Risk and price in the bidding process of contractors

Formal and analytical risk models prescribe how risk should be incorporated in construction bids. However, the actual process of how contractors and their clients negotiate and agree on price is complex, and not clearly articulated in the literature. Using participant observation, the entire tender process was shadowed in two leading UK construction firms. This was compared to propositions in analytical models and significant differences were found. 670 hours 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 sometimes be excluded from the final bidding price to enhance competitiveness. Thus, although risk apportionment affects a contractor’s pricing strategy, other complex, microeconomic factors also affect price. Instead of pricing in contingencies, risk was priced mostly through contractual rather than price mechanisms, to reflect commercial imperatives. The 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

Small Business Set-asides in Procurement Auctions: An Empirical Analysis

As part of public procurement, many governments adopt small business programs to pro- vide contract opportunities for businesses often with preferences for firms operated by mem- bers of groups designated as disadvantaged. The redistribution arising from such programs, however, can introduce significant added costs to government procurement budgets. In this paper, the extent to which small business set-asides increase government procurement costs is examined. The estimates employ data on Japanese public construction projects, where approximately half of the procurement budget is set aside for small and medium enterprises (SMEs). Applying a positive relationship between profitability and firm size obtained by the non-parametric estimation of asymmetric first-price auctions with affiliated private values, a counterfactual simulation is undertaken to demonstrate that approximately 40 percent of SMEs would exit the procurement market if set-asides were to be removed. Surprisingly, the resulting lack of competition would increase government procurement costs more than it would offset the production cost inefficiency.

Technical Proposal for FASER: ForwArd Search ExpeRiment at the LHC

FASER is a proposed small and inexpensive experiment designed to search for light, weakly-interacting particles during Run 3 of the LHC from 2021-23. Such particles may be produced in large numbers along the beam collision axis, travel for hundreds of meters without interacting, and then decay to standard model particles. To search for such events, FASER will be located 480 m downstream of the ATLAS IP in the unused service tunnel TI12 and be sensitive to particles that decay in a cylindrical volume with radius R=10 cm and length L=1.5 m. FASER will complement the LHC's existing physics program, extending its discovery potential to a host of new, light particles, with potentially far-reaching implications for particle physics and cosmology. This document describes the technical details of the FASER detector components: the magnets, the tracker, the scintillator system, and the calorimeter, as well as the trigger and readout system. The preparatory work that is needed to install and operate the detector, including civil engineering, transport, and integration with various services is also presented. The information presented includes preliminary cost estimates for the detector components and the infrastructure work, as well as a timeline for the design, construction, and installation of the experiment.Comment: 82 pages, 62 figures; submitted to the CERN LHCC on 7 November 201

Roles in construction projects: analysis and terminology

Standard form contracts are typically developed through a negotiated consensus, unless they are proffered by one specific interest group. Previously published plans of work and other descriptions of the processes in construction projects tend to focus on operational issues, or they tend to be prepared from the point of view of one or other of the dominant interest groups. Legal practice in the UK permits those who draft contracts to define their terms as they choose. There are no definitive rulings from the courts that give an indication as to the detailed responsibilities of project participants. The science of terminology offers useful guidance for discovering and describing terms and their meanings in their practical context, but has never been used for defining terms for responsibilities of participants in the construction project management process. Organizational analysis enables the management task to be deconstructed into its elemental parts in order that effective organizational structures can be developed. Organizational mapping offers a useful technique for reducing text-based descriptions of project management roles and responsibilities to a comparable basis. Research was carried out by means of a desk study, detailed analysis of nine plans of work and focus groups representing all aspects of the construction industry. No published plan of work offers definitive guidance. There is an enormous amount of variety in the way that terms are used for identifying responsibilities of project participants. A catalogue of concepts and terms (a “Terminology”) has been compiled and indexed to enable those who draft contracts to choose the most appropriate titles for project participants. The purpose of this terminology is to enable the selection and justification of appropriate terms in order to help define roles. The terminology brings an unprecedented clarity to the description of roles and responsibilities in construction projects and, as such, will be helpful for anyone seeking to assemble a team and specify roles for project participants

Target value design: using collaboration and a lean approach to reduce construction cost

