Construction Risks: Single versus Portfolio Insurance

Risks and uncertainties are naturally inherent in the construction industry and negatively affect contracting parties and executed projects. This paper explores the possibility of insuring against construction risks, which are beyond the control of contractors and not covered by surety policies, through single and portfolio insurance strategies. Accordingly, the writers programmed Iman and Conover’s bootstrapping method for inducing correlations using Microsoft Excel and consequently, developed a technique for pricing insurance premiums as an exotic option using Monte Carlo simulation. The aforementioned methodology was applied on a data set of five defined risks that were collected from small, medium, and large scale projects in California. Pursuant to this study, the calculated premiums for insuring against the defined risks are in line with the premiums available in market for other insurance policies. Moreover, the estimated premium for the proposed portfolio insurance product is more advantageous to contractors in both risk coverage and cost because it is well below the estimated premiums for single insurance products covering individual risks. It is foreseen that this research could open horizons for new construction related insurance products, which would significantly contribute to the efficiency of the risk management process in the construction industry.     

Assessing State Transportation Agency Constructability Implementation

Although guidance is available for state transportation agencies to establish constructability review processes (CRPs), nationwide implementation has been slow due, in part, to a lack of clarity regarding related costs and benefits and a perception that CRPs are resource intensive. This study funded by the National Cooperative Highway Research Program reveals that while numerous states have attempted implementation in various forms, obstacles have frequently either hindered or halted progress. Four elements appear to be essential for the successful implementation and continuance of a CRP: (1) institutionalization of the CRP Champion, (2) an emphasis on a quality-driven as opposed to a schedule-driven design process, (3) clear yet flexible guidelines for executing constructability reviews across the broad range of project types and sizes, and (4) a vehicle for meaningful expert input from construction contracting professionals. A benefit-cost model, founded on the proposition that CRP implementation provides efficiencies that result in significant cost and schedule reductions, is demonstrated using case studies. A need for more precise identification of costs and quantification of benefits is noted.     

Tradesmen Involvement in Health and Safety

Craftsmen performing construction work are in the best position to determine how a job should be performed safely. They should be involved in planning the safe execution of the work. Involvement will be a function of opportunity, capability, and motivation. A survey of contractor management personnel and craftsmen was conducted to assess their perceptions of these variables. A simulated planning exercise was conducted to assess craftsmen’s capabilities, in terms of knowledge, of construction tasks and risks. Craftsmen were found to be capable, but inexperienced in reducing their knowledge to writing. Questioning uncovered the depth of their knowledge. Craftsmen perceive themselves as capable and motivated and seek the opportunity to be involved in planning for health and safety.     

Construction Safety Risk Mitigation

Construction safety and health management has improved significantly following the Occupational Safety and Health Act of 1970. In response to this legislation, contractors began implementing safety programs to reduce occupational safety and health hazards on construction sites. Researchers recently found that the current process of selecting specific elements for a safety program is informal. This paper describes the results of a recent study designed to determine the relative effectiveness of safety program elements by quantifying their individual ability to mitigate construction safety and health risks. In order to determine the effectiveness of individual safety program elements, the following research activities were performed: (1) an appropriate safety risk classification system was created using an aggregation of relevant literature; (2) highly effective safety program elements were identified in literature; and (3) the ability of each safety program element to mitigate a portion of each of the safety risk classes was quantified using the Delphi method. The results of the research indicate that the most effective safety program elements are upper management support and commitment and strategic subcontractor selection and management and the least effective elements are recordkeeping and accident analyses and emergency response planning. It is expected that the data presented in this paper can be used to strategically select elements for a safety program, target specific safety and health risks, and influence resource allocation when funds are limited.     

New Method for Measuring the Safety Risk of Construction Activities: Task Demand Assessment

The task demand assessment (TDA) is a new technique for measuring the safety risk of construction activities and analyzing how changes in operation parameters can affect the potential for accidents. TDA is similar to observational ergonomic methods—it does not produce estimates of probabilities of incidents, but it quantifies the “task demand” of actual operations based on characteristics of the activity and independent of the workers’ capabilities. The task demand reflects the difficulty to perform the activity safely. It is based on (1) the exposure to a hazard and (2) the presence and level of observable task demand factors—that is, risk factors that can increase the potential for an accident. The paper presents the findings from the initial implementation of TDA and demonstrates its feasibility and applicability on two different operations: a roofing activity and a concrete paving operation. Furthermore, the paving case illustrates how the TDA method can compare different production scenarios and measure the effect of production variables on the accident potential. The findings indicate that the method can be applied on activities of varying complexity and can account for several risks and task demand factors as required by the user. The selection of task demand factors is a key issue for the validity of the method and requires input from the crew and safety management. The limitations of the methodology and the need for further research are discussed. Overall, TDA provides a tool that can assist researchers and practitioners in the analysis and design of construction operations.     

