Risk Allocation in Underground Construction and the Benefits of the ECI/Portland Model Approach

Transcription

1 Risk Allocation in Underground Construction and the Benefits of the ECI/Portland Model Approach Matt Swinton David A. Hecker Kiewit Infrastructure Group

2 David A. Hecker Kiewit Corporation Group General Counsel Infrastructure David Hecker is Group General Counsel Infrastructure for Kiewit Corporation. Kiewit is the 4th largest general contractor in the U.S. Matt Swinton Kiewit Infrastructure Co. Senior Vice President, Underground District Manager Matt Swinton is a Senior Vice President of Kiewit Infrastructure Co., part of Kiewit Corporation. He serves as District Manager for Kiewit s nationwide underground tunneling and foundations contracting operations.

3 Risk Management in Underground Construction

4 Construction Risk There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don t know. But there are also unknown unknowns. There are things we don t know we don t know.

5 Contracts Allocate the Significant Risks of Underground Construction Between the Parties Known Risks Are Priced Known Unknown Risks and Unknown Unknown Risks are Often Not Priced Other Than Through the Use of Contingency (Force Majeure)

6 Examples of Traditional Contractual Allocations of Risk-DSCs A DSC Clause may allocate risk of Type I & Type II Differing Site Conditions This seems like a reasonable allocation of risk. It probably is unless efforts are taken to undermine the risk allocation: List all soil types regardless of quantity Not allowing reliance on Owner data Refuse to recognize that multiple changes in the soil types is a DSC even if unexpected. Potential that Contractor is not fully compensated for all additional costs

7 Examples of Traditional Contractual Allocations of Risk-Force Majeure Often, we see time but no compensation means the Contractor takes a significant financial risk associated with totally anticipatable events.

8 Examples of Traditional Contractual Allocations of Risk-Schedule Owner may own Schedule Float. Risk is that Contractor may incur direct and/or indirect costs created by an Owner-caused delay without compensation Owner may assess LDs even where they incur no additional costs

9 Consequences of Traditional Risk Allocation Project cost uncertainty for both Owner and Contractor. Contingency for unknown risks regardless whether they manifest themselves on job. Inequitable/arbitrary allocations of risks. Bet the Company Risk to Contractor.

10 A Better Approach The so-called Portland-model, similar in concept to Early Contractor Involvement ( ECI ). 2-Phase Procurement Phase 1 PSA Phase 2 - Construction

11 Portland Model Proposal Evaluation Criteria for Phase 1 (PSA) may include: Fee Proposal Past Technical Experience Team Qualification Safety Plan/Record Community Outreach Subcontracting

12 Once Contractor Selected, What Happens During Phase 1? Preconstruction Services Agreement ( PSA ) Scope of Services includes: Project Management Design Review & Input Construction Management Schedule & Estimate Development Project Safety Community Participation Subcontracting

13 Phase 2 - Construction Defines Estimated Reimbursable Costs Agreed upon Calendar Days LDs included for SC and FC Capped Contractor s Fee Total Estimated Amount Reimbursable Costs defined in Contract

14 Key Contract Risk Provisions DSC Changes Warranty Delays

15 DSC

16 Changes

17 Warranty and Third-Party Indemnity

18 Delays and LDs

19 Consequences of Portland Model Contract Qualified Contractor Experienced Team Improved Project Cost and Schedule Certainty No Contingency - Only Actual Costs Are Paid Equitable Allocation of Risk Contractor s Fee No Bet the Company Risk Owner pays costs Cap on LDs Realistic Schedule and Budget

20 Questions