impacts of incentives on TQM are through both aligning strong motivations to encourage participants using the established links efficiently and aligning the necessary financial resources for participants to directly assist the investment on improving TQM. Further studies should be conducted to build optimum links and alignments among all project participants to ensure intraorganizational TQM activities are congruent with the interorganizational interactions, which require future project organizations to change in order to fit this.     

Contractual Incentives

Contract incentives are the means by which an owner intends to secure certain project goals through the contracting process. Incentive contracting is designed primarily to reduce cost in negotiated contracts through profit sharing ratios, which should improve on the efficiency of cost reimbursable contracts. In the process, financial risk and control are shared by the owner and contractor, according to a ratio which is established in the early stages of project design. Contractual incentives are used frequently in construction to reduce overall project time. However, there is a lack of published research on the theory and consequences of the use of incentives in construction. Studies in government research and development contracts using incentives shows that contractors may not always behave in the fashion intended by owners designing such contracts. The apparent reason is that the risk a contractor assumes under conditions of limited scope and design information biases the setting of targets, so that overruns∕underruns are more dependent on where targets are set, rather than on sharing ratios. In the construction industry this is apparently recognized, and targets are not fixed until design is approximately 40%–60% complete. Moreover, as the contractor and owner attain more knowledge of the project, both parties should attempt to reduce owner risk and control.     

Risk Management in the Construction Industry Using Combined Fuzzy FMEA and Fuzzy AHP

Failure mode and effect analysis (FMEA) is recognized as one of the most beneficial techniques in reliability programs. FMEA is a structured technique that can help in identifying all failure modes within a system, assessing their impact, and planning for corrective actions. Although this technique has been widely used in many industries, it has some limitations. The purpose of this paper is to extend the application of FMEA to risk management in the construction industry. Fuzzy logic and fuzzy analytical hierarchy process (AHP) are used to address the limitations of traditional FMEA. In essence, this method explores the concept of fuzzy expert systems to map the relationship between impact (I), probability of occurrence (P), and detection/control (D) and the level of criticality of risk events. A case study is presented to validate the concept. The results obtained confirm the capability of fuzzy FMEA and fuzzy AHP to address several drawbacks of the traditional FMEA application. The use of this approach can support the project management team to establish corrective actions in a timely manner.     

Contracting Relationship Trends and Transitions

Construction industry reports worldwide have called for radical cultural changes to reduce adversarial conflicts and increase productivity levels. These reports have recommended reintegration of fragmented function and teams through different teamworking approaches such as partnering and alliancing. The theoretical basis for such approaches can be tracked back to relational contracting (RC) principles. Recent teamworking initiatives have met with some success, based on structured cooperation between owners and contractors. However, the full benefits of these cooperative approaches may only materialize if (1) all potential team members/project partners are selected on the basis of relevant rationalized evaluation criteria; (2) all stakeholders work closely together as a coalesced team with common objectives, and (3) these arrangements are underpinned by government-sponsored, proper change initiatives. These approaches and arguments are analyzed in this paper, aiming at developing the required project culture through the application of RC principles for the joint management of risks during the entire project life cycle. Relevant observations from two recent Hong Kong-based industry surveys indicate a high motivation toward such approaches. Finally, examples of some potentially beneficial change initiatives are used to illustrate the potential synergies that are achievable.     

Developing ERP Systems Success Model for the Construction Industry

Recently, a significant number of major construction companies embarked on the implementation of integrated information technology solutions such as enterprise resource planning (ERP) systems to better integrate various business functions. However, these integrated systems in the construction sector present a set of unique challenges, different from those in the manufacturing or other service sectors. There have been many cases of failure in implementing ERP systems in the past, so it is critical to identify and understand the factors that largely determine the success or failure of ERP implementation in the construction industry. This paper presents the process of developing an ERP systems success model to guide a successful ERP implementation project and to identify success factors for ERP systems implementation. The paper identifies factors associated with the success and failure of ERP systems, and develops a success model to analyze the relationships between key factors and the success of such systems. The proposed ERP systems success model adapts the technology acceptance model and DeLone and McLean’s information systems success model and integrates those with key project management principles. The goal of the ERP systems success model is to better evaluate, plan, and implement ERP projects and help senior managers make better decisions when considering ERP systems in their organization.     

Perceptions of Contractual Risk Allocation in Construction Supply Chains

Common perceptions of contractual risk allocation are the basis of a harmonious, effective and efficient construction project. This paper explores the extent to which common perceptions of risk allocation exist along the construction supply chain. The results of a survey indicate that differing perceptions are worryingly high in all relationships, but particularly further down the supply chain. The paper indicates the relationships in which this is most likely to occur and the types of risk it is most likely to affect. The results provide important lessons for project managers, negotiators and contract drafters. In particular, by providing a better understanding of where and how differences in risk perceptions are likely to emerge, they help those negotiating and drafting contracts focus their energies more effectively to help minimize the potential for unnecessary loss and dispute. Finally, our results indicate that the key to better managing perceptions of risk is fundamentally one of communication, consultation and involvement in contractual decision-making. The key point is that contractual allocations of risk have little meaning if they are separated from the social and behavioral context in which risk is experienced by those involved in a project.     

How Relational are Construction Contracts?