Attitudes toward Productivity Pay Programs

Impressive results have been achieved by implementing financial incentive programs in construction in several foreign countries and in numerous other industries in the United States. This paper identifies the historical causes for the scarcity of such programs in the U.S. construction industry, highlights current obstacles to their introduction, and recommends steps to avoid or overcome them, so as to open the way to future introduction of incentive programs. The study employs the Delphi technique and concludes that the near absence of pay programs in the construction industry in the U.S. can be attributed to: (1) Tradition and conservatism of the industry; (2) union opposition; and (3) the nature of the work. The panel predicted significant differences between the overall attitudes of the various parties toward productivity pay programs; the contractors and the owners will be supportive, the employees somewhat supportive, the government neutral, and the union opposed.     

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.     

Forecasting Construction Staffing for Transportation Agencies

When the volume of construction projects let to contract increases significantly, state departments of transportation must critically examine internal construction project management staffing capabilities and accurately forecast the manpower required to execute future projects. This paper describes the development of a model or process to forecast manpower requirements as a function of project type and cost for selected employee classifications. Using data from 130 recently completed highway construction projects and over 11,000 employee payroll entries, regression analysis plots were generated to predict overall manpower requirements for projects of a given type and cost. These overall requirements were then adjusted to predict manpower requirements for individual employee classifications using typical task allocation percentages obtained from questionnaire data. The output from the model serves as input into commercially available critical path method scheduling software to facilitate manpower planning and resource leveling.     

Safety Risk Identification and Assessment for Beijing Olympic Venues Construction

New technologies, new materials, and innovative designs have been extensively adopted in Beijing Olympic venues construction. The extreme requirements for time deadline and competition function expose the venues construction to high risks. These risks would potentially bring negative impacts on the site safety performance. Meanwhile, there is a lack of systematic management for safety risks in China’s construction industry, especially for large projects such as the Beijing Olympic venues construction. This paper identifies and assesses safety risk factors inherent in Beijing Olympic venues construction with the involvement of 27 experienced and highly respected experts from government agencies, the construction industry, and academe through brainstorming, workshop discussions, and questionnaire surveys. The finding reveals that more than half of the critical safety risk factors are from contractors and subcontractors such as: lack of emergency response plan and measures; workers’ unsafe operation, and contractors ignoring safety under schedule pressure. Based on these critical safety risks, a risk register is composed and a model is developed in application of the analytic hierarchy process to assess the status of risks on site safety. The model has been attempted in two Olympic venue projects under construction and the validity has been approved. The risk checklist, register, and assessment model developed in the paper were integrated into the risk management system that has been used for Beijing Olympic venues construction.     

Downgrading Construction Incidents

The financial losses resulting from various incidents on typical building construction sites are reported. Field data was collected on three sites over a period of nine months. Incidents were recorded by three observers on a daily basis including data on the cause of the event, the direct losses incurred and the contractors involved. The 658 incidents reported were analyzed to determine the general characteristics of incidents, the level of field control possible and the incident costs. Overall losses on the individual sites are compared while combined results for all three projects are examined. Particular attention is paid to safety‐related incidents. Limitations of the monitoring program are discussed. The results indicate that downgrading incidents are responsible for a substantial loss on construction projects, however, the observations show that most losses could be eliminated through up‐graded on‐site management. Recommendations are made for reducing the losses by improving such management functions as planning, scheduling, follow‐up, equipment maintenance and problem documentation.     

Risk-Based Framework for Safety Investment in Construction Organizations

The costs of construction injuries can have a substantial impact on the financial success of construction organizations and increase the overall costs of construction up to 15%. Following the Occupational Safety and Health Act of 1970, construction firms began to implement a variety of management techniques to reduce the frequency of injuries. Although these strategies decrease the cost of injuries, they consume time and other significant resources. Thus, it is imperative for construction organizations to objectively evaluate the cost-benefit of investments in injury prevention through formal and robust processes. This paper presents a risk-based framework that can be used to evaluate the incremental return on investment of a series of investments in highly effective injury prevention strategies. The framework was developed using foundational risk quantification and analysis techniques and is illustrated using a hypothetical case study that is based on archival data published by United States government agencies. The conclusion of this study is that the optimal investment strategy can be identified through a formal analysis and that optimization depends on the frequency and cost of injuries, the sequence in which the specific injury prevention techniques are implemented, the risk mitigated by each strategy, and the organization’s attitude toward acceptable risk.     

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.     

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.     

Premium-Rating Model for Workers’ Compensation Insurance in Construction

Providing adequate workers’ compensation insurance (WCI) is mandatory by legislation in most countries for employers to hire workers. It is enforced to safeguard the interests of occupational injury victims while eliminating their employers’ financial burden of compensation. WCI’s significance in construction is immeasurable because the construction industry appears to be recording higher injury and fatality rates globally. On the other hand, insurance companies must be meticulous in deciding premiums for WCIs for construction projects. Traditionally, insurers have been adopting the experience modification rating technique for premium-rating of WCI. However, this technique has been proven ineffective for construction applications due to the unique characteristics of construction projects. Hence, a new premium-rating model for construction was developed and tested in the Singapore general insurance industry. The proposed model streamlines structured analyses of project hazards, contractors’ safety management systems, market conditions, and insurers’ internal factors to decide optimal premiums. Moreover, it infuses the partnering notion in WCI for construction. The implementation of the proposed model in the insurance industry would facilitate accident control in the construction industry and thereby loss minimization for insurers.     

