The document discusses commercial risks in construction projects. It identifies key risks such as commercial viability, construction costs and schedules, revenue projections, operating costs and supply costs. It also discusses managing risks through contingency planning, cost adjustments, and currency hedging. Project management decisions around preliminaries, site overheads, subcontracting and supplier costs are also examined to mitigate risks and maximize profits.

1. Management of Commercial
Risks in Construction Projects

2. COMMERCIAL RISKS OR PROJECT RISKS
Inherent in the project itself, or the market in which it operates: QS in
Risk-analysis process can be summarized as:
• Commercial viability: does the project make overall commercial sense
for all parties.
• Construction risks: can the project be built on time and on budget?
• Revenue risks: will its operating revenues be as projected?
• Operating risks: is the project capable of operating at the projected
performance level and cost?
• Input supply risks: can raw materials or other inputs be obtained at the
projected costs?
• Force majeure risks: how can the project cope with force majeure ...

3. EXAMPLES-KEY COMMER DECISIONS
• MOVEMENT OF RESOURCES AND ASSOCIATED SUMS,
BETWEEN ITEMS THAT ARE CONSIDERED OVER- OR
UNDER-MEASURED
• POTENTIAL EFFICIENCIES OR INEFFICIENCIES, SUCH
AS THE SHARING OF PRELIMS OR OTHER OVERHEAD
COSTS, WITH OTHER CONTRACTS SECURED
• VALUE ENGINEERING AND ALTERNATIVE METHODS,
SUCH AS OFF-SITE FABRICATION

4. KEY COMMER DECISIONS-ADJUSTMENTS
• TO PARTICULAR PACKAGES OR ACTIVITIES
• FOR FORECAST BUYING GAINS OR LOSSES, POST-CONTRACT
• TO PEOPLE OR EQUIPMENT RATES
• FOR THE RECOVERY OF SUMS FROM THIRD PARTIES OR SERVICES
THAT CAN BE OBTAINED AT NO COST OR PAID FOR ELSEWHERE
• FOR OMISSIONS IN THE CONTRACT DOCUMENTS
• FOR AMBIGUITIES OR GAPS BETWEEN THE METHOD OF
MEASUREMENT, THE SPECIFICATION, THE DRAWINGS AND ANY BOQ
OR SCHEDULES OF RATES (SOR)
• BOTTOM-LINE ADJUSTMENTS TO THE MARGIN ADDED TO THE NET
ESTIMATE

5. CONTINGENCY SUMS-VARIABLE COSTS?
1. RISK-IDENTIFIED FROM TENDER DOCUMENTS-
QUANTITIES/ITEMS.
2. ESTIMATED PRICE ESCALATION ALLOWANCES FOR
PROJECTED INCREASES-INFLATION/OTHER EXTERNAL
FACTORS.
3. ESTIMATED ADJUSTMENTS FOR FOREIGN-
EXCHANGE

6. HOW RISK IDENTIFIED IN THE TENDER
DOCUMENTS?
• QUANTIFIABLE RISKS: AN APPROPRIATE INCLUSION
MADE, DEPENDENT ON EXPOSURE TO RISK.
• UNQUANTIFIABLE RISKS: AMOUNTS BASED ON
MANAGEMENT PERCEPTION OF SITUATION. RESULT-
QUALIFICATION OR EXCLUSION?

7. DEALING WITH RISKS?
• IN EXTREME CIRCUMSTANCES, CONTRACTING
ORGANISATION WITHDRAWS FROM TENDER PROCESS
• A COMMERCIAL VIEW TAKEN-ON THE MONETARY
VALUE OF RISKS AND
• APPROPRIATE ADJUSTMENT MADE BASED ON
CONTRACTUAL PROVISIONS-PRICE ADJUSTMENT
FORMULA, FOREIGN EXCH FLUCTUATIONS ETC. &
• HIGHER MANAGEMENT PERCEPTION OF COMETITION
& STRATEGY.

8. ESTIMATED ADJUSTMENTS FOR FOREIGN-EXCHANGE
FLUCTUATIONS
• WORK IN A COUNTRY/PACKAGES-DIFFERENT
CURRENCY OR
• IN LARGER ORGANISATIONS-A VARIABLE THAT IS
SOMETIMES MANAGED OUTSIDE OF THE PROJECT
ITSELF INCL CORPORATE OVERHEADS
• HOW TO MITIGATE RISK? HEDGING CURRENCY: EG.
BY FORWARD-BUYING FOREIGN CURRENCY AT
CURRENT OR OTHER AGREED RATES.

9. PEER REVIEW
PURPOSE?
• REVIEW/FINALISE PROGRAMME AND
• PRELIMINARIES AND TO FINALISE THE PRICE (FIXED,
GUARANTEED MAXIMUM OR TARGET)
• TO CARRY OUT THE WORKS, BASED FURTHER
ADJUSTMENTS TO THE NET COST, AND
• NOTING OTHER VARIABLES, INCLUDING THE RISKS AND
OPPORTUNITIES DETAILED ABOVE.

10. PRELIMINARIES AND SITE OVERHEADS

11. PRELIMINARIES & SITE/HO OVERHEADS OVERHEADS
RICS NEW RULES OF MEASUREMENT: PRELIMS INTO ?? PARTS:
•PART 1-PROJECT INFO & EMPLOYER’S
REQMNT
•PART 2-MAIN CONTRACTOR’S COST ITEMS
•PART 3-WORK PACKAGE CONTRACTOR’S
PRELIMINARIES

12. PRELIMINARIES & SITE OVERHEADS
• PRICING OF ITEMS CAN BE “QUANTITY” RELATED OR
“TIME” RELATED
• WHAT ARE PRELIMINARIES SECTION OF A BOQ MEANT
FOR?
PRICING OF ITEMS WHICH ARE “FIXED CHARGES” NOT
QUANTITY RELATED….I.E. IRRESPECTIVE OF QTY OF
WORK BEING CARRIED OUT
 MAIN CONTRCATOR’S COST ITEMS “TIME” RELATED
 NORMALLY “ONE OFF” PAYMENTS (FIXED) OR
REGULAR PAYMENTS “TIME” RELATED DURING THE
COURSE OF CONTRACT

13. PRELIMS-CLASSIFY FIXED &/OR TIME RELATED EXPENSES
DESCRIPTION TIME RELATED FIXED
START END
1. PRE COMMENCEