Risk Allocation and Risk Handling of Highway Projects in Taiwan

Risks always exist in construction projects and often cause schedule delay or cost overrun. Risk management is a key issue in project management. The first step of risk management is risk identification. It includes the recognition of potential risk event conditions in the project and the clarification of risk responsibilities. We conducted multiple-case studies using a systematic analytical procedure to identify risks in highway projects in Taiwan, to recognize risk allocation by contract clauses, and to analyze the influence of risk allocation on the contractor’s risk handling strategies. The results show that the owner allocates risks by stipulating specific contract clauses into five kinds of risk allocation conditions. If a risk is more controllable by the contractor, the owner has a greater tendency to allocate the risk to the contractor. Risk allocation determines which kinds of risks the contractor would take and influences the contractor’s risk handling decisions. The analysis furthermore indicates that, if the probability of a certain risk event condition is uncontrollable, then with the increasing possibility of taking the risk, the contractor’s tendency of risk handling changes from actively transferring the risk to passively retaining the risk. In contrast, if a risk is controllable and certainly allocated to the contractor, the contractor tends to take the initiative to reduce the impact caused by the risk event rather than retain the risk.     

Louisiana Highway Construction Cost Trend after Hurricanes Katrina and Rita

The objective of this study was to reveal the trend in highway construction costs following Hurricanes Katrina and Rita in Louisiana. The means of measuring highway construction cost was the Louisiana Highway Construction Index, an index made up of the cost of labor, equipment, and six major materials used in highway construction. Data from projects let by the Louisiana Department of Transportation and Development from the second quarter of 2003 to the second quarter of 2007 were used to track the change in construction costs. Index values from hurricane-impacted areas (GO Zones) were compared with those in Non-GO Zones. The indices revealed that two quarters after Hurricanes Katrina and Rita, the highway construction cost jumped about 20% statewide and 51% in GO Zone. Two years after the hurricanes, the cost has stabilized to around 30% increase over the pre-Katrina and Rita period. This study provides valuable information for the state agency to estimate cost escalation in ongoing projects and to estimate future disaster response to highway construction costs.     

Field Experiments to Evaluate and Control Light Tower Glare in Nighttime Work Zones

An increasing volume of highway repair and construction work is being performed during the off-peak nighttime hours to mitigate the impact of construction-related daytime traffic congestions and shorten the duration of construction operations. The utilization and placement of light towers to illuminate the work zone in this type of construction can cause harmful levels of glare for both drivers and construction workers. This paper presents the results of field experiments which were conducted to (1) study the levels of glare and lighting performance generated by light towers in and around nighttime work zones; (2) analyze the combined impact of the light tower set up parameters including its height as well as its aiming and rotation angles on glare and lighting performance; and (3) provide practical recommendations to reduce and control lighting glare in and around nighttime work zones. The results of these experiments confirm that the set up of light towers has a significant impact on glare and therefore it should be carefully designed and executed on nighttime highway construction projects to ensure the safety of the traveling public as well as construction workers.     

Modeling the Dynamics of Heavy Equipment Management Practices and Downtime in Large Highway Contractors

Machine downtime is invariably perceived as one of the most critical problems faced by highway contractors. Attempts to reduce downtime often result in failure due to the dynamic behaviors between equipment management practices and downtime. This paper is thus intended to highlight the dynamics of heavy equipment management practices and downtime in large highway contractors and utilizes them as a framework in constructing a simulation model using a system dynamics approach. Face-to-face interviews were conducted with equipment managers from five different large highway contractors in Thailand. The finding reveals that, to be successful in alleviating downtime, contractors must view their practices on equipment management as an integration of multiple feedback processes, which are interrelated and interdependent with downtime. Based on various validation tests, the simulation model is deemed appropriate in representing the equipment management system as related to downtime of large highway contractors. The research is of value in facilitating better understanding on the dynamics of equipment management practices and downtime as well as their interdependency.     

