Abstract: Instead of standard cost plus and fixed price contracts that allocate all risk to either contracting party, the target cost contracts adopt a risk sharing approach in which the parties agree on a target profit, a target cost and a sharing formula of any difference between the actual cost and the target. By its very nature, the sharing formula gives the contractor the opportunity to increase profit either by reducing cost or by artificially inflating the target cost. The use of the open book is expensive, time consuming, and raises issues of trust in the reliability of data but also about their possible use for other purposes. The use of competition does not always ensure value for money since it is common to submit bids to win the contract and recover losses from claims. The new formula we propose incentivizes the contractor to submit the lowest possible target cost without relying on open book accounting or competitive tendering. The most significant advantage is the building of trust in setting the target cost and fostering collaboration for achieving better performance.
Abstract: An ABC company in Saudi Arabia awards to contractors many gas, oil, and water wells projects every year. It was noticed that the majority of these projects were completed beyond their contractual schedules. This study was performed to identify the extent and causes of delay in such projects. The files of 176 completed gas, oil, and water projects were studied to determine the extent of delay. Then, a thorough investigation of 20 files was performed to define the causes of delays, to measure their effect on projects schedules, and to identify the party responsible for the delays. It was possible to measure the extent of delay and to reveal the causes, with their roots, behind these delays. The results indicated that the causes of delays which were rooted to owners contribute more heavily to the extent of delay than those causes rooted to contractors and others. The various parties in the construction industry will benefit from the findings of this study by eliminating and/or mitigating the effects of the identified causes of delays from their current and future projects.
(PM-804) Achieving Design Capacity
Primary Author: Mr James D Whiteside II PE ConocoPhillips
Co-author(s): Ms Jennifer K Rogers ConocoPhillips
Audience Focus: Intermediate
Application Type: Experience-Based
Time/Location: TUE 8:00-9:00/Salon D
Abstract: Companies spend considerable effort in analyzing business development opportunities. A decision to fund a project is based on the economics of the project’s design capacity. Design capacity (throughput/flow rate) can range from flow rate for refining/petrochemical industry to discrete component manufacturing rates. Often, there is gap between the design capacity nameplate of an industrial facility and the actual recorded operation capacity of the completed facility.
Operational data (production rate and operation notes) from the first year run of a project was obtained from multiple oil refining process units and compared to their design capacity. Key issues from operation logs for startup, maintenance, and operations, were studied to determine affects on design capacity. Cost and schedule metrics provide a quantitative basis to assist project teams during project assessment of economics and the quantifying the lost profit opportunity (LPO) when design capacity is not achieved. This paper presents a methodology of design capacity assessment, the factors having the largest influence in achieving design capacity, and the resulting effect on project economics.
Audience Focus: Intermediate
Application Type: Experience-Based
Time/Location: TUE 11:00-12:00/Salon D
Abstract: Wow. I learned a little bit about cognitive biases and thought they must play a role in estimators not using the best judgment in their work. I performed a search in the AACE virtual library for papers containing the word bias and found I’m not the only one who thinks so and also that biases affect much more in project controls than just estimates. In doing more reading, I found that it is a much bigger factor in our lives than I realized. That is truer in estimating than I want to think about. Wikipedia, the free online encyclopedia, in the article List of Cognitive Biases, lists a total of 113 variations on biases. How do these cognitive biases affect our estimates and how can we negate the effects? Understanding these points will hopefully allow estimators to produce estimates better meeting the needs of their projects.
Audience Focus: Intermediate
Application Type: Experience-Based
Time/Location: TUE 2:00-3:00/Salon D
Abstract: Megaprojects like power plants often face the risk of disrupting fragile ecosystems. Regulatory bodies have the authority to insist that remediation be a component of the permitting process. While serving as a cost engineer at a nuclear power plant, the author supported marine mitigation projects, including a wetlands restoration. While maintaining the anonymity of the location, this paper will discuss the work breakdown structure of the project and reveal techniques applicable to nuclear plants, as well as watershed management projects around the world. Part one will discuss the regulatory justification and challenges. Part two will discuss economic analysis and estimation procedures used. Part three will review cost and schedule control. Finally, metrics for success will recommended for this unique class of project.
Abstract: Safety incentives are reward techniques designed to reinforce safe behavior with the general objective to reduce lost time due to accidents and improve safety-related records. Construction companies spend millions of dollars each year on safety incentives hoping to improve their safety records and experience modification rates (EMR). However, a great deal of uncertainty exists regarding the effectiveness of safety incentives and their ability to produce these desired results. Much of the confusion and differing opinions about incentives can likely be attributed to conflicting definitions and the interchangeable use of terms. This paper highlights the differences between outcome-based incentive programs, incentives typically based on predetermined parameters, such as no work days lost due to injuries, and behavior-based incentives programs, incentives based on preventing injuries by reducing the frequency of unsafe behavior. The paper analyses the cost-benefit of construction safety incentive programs and provides recommendations for construction managers and cost engineers to assess their current and future incentive programs to ensure that construction companies are spending their resources effectively.
Audience Focus: Basic
Application Type: Experience-Based
Time/Location: TUE 9:45-10:45/Salon D
Abstract: In large industrial projects where a general contractor wraps engineering, procurement and construction into a combined agreement, the EPC party often encompasses a designer and/or multiple contractors joined together under a joint venture agreement. This results in complicated relationships that can influence the execution of the project and prompt questions regarding project management. Who should be the lead from the owner’s perspective? Which party is better equipped to manage and oversee the process from design to completion? Without consideration of these questions, simple internal conflicts and differences may trigger significant delays and cost overruns while the owner is not receiving proper notices and communication. How can the owner avoid these when selecting a JV team for a project?
There is no shortage of actual project overruns and delays to help examine the pros and cons of JV arrangements, and the potential root causes for these issues often form the basis of disputes. These examples demonstrate that it is in the owner’s interest to attempt to influence the structure and risk-sharing mechanism between joint venture partners.
Primary Author: Dr Carla Lopez del Puerto CCC Colorado State University