Target Costing is an effective management technique that has been used in manufacturing for decades to achieve cost predictability during new products development. Adoption of this technique promises benefits for the construction industry as it struggles to raise the number of successful outcomes and certainty of project delivery in terms of cost, quality and time. Target Value Design is a management approach that takes the best features of Target Costing and adapts them to the peculiarities of construction. In this paper the concept of Target Value Design is introduced based on the results of action research carried out on 12 construction projects in the USA. It has been shown that systemic application of Target Value Design leads to significant improvement of project performance – the final cost of projects was on average 15% less than market cost. The construction industry already has approaches that have similarities with elements of the Target Value Design process or uses the same terminology, e.g. Partnering and Target Cost Contracts, Cost planning, etc. Following an exploration of the similarities and differences Target Value Design is positioned as a form of Target Costing for construction that offers a more reliable route to successful projects outcomes

A rework reduction model for construction projects

Rework is an endemic problem in building construction projects and is an area of research that has received limited attention. Recent research has shown that rework is the primary cause of time and schedule overruns in projects and that rework levels do not significantly differ between current procurement methods despite calls from government for the use of more integrated procurement approaches such as design-and-construct to improve project performance. To reduce the incidence of rework throughout the construction supply chain, data from 161 completed projects were gathered using a questionnaire survey. Stepwise multiple regression was used to determine the significant variables that contributed to rework in projects. In conjunction with previously reported research, these variables were used to develop an alternative procurement model for reducing rework in projects. It is suggested that the proposed model could be used to stimulate interorganizational relations and promote teambuilding during the formative stages of a project, which is essential for reducing design-related reworking

Estimating Workforce Development Needs for High-Speed Rail in California, Research Report 11-16

This study provides an assessment of the job creation and attendant education and training needs associated with the creation of the California High-Speed Rail (CHSR) network, scheduled to begin construction in September 2012. Given the high profile of national and state commitment to the project, a comprehensive analysis that discusses the education, training, and related needs created during the build out of the CHSR network is necessary. This needs assessment is achieved by means of: 1) analyzing current high-speed rail specific challenges pertaining to 220mph trains; 2) using a more accurate and robust “bottom-up” approach to estimate the labor, education, skills, and knowledge needed to complete the CHSR network; and 3) assessing the current capacity of railroad-specific training and education in the state of California and the nation. Through these analyses, the study identifies the magnitude and attributes of the workforce development needs and challenges that lie ahead for California. The results of this research offer new insight into the training and education levels likely to be needed for the emergent high-speed rail workforce, including which types of workers and professionals are needed over the life of the project (by project phase), and their anticipated educational level. Results indicates that although the education attained by the design engineers of the system signifies the most advanced levels of education in the workforce, this group is comparatively small over the life of the project. Secondly, this report identifies vast training needs for the construction workforce and higher education needs for a managerial construction workforce. Finally, the report identifies an extremely limited existing capacity for training and educating the high-speed rail workforce in both California and in the U.S. generally

Achieving ‘best value’ for the community by deployment of risk based cost estimation using Monte-Carlo Simulation to rate-payer-funded capital intensive road projects.

This paper presents the application and validation of a new tool developed by the first author for accurate risk-based estimation of project budgets. Typical capital intensive projects to which this tool can be applied include road reconstruction, road resheet and road rehabilitation projects. Quantitative risk analysis and stochastic modeling using Monte -Carlo simulation is embedded in the algorithms of the computer code. The tool forecasts a range of possible project costs and the probability of the occurrence of those costs by taking into account uncertainties and associated risks. Application of the tool to capital intensive road projects designed by the second author and constructed in 2011 & 2012 demonstrates its validity and utility. Comparisons of forecasted estimates using this tool with actual costs and with traditional deterministic methods of cost estimation (such as --point base-case estimates inclusive of contingency) provide valuable insights that can aid management in evaluating alternatives and in making informed decisions when estimating and allocating budgets to a portfolio of road projects

Assessing the Olympics: Preliminary Economic Analysis of a Boston 2024 Games Impacts, Opportunities and Risks

The possibility of hosting the Summer Games is sparking significant debate in our community about the potential benefits, costs, and risks associated with hosting the Olympics. With these debates in mind, the Boston Foundation (TBF) commissioned the Economic and Public Policy Research group (EPPR) at the UMass Donahue Institute (UMDI) to perform a detailed economic impact assessment of Boston's proposed 2024 Olympic bid. While the Boston 2024 proposal is a working document and should be thought of as a "proof of concept" rather than a concrete plan, there are still several components of the proposal that can be evaluated at this time. The following report contributes to the public discourse by providing a preliminary assessment of the quantitative short-term economic impacts of hosting the 2024 Summer Olympic Games in Boston. In addition, this report highlights several of the potential opportunities, challenges, and risks associated with hosting the Olympic Games that are difficult to quantifiably measure at this time, but require further attention as the Olympic bid evolves over the next couple of years