Programmatic Cost Risk Analysis for Highway Megaprojects

Highway megaprojects (construction projects over $100 million) are fraught with uncertainty. These projects have historically experienced increases in project costs from the time that a project is first proposed or programmed until the time that they are completed. Persistent cost underestimation reflects poorly on the industry in general but more specifically on engineers. Traditional methods take a deterministic, conservative approach to project cost estimating and then add a contingency factor that varies depending on the stage of project definition, experience, and other factors. This approach falls short, and no industry standard stochastic estimating practice is currently available. This paper presents a methodology developed by the Washington State Department of Transportation (WSDOT) for its Cost Estimating Validation Process. Nine case studies, with a mean cumulative value of over $22 billion, are presented and analyzed. Programmatic risks are summarized as economic, environmental, third party, right-of-way, program management, geotechnical, design process, construction, and other minor risks. WSDOT is successfully using the range cost output from this procedure to convey project costs to management and the public.     

Time, Cost, and Quality in a Road Building Project

Time, cost and quality are the three factors that play a significant role in the planning and controlling of construction projects. The main barriers for their achievement are the changes in the project environment necessitating cost, time, and quality trade-offs. Literature has mainly focused on analyzing time and cost with little or no reported research focusing on models for optimizing construction time, cost, and quality jointly. Government agencies have recently started using new types of contracting methods which have placed an increasing pressure on decision makers in the construction industry to search for an optimal/near optimal resource utilization plan that minimizes construction cost and time while maximizing its quality. In this paper, a 0-1 Integer Programming model which enables meeting quality output standards and time and budget objectives respectively is developed. The clever use of binary variables allows us to solve many interesting and difficult problems and our ability to model complex problems increases tremendously when we use binary variables. A version of the model to minimize time meeting quality and cost objectives is applied to a road building project. Two alternatives versions of the model which enable to minimize cost meeting quality and time and to maximize quality meeting time and cost, are shown in an Appendix.     

Application of Linear Scheduling

Many projects, such as the construction of roadways, pipelines, and high‐rise buildings, involve repetitive activities. A method for scheduling such work, the Linear Scheduling Method (LSM) is presented. In an LSM schedule, the repetitive activities are plotted as lines of constant or varying slopes on two axes, distance versus time. Discrete activities may be shown at their appropriate times and locations and then referenced to a network schedule for additional detail. The Linear Scheduling Method is illustrated by applying it to an actual roadway construction project. The simplicity of the system and advantages for certain types of projects are revealed. A sample schedule is used to derive information that is comparable to what may be obtained from an equivalent CPM network.     

Managing Construction Projects Using the Advanced Programmatic Risk Analysis and Management Model

Risk management is an important part of construction management, yet the risk-based decision support tools available to construction managers fail to adequately address risks relating to cost, schedule, and quality together in a coherent framework. This paper demonstrates the usefulness of the Advanced Programmatic Risk Analysis and Management Model (APRAM) originally developed for the aerospace industry, for managing schedule, cost, and quality risks in the construction industry. The usefulness of APRAM for construction projects is demonstrated by implementing APRAM for an example based on an actual building construction project and comparing the results with other risk analysis techniques. The results show that APRAM simultaneously addresses cost, schedule, and quality risk together in a coherent, probabilistic framework that provides the information needed to support decision making in allocating scarce project resources.     

