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Risk sharing in traditional construction contracts for building projects. A contractor's perspective in the Greek construction industry.

Kordas, D. (2015) Risk sharing in traditional construction contracts for building projects. A contractor's perspective in the Greek construction industry.

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Abstract:Risk misallocation, increased legal disputes and poor cost performance in traditional (Design Bid Build) construction contracts are often reported. Almost no study has explained in detail how risk sharing decisions of contractors could reduce contingencies, if more risks shared. The study highlights how risk sharing decisions in the post-bid phase affect projects' cost performance and secondly which contingency amounts could enhance higher incentive profits. A questionnaire-based survey was developed for enabling data collection with 22 participating contractors. The survey scored a 63% response rate, reliability (C=0.546, ICC=0.758) and validity (I-CVI=0.80) tests provided satisfactory evaluations. A cost risk analysis model was developed in @RISK for performing risk quantification with Monte Carlo simulation. The model assessed five cost elemental categories (land preparation, foundations, substructure, superstructure, finishes) including 27 risk factors in total. Risk factors were categorized between fixed and variable and classified as quantity (Q), unit cost (UC), schedule (S) and global (G) risks. The effect of correlations between the five cost elements was investigated while previous studies validated all related observations. On a project-specific level the model proposed enhanced delivery efficiency by reducing project delivery inefficiency by -2.70% and reducing contingencies by -4.32% too. Substructure building phase was found as the riskiest and land preparation the least risky. An analytical hierarchy process (AHP) ranked the schedule risks on the top of importance and global risks at the bottom. The model, if applied for a portfolio of building projects, promises an increase of the probability meeting the base estimate, a reduction of contingencies by -3.68%, and an improvement of construction performance (CPI: +2%). A correlation analysis validated that “high changes in incentive profit elements are associated with low changes in contingencies.” The report concludes with the presentation of a pseudo-code enabling optimal contingency determination and suggests to clients a 5-step bidding process by setting a bid element for maximum contingency amount.
Item Type:Essay (Master)
Technical Chamber of Greece
Faculty:ET: Engineering Technology
Subject:56 civil engineering, 83 economics
Programme:Construction Management and Engineering MSc (60337)
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