Effective Management of Construction Dispute Resolution

The various methods of dispute resolution can be intimidating to the untested and daunting to even those who have experienced them. Yet no matter the method selected, the parties own the process and the result. It is therefore incumbent upon the parties to not only understand the various methods of dispute resolution, but they must also be prepared to manage the selected process to conclusion. This article reviews the various methods of dispute resolution and provides tools that parties can use to manage the selected process to an end result. While not a guarantee of success, these tools sufficiently increase the likelihood of making the selected method of dispute resolution an efficient and cost-effective process.     

Human Factors Analysis Classification System Relating to Human Error Awareness Taxonomy in Construction Safety

In several studies it is widely accepted that human error is the main reason for up to 80% of all incidents and accidents in complex high-risk systems that exist in the aviation, petrochemical, healthcare, construction, mining, and nuclear power industries. The construction industry, greatly impacted by accidents, is accountable for more than 1,000 fatalities in each of the past 14 years. The human factors analysis classification system (HFACS) is a general human error framework originally developed and tested as a tool for investigating and analyzing the human causes of accidents with applications to rail, air, and offshore environments. This paper introduces the concept of HFACS along with the framework of human error awareness training (HEAT) and their potential contribution to the construction industry. Based on the HEAT approach, this paper proposes a new error analysis educational and classification tool for safety within the construction industry. The primary difference between HFACS and HEAT is found in the structure, content, and presentation of the information allowing for higher effectiveness in incident investigation and safety education and training in construction.     

Scheduling-Based Risk Estimation and Safety Planning for Construction Projects

This paper considers the issue of safety risks on construction sites. It introduces the concept of combined effect of different risk factors to the accident. For proper safety planning, safety managers need to be well aware of the direct causes of the accident as well as indirect factors that adversely effect on site safety. If it is observed that if a hazardous environment exists at the site, then either that hazardous environment must be eliminated or occupations and processes related to that hazard must be properly protected. One of the measures for evading such hazardous situations is to predict such situations and to reschedule the start time of high-risk situation so that risks are not concentrated during certain periods and at certain locations. In order to predict when and where the risk will reach its highest level, analysis should be performed based upon various information including statistical sources such as accident histories and this should be done in coordination with the activity scheduling. This paper analyzes the result of accident history and provides information about vulnerable situations. In addition, it presents a theory of safety planning method which estimates the risk distribution of a project and helps the safety manager to both estimate situations of concentrated risk and then to reschedule it when it is necessary.     

Risk-Based Safety Impact Assessment Methodology for Underground Construction Projects in Korea

Safety of construction projects may be affected by various factors such as types and scale of projects, construction methods, safety management procedure, climate, site conditions, etc. Among them is the quality of design in relation to safety. Presently, however, designers typically are not involved in construction safety. They are often uncertain of their responsibilities in relation to construction safety and fail to be responsible for avoiding or reducing safety-related risks. In this study, the concept of safety impact assessment to achieve “design-for-safety” in the design phase is introduced. For this purpose, a safety impact assessment model was devised, and a methodology using the risk-based safety impact assessment approach for open-cut type underground construction projects in Korea is suggested. The suggested methodology includes a safety information survey, classification of safety impact factors caused by design and construction, and quantitative estimation of magnitude and frequency of safety impact factors. A checklist which can be easily used for assessing the safety performance of design products is also proposed. A real-world case study on the safety impact assessment of a subway construction project in Korea is also provided in the paper.     

Interactions between Business and Financial Strategies of Large Engineering and Construction Firms

In this research study, selected indicators are set up to analyze the strategic performance of large international engineering and construction (E&C) firms from North America, Europe, and East Asia. The primary objective is to examine critical areas of corporate strategy that would affect the long-term prospects of E&C firms and provide guidance for their growth and survival. This paper focuses on the relationships between selected aspects of business strategies (internationalization and product/service diversification) and financial strategies (asset liquidity and capital structure). By analyzing data derived from financial reports and other public sources, it is deduced that internationalization is positively associated with current ratio but negatively correlated with book leverage. An opposite trend is found for the aspect of diversification. These results signal different risk management strategies for the respective modes of business strategies. It is thus suggested that if liquidity cannot be increased in the near term to support internationalization, firms should then concentrate on product/service diversification. Overall, the study confirms the importance of examining interactions between business and financial strategies.     

Dispute Review Boards: Elements of a Convincing Recommendation

This paper will discuss the dispute review board (DRB) process and in particular the settlement recommendation and the elements thereof that may induce contractual parties to resolve their conflict. The recommendation is a document issued after the contractual parties bring a dispute to the DRB panel that they have failed to resolve. To lay the foundation for the issuance of a recommendation, the DRB process will be briefly discussed. Also discussed is the groundwork the panel itself must lay to gain the parties trust prior to the issuance of any recommendation. Given the importance of the recommendation as a linchpin of the DRB process, it is surprising to note the dearth of literature regarding it. This paper will help to partially fill that void.