Accuracy of Highway Contractor’s Schedules

Contractors are required by the Michigan Department of Transportation (MDOT) to submit a progress schedule identifying the controlling path of activities for a construction project. During the 2000 construction season, MDOT allowed contractors to submit a progress schedule with overlapping or concurrent controlling operations. Prior to this, only one activity at a time could be controlling on the progress schedule. This paper reports on the results of a research project where the focus was to examine the accuracy of the progress schedules, which only list controlling items. Eight construction projects were studied and a determination of progress schedule accuracy was made. This was done to determine if there was an increase in accuracy of the schedules when concurrent controlling operations were used. Included in the eight projects were four without concurrent controlling activities and four with concurrent controlling activities. A comparison based upon similar projects with and without concurrent activities was made. Additionally, 22 projects were analyzed, all without concurrent controlling activities, to determine the accuracy of progress schedules for two types of projects. The comparison revealed that, in three of the four cases, the accuracy of progress schedules increased with the allowance of concurrent controlling activities. The 22 projects revealed that the accuracy of progress schedules varied considerably. It was also determined that contractors overestimated the duration of activities included in progress schedules.     

Integrated Methodology for Project Risk Management

This article presents a generic project risk management process that has been particularized for construction projects from the point of view of the owner and the consultant who may be assisting the owner. The process could also be adapted to the needs of other project participants, and many points referred to in the article can be directly applied to them. Any project risk management process must be tailored to the particular circumstances of the project and of the organization undertaking it. First, the article explains a complete or generic project risk management process to be undertaken by organizations with the highest level of risk management maturity in the largest and most complex construction projects. After that, factors influencing possible simplifications of the generic process are identified, and simplifications are proposed for some cases. Then the application to a real project is summarized. As a final validation, a Delphi analysis has been developed to assess the project risk management methodology explained here, and the results are presented.     

Developing a Traffic Closure Integrated Linear Schedule for Highway Rehabilitation Projects

In recent years, the state departments of transportation have implemented a number of highway rehabilitation projects across the country. These projects differ fundamentally from new highway projects in that they require an uninterrupted flow of traffic throughout both the duration and geometric length of the project. Synchronization of traffic closure with the construction activities is crucial in such projects to avoid the traffic conflicts and prevent idle time for equipment and labor. Although most highway rehabilitation projects involve predominantly linear activities, the techniques of linear scheduling are not readily applicable to highway rehabilitation projects due to the conflict between the workzone and traffic flow. This paper documents the development of a traffic closure integrated linear schedule (TCILS) that addresses both traffic closure and work progress issues. The TCILS generates a single schedule for both the construction activities and the associated traffic closures. Visual and graphical features are also applied in the system, which makes it particularly applicable for highway rehabilitation projects. An actual concrete pavement rehabilitation project using the TCILS is presented as a sample of application. The findings from the sample project, although they are limited, show that the TCILS can be applied to an actual project. With recommended future development, the system is believed to be beneficial for both construction practitioners and academics.     

Estimating Cost Discrepancies in Highway Contracts: Multistep Econometric Approach

This paper investigates the likelihood of occurrence and quantifies the magnitude and rate of discrepancies in highway project final costs with respect to their contract award amounts. Using data from Indiana, we develop a multistep econometric approach that can be used to estimate the effects of factors associated with the contract bidding process, project type, and the project physical environment on cost discrepancies in highway contracts. Estimation findings indicate that for a given project type and project year, contracts of larger size or longer duration are generally more likely to incur cost overruns. In addition, for contracts that incur cost overruns, the cost overrun rate decreases nonlinearly with increasing contract size up to a certain point after which the cost overrun rate increases with increasing contract size. Our approach allows for the possibility that cost overrun amounts are not linearly related to contract award amounts (contract size), and shows that greater analytical flexibility needs to be incorporated into any investigation of contract cost overruns. Agencies interested in improving their financial forecasts can replicate our proposed methodology using local contract data.     

Managing Owner’s Risk of Contractor Default

The objective of the study presented in this paper is to provide owners with a decision-making mechanism that will free them from automatically taking the typical “transfer the risk to a surety” option and will allow them to make intelligent and economical decisions that include retaining or avoiding the risk of contractor default. The methodology involves using artificial neural network (ANN) and a genetic algorithm (GA) training strategies to predict the risk of contractor default. Prediction rates of 75 and 88% were obtained with the ANN and GA training strategies, respectively. The model is of relevance to owners because once the likelihood of contractor default is predicted and the owner’s risk behavior is established, the owner can make a decision to retain, transfer, or avoid the risk of contractor default. It is of relevance to surety companies too as it may speed up the process of bonding and of reaching more reliable and objective bond/not bond decisions. The comparative use of the ANN and GA training strategies is of particular relevance to researchers.     