For many years, the construction industry has relied on formal contracts to define and enforce the obligations and rights of contracting parties. Legal scholars have suggested that, based on their transaction characteristics, there are three different forms of contracts: classical, neoclassical, and relational. Of these, which form is more appropriate for use in construction projects? With increasing awareness of the importance of teamwork in construction, there is clear evidence of a rising trend in adopting a partnering approach to construction project delivery. For projects that seek to achieve a partnering relationship, relational contracts that value relationships, trust, and communication appear to be the appropriate form of contract. This paper discusses the application of relational contracts in construction by examining the fundamental question “How relational are construction contracts?” The degree of relationalism is assessed using a relational index comprising eight factors: cooperation, organizational culture, risk, trust, good faith, flexibility, the use of alternative dispute resolution, and contract duration. It was found that in the traditional design–bid–build form of delivery, the main contract and domestic subcontract forms are more relational than those of the nominated subcontract and the direct labor contract. The study was conducted in Hong Kong.     

Improved SWOT Approach for Conducting Strategic Planning in the Construction Industry

Strength, weakness, opportunity, and threat (SWOT) analysis has been in use since the 1960s as a tool to assist strategic planning in various types of enterprises including those in the construction industry. While still widely used, the approach has called for improvements to make it more helpful in strategic management. The project described in this paper aimed to study whether the process to convert a SWOT analysis into a strategic plan could be assisted with some simple rationally quantitative model, as an augmented SWOT analysis. By using the mathematical approaches including the quantifying techniques, the “maximum subarray” method, and fuzzy mathematics, one or more heuristic rules (HRs) are derived from a SWOT analysis. These HRs bring into focus the most influential factors concerning a strategic planning situation, and thus inform strategic analysts where particular consideration should be given. A case study conducted in collaboration with a Chinese international construction company showed that the new SWOT approach is more helpful to strategic planners. The paper provides an augmented SWOT analysis approach for strategists to conduct strategic planning in the construction industry. It also contributes fresh insights into strategic planning by introducing rationally analytic processes to improve the SWOT analysis.     

Achieving Partnering Success through an Incentive Agreement: Lessons Learned from an Underground Railway Extension Project in Hong Kong

Over the years, it has been observed that partnering has been ineffectively implemented in the public sector of Hong Kong. Contributing factors to this lack of success are nature and the large size of bureaucratic organizations and commercial pressure compromising the partnering attitude. The Mass Transit Railway Corporation Limited (MTRCL), one of the prominent pioneers in adopting project partnering in the infrastructure sector of Hong Kong since 1999, however, implemented the partnering principle with significant success. This paper, based on a recently completed research project funded by the Construction Industry Institute?Hong Kong in late 2004 and a followup in-depth interview meeting with senior executives of MTRCL in early June 2005, analyzes the rationale behind the successful development of partnering culture in the infrastructure sector of Hong Kong through a case study—the Tseung Kwan O Railway Extension (TKE) Contract 654—platform screen doors. The project comprises the supply and installation of platform screen doors along the whole MTRCL’s TKE with five stations. This project was analyzed by means of the project documentation and face-to-face interviews with the project representatives, comparisons with another five partnering case studies, and a followup in-depth interview meeting with another two senior executives of MTRCL. After the analysis, it was found that the implementation of partnering together with an incentive agreement (IA), a kind of target cost (TC) contract, underpinned the partnering success of this project. Therefore, it is recommended that partnering together with TC contracts, such as IA, greatly assists in the achievement of construction excellence, and can provide a workable model for enhancing overall project performance in electrical and mechanical projects.     

Human Resource Data in the Construction Industry

Unionized construction workers in a major midwestern city were surveyed to collect data on education, training, experience, employment history, and a variety of other demographic variables. The characteristics of this local work force were analyzed and, where possible, contrasted with the data on the national construction labor force. The implications of the findings were discussed as they relate to the need for human resource planning in the construction industry. For example, the data indicated that younger workers are not joining unions in the same numbers as in the past. The anticipated result is a future shortage of skilled workers in the unionized sector of the industry, which has implications for construction productivity and for the funding of various worker benefits. The need for improved human resource planning was stressed.     

Empirical Study of the Risks and Difficulties in Implementing Guaranteed Maximum Price and Target Cost Contracts in Construction

Over the past few decades, both the guaranteed maximum price (GMP) and target cost contracting (TCC) arrangements have been regarded as alternative integrated procurement strategies for clients to mitigate risks, minimize claims, integrate the diverse interests of a complex construction project, and offer incentives to provide value-added services. However, the adoption of GMP/TCC contracts may also generate significant risks and difficulties that merit considerable attention. This paper aims to provide a concise review of the potential pitfalls of the GMP/TCC scheme in general and identifies the key risk factors and potential difficulties associated with GMP/TCC in comparison with other procurement strategies in construction in particular via an empirical survey of clients, contractors, and consultants in Hong Kong. The survey data gleaned from 45 valid replies were analyzed using the mean score ranking technique, Kendall’s concordance test, and Spearman’s rank correlation test. The survey results indicated that “involvement of inexperienced or claim-conscious contractors in a project procured by a GMP/TCC contract” was considered to be the most significant risk factor; while “design development must keep pace with main contractor’s program for tendering the domestic subcontractors’ works packages” as the major difficulty in implementing GMP/TCC projects. The research findings derived from this study are particularly essential in assisting the contracting parties to mitigate the detriments brought about by potential risks or difficulties when embarking on GMP/TCC contracts. It has also generated valuable insights into developing effective recommendations for alleviating the barriers to GMP/TCC success for future construction projects.