Study of Real Options with Exogenous Competitive Entry to Analyze Dispute Resolution Ladder Investments in Architecture, Engineering, and Construction Projects

Architecture, engineering, and construction industry participants often find it pragmatic to implement a project-specific dispute resolution ladder (DRL) as a managerial tool to assist in the prompt resolution of claims and change orders (CCOs) that might arise during the project construction phase. This project-specific DRL consists of a single or multiple alternative dispute resolution (ADR) techniques that require capital expenditures to cover the expenses incurred by the owner’s/contractor’s employees and third-party neutrals. If a project-specific DRL is properly chosen, then the capital expenditures are outweighed by the expected benefits from the DRL implementation; namely, prompt resolution of the CCOs without incurring excessive cost overruns on an already financially stressed project budget, as well as avoiding the escalation of the claims to a dispute that requires long protracted litigation for final settlement. Typically, the decision as to which ADR techniques to include in the project-specific DRL is undertaken during the project planning phase prior to the actual occurrence of the CCOs. In this case, the project owner decide to invest in a DRL in exchange for the expected savings in the project. This decision regarding the project-specific DRL is usually done based on the experience of the project parties with the ADR techniques. However, such a decision needs to be guided by a financial tool that allows the project owner to evaluate alternative DRLs and choose the most economically feasible alternative based on the project and ADR characteristics. In this paper, a financial model is developed to evaluate DRL implementations in construction projects by drawing analogies from real option theory with exogenous competitive entry. More specifically, the occurrence of a given CCO will result in a reduction in the value of expected savings in the project due to DRL implementation. This is similar to the reduction in the gross value of a capital investment project in a commercial property due to competitive entry by another similar commercial property developer in the market. At the same time, the CCO resolution due to an effective DRL implementation will allow project owner to recover part of the losses in the expected savings in the project due to the DRL implementation. The model presented in this paper takes into account the characteristics of the various ADR techniques included in the project-specific DRL, and the characteristics of the CCOs occurring during the construction phase of the project. A case study of a real construction project is used to illustrate the practical implementation of the model. The results indicate that for this case project and from a financial point of view, the investment in the chosen project-specific DRL was not worthwhile because of the high uncertainty in the project, and the low effectiveness of the selected DRL. These conditions did not provide the owner with the anticipated advantage of the DRL implementation in reducing the value of the CCOs occurring in the project. At the same time the cost of the DRL implementation exceeded the actual savings attained in the project.     

Experimental Research in Construction

Humans’ unique use of tools originated with their capability to observe, to link causes with effects and to conduct trial and error experiments. Experimental research today is still using these same basic elements albeit augmented by sophisticated tools and methods. Researchers conducting scientific experiments in the construction arena, however, face a “harsh” environment to work in. This paper draws from 20 years of experimental work in construction and engineering education. It provides a short historic background before discussing a framework useful to categorize the various ways researchers conducted experiments that provided meaningful results. Many examples are used to underscore the most important points.     

Integrated Framework for Quantifying and Predicting Weather-Related Highway Construction Delays

Constant exposure to the environment makes highway construction highly dependent on weather. However, highway construction contracts are often unclear about the potential influence of weather-related delays on highway construction project schedules. There is a need to discourage litigation arising from weather-related delays by including in contracts a reasonable number of nonwork days as a consequence of adverse weather and providing an equitable criteria for the course of action when the predictions in the contracts turn out to be inaccurate. To address this need, an integrated framework consisting of the following two key components is proposed: (1) identification of attributes of weather that cause construction delays and (2) generation of synthetic weather sequences using a stochastic weather generator to quantify and provide probabilistic forecasts of weather threshold values. The utility of this framework is demonstrated through its application to construction work on a project in Texas. The use of probabilistic forecast of construction delay attributes provided by a semiparametric weather generator in this research is an example of interdisciplinary study to help address this problem. The result of the research is better decision support for agencies who wish to author contracts that more equitably allow for the influence of weather during construction.     

Dynamic Knowledge-Based Process Integration Portal for Collaborative Construction

There is a need to support collaborative coordinated construction through the integration of work processes across various stakeholders, disciplines, and projects. Due to the fast-growing complexities of domain-wide coordination and collaboration, coupled with the emerging opportunities of knowledge sharing, a knowledge-based approach is believed to be the way to go. Knowledge-based process integration takes into account explicit and formal semantics (meaning) of processes. It aims at supporting seamless integration of knowledge-carrying processes. This paper presents a prototype collaborative portal for domain-wide process integration. The portal is ontology-based: semantic process representation is enabled through ontologies, and knowledge-based process integration is facilitated through an ontology merger. The portal aims at offering an efficient value-adding collaboration platform through multidimensional process integration for producing a common workflow that goes beyond listing of processes to a knowledge-enabled view. The prototype was evaluated through a focus group.     

Effect of Preconstruction Planning Effort on Sheet Metal Project Performance

The complexity of construction industry requires the identification of work tasks and the coordination of interactions among them. As a result, construction planning is considered to be one of the most critical steps toward success and is the main focus of past research. Consequently, little research has been performed regarding the preconstruction planning, which is the planning completed by the contractor in the period between project award and project execution. This paper focuses on sheet metal preconstruction planning, primarily that of mechanical and heating ventilations and air conditioning contractors. The research was completed in three phases: phase one gathered data on the current state of preconstruction planning, phase two developed a model sheet metal preconstruction planning process to be used by sheet metal contractors, and phase three validated the model preconstruction planning process. Based on project data collected for this research, projects that used a planning process similar to the model process performed more successfully—they achieved an average profit margin of 23% while projects that were poorly planned experienced an average profit margin of ?3%.     

Performance Assessment of Construction Companies Integrating Key Performance Indicators and Data Envelopment Analysis

The web benchmarking systems broadly used in the construction industry (CI) are designed to provide results based on key performance indicators (KPIs). No insights concerning organization overall performance and improvements targets are available. This research aims to fulfill this gap using data envelopment analysis (DEA) as a method to complement the information provided by a set of KPIs. The methodology proposed is useful to all organizations involved in benchmarking routines. To enable a more realistic assessment of CI companies, two types of DEA models were used, one allows factor weights to vary freely and the other includes weight restrictions. These models assign an efficiency score to each organization, identifying efficient organizations and providing performance improvements targets for the others. To enable suggesting targets for all organizations, expert opinion was used to specify virtual units which were included in the efficiency assessment to define a practical frontier located beyond the productivity levels of the original DEA frontier. Based on a sample of 20 Portuguese leading contractors, the Portuguese web benchmarking system for CI, icBench, was used to demonstrate the advantages of integrating the DEA method with KPIs benchmark scores.     

Work Stress, Support, and Mental Health in Construction

Construction professionals are subjected to a plethora of occupational demands that can have a negative effect on their psychological wellbeing. Such demands can have an adverse influence on individual and organizational performance. To investigate the nature of self and social supports and mental health among construction professionals, an exploratory study was undertaken using the Stress and Mental Health Survey. The survey was distributed to construction professionals throughout Australia and 449 responses were received. Analysis revealed that those working for a contracting organization on-site reported higher levels of poor mental health and greater work stress than consultants. Those working on-site also experienced greater levels of self-stress, whereas consultants reported higher levels of self and work support. Work support was a significant predictor of poor mental health for consultants. Good health, however, was predicted by self, situational, and work support, whereas those working for a contractor only self-support predicated good mental health. It is concluded that while supports are essential in the fostering of good mental health, the absence of these supports can have a significant impact on poor mental health.     

Understanding and Improving Your Risk Management Capability: Assessment Model for Construction Organizations

Implementing risk management in construction projects and organizations may bring a number of benefits and therefore it is necessary to have risk management as an integral part of a construction organization’s management practice. The aim of this paper is to develop a risk management maturity assessment model for construction organizations. The paper describes the development process of a Web-based RM3 (risk management maturity model), including its contents, its validation and testing, as well as its applications. The RM3 developed has five attributes namely, management, risk culture, ability to identify risk, ability to analyze risk, and application of standardized risk management process/system. These attributes are measured against four levels: initial, repeated, managed, and optimized. It is found that the proposed RM3 was suitable and useful. Using the RM3, it is found that the Australian construction industry’s overall risk management maturity level was relatively low (where 32% rated at Level 2 and 52% rated at Level 3). Furthermore, it is found that the weakest attribute was “analyzing risks” followed by “application of standardized risk management process.” It is therefore necessary to provide more training on qualitative and quantitative risk analysis to construction personnel and to develop and apply standardized enterprise risk management. It is concluded that the proposed RM3 is suitable for construction organizations to assess their risk management maturity levels and find ways for improvement.     

Adoption and Use of Interorganizational ICT in a Construction Project

The objective of this research is to explain why actors are not using interorganizational information and communication technology (ICT) in construction projects in the intended way, by determining the mechanisms that influence the way actors use this ICT over time during a construction project. This explorative research results in a theoretical model that contains four key categories that explains the way actors use ICT in construction projects: (1) personal motivation; (2) external motivation; (3) knowledge and skills; and (4) acting opportunities. The model is compared with three existing influential models about the adoption and use of ICT: the unified theory of acceptance and use of technology, the theory of planned behavior, and the technology acceptance model. In these models missing elements are found. In addition, it is found that fundamental characteristics of construction projects, such as the fragmented and temporarily nature of construction projects, and the different working practices, resources, and objectives of the organizations involved cause most of the barriers to the intended use of interorganizational ICT.