Construction Project Risk Assessment Using Existing Database and Project-Specific Information

This paper develops a risk assessment methodology for construction projects by combining existing large quantities of data and project-specific information through updating approaches. Earlier studies have indicated that risk assessment is still difficult for practicing engineers to use due to the requirement of data on too many input variables. However, the availability of existing large quantities of data and project-specific information makes it possible to simplify the risk assessment procedure. Two main ideas are pursued in this paper to facilitate practical implementation: identify and evaluate the critical risk events, and develop a systematic updating methodology. Both epistemic and aleatory types of uncertainties in the data are considered, and corresponding updating procedures are developed. The proposed methodology is illustrated for the construction risk assessment of a cable-stayed bridge.     

Risk and Price in the Bidding Process of Contractors

Formal and analytical risk models prescribe how risk should be incorporated into construction bids. However, the actual process of how contractors and their clients negotiate and agree to price is complex and not clearly articulated in the literature. With participant observation, the entire tender process was shadowed in two leading U.K. construction firms. This was compared with propositions in analytical models, and significant differences were found. A total of 670?h of work observed in both firms revealed three stages of the bidding process. Bidding activities were categorized and their extent estimated as deskwork (32%), calculations (19%), meetings (14%), documents (13%), off-days (11%), conversations (7%), correspondence (3%), and travel (1%). Risk allowances of 1–2% were priced in some bids, and three tiers of risk apportionment in bids were identified. However, priced risks may be excluded from the final bid to enhance competitiveness. Although risk apportionment affects a contractor’s pricing strategy, other complex microeconomic factors also affect price. Instead of including pricing contingencies, risk was priced primarily through contractual rather than price mechanisms to reflect commercial imperatives. These findings explain why some assumptions underpinning analytical models may not be sustainable in practice and why what actually happens in practice is important for those who seek to model the pricing of construction bids.     

Long‐Range Forecasting Highway Construction Costs

In the process of decision making for design and execution of highway construction projects, long‐range cost forecasting is one of the most significant and complicated problems. This paper describes the development of a model that enables the user to make long‐range cost projections, taking into consideration general characteristics of the highway construction industry, as well as pertinent local conditions. The model presented uses conventional statistical methods to represent the main categories of typical jobs in the highway construction industry. From these categories, a composite model is created by assigning different weights to the input elements costs and then choosing a series of indicators to predict price trends for each separate element of the composite model. Use of this model reveals that bid volume in a certain area is a factor that has significant influence upon cost forecasts. This paper is accompanied by a case study based on actual data from highway construction projects performed for the Florida Department of Transportation in the years 1968–1981.     

Planning and Scheduling Highway Construction

This paper presents a model designed to integrate the planning and scheduling phases of highway construction projects, focusing primarily on the planning aspects. The model automatically generates the work breakdown structure (WBS) and precedence network respecting job logic and stores a list of construction operations typically encountered in highway projects. The generated network can subsequently be modified to suit the unique requirements of the project being considered. An object-oriented model is developed for planning highway construction operations. The model employs resource-driven scheduling in order to suit the repetitive nature of this class of projects. It accounts for (1) resource availability; (2) multiple preceding and succeeding activities; (3) transverse obstructions; (4) activities with varying quantities of work along the highway length; (5) the impact of inclement weather on crew productivity; and (6) the beneficial effect of the learning curve. At the core of the model is a relational database designed to store available resources and their respective unavailability periods. The model enables both: (1) activities executed by own force; and (2) activities subcontracted out. The model is incorporated in a prototype software that operates in the Microsoft Windows environment and generates schedules in both graphical and tabular formats. An example project is analyzed to demonstrate the features of the developed model.     

Alternative Project Delivery Systems: Applications and Legal Limits in Transportation Projects

This paper presents the results of a comprehensive survey of the legal codes of all the 50 states in the United States regarding alternative project delivery systems in transportation projects. In the past decade there has been a surge of legislation allowing state transportation officials much more flexibility regarding the choice of project delivery systems. These delivery systems are usually selected based on a combination of price and quality. Specific delivery systems studied in this paper are Design-Build, Construction Management at Risk, and Public-Private-Partnership. The background and history of the emergence of these new delivery systems are studied in this paper. The research showed that in many states, alternative delivery systems may be allowed but with specific restrictions. For each state, all of these delivery systems have been researched and placed into one of the following distinguishable categories: (1) fully authorized; (2) authorized but needs extra approvals; (3) authorized for a pilot program and/or with some limitations; (4) not authorized. The output of the survey gives valuable snapshots over the status of each delivery system in regards to its legality in different parts of the country as of December 2006. Comparing the results of this survey with the surveys done previously shows that the trend is to allow states more flexibility in the choice of project delivery systems.     

Critical Activities in the Front-End Planning Process

Previous research conducted by the Construction Industry Institute (CII) and others has demonstrated the value of front-end planning as it impacts project success. A recently completed research project funded by CII, described in this paper, examines ways to improve information flow through the front-end planning process. This paper focuses on one specific objective of this research project, namely to isolate and closely examine the information critical activities within the front-end planning process. The front-end planning process was carefully diagrammed as consisting of 33 distinct activities, each with its own information flow entities and interactions. Fifty-one questionnaire survey forms were analyzed to obtain data for the 33 activities that included activity duration, resources expended, and the extent to which information was available to perform the activity. The 51 projects were then grouped according to survey respondents’ perceptions as to whether the front-end planning process was executed more or less effectively. An analysis of the data concluded with a degree of statistical significance that seven of the 33 activities have some impact on achieving project success. In addition, statistically significant differences were uncovered with respect to the extent that information was available for selected activities, and survey respondent perceptions with respect to how efficiently the activity was performed. These seven activities are involved in planning the following areas: Public relations, start up, quality and safety, the project execution plan, and project scope definition. Other activities for which information was frequently not available and/or for which considerable resources were expended relate to preliminary cost estimating and the development of a funding plan. A second survey form was forwarded to the original survey participants to obtain more specific information with respect to the information categories and interfaces associated with the critical activities that were identified in the original survey. This survey indicated problem areas including inadequate scope definition, risk identification and mitigation, minimal resource allocation for task execution, unclear definitions of roles and responsibilities, and ineffective external communication mechanisms.     

Estimating Work Zone Road User Cost for Alternative Contracting Methods in Highway Construction Projects

Highway construction often causes an additional road user cost (RUC) to motorists due to traffic flow interruption and congestion in work zones. Consequently, facility owners, such as the Florida Department of Transportation (FDOT), are often interested in using alternative contracting methods such as A+B contracting to expedite construction. Although many of these contracting methods rely on the RUC to determine incentives or disincentives, no standard method for RUC calculation is available to FDOT district engineers. In addition, existing methods are neither practical nor user-friendly for determining incentives or disincentives. This study intends to develop a RUC calculation procedure for the FDOT that focuses on using data that are easily accessible to FDOT district engineers, such as drawings and maintenance of traffic plans. The procedure is developed based on traffic analysis methods published in the Highway Capacity Manual, previous studies on user benefit analysis and work zones, and empirical data specific to Florida. Case studies are used to illustrate the procedure and to compare it with two other existing models, the Arizona model and the queue and user cost evaluation of work zone model, through correlation analysis, comparison of calculation assumptions, and data input analysis. This study shows that the suggested procedure produces consistent RUC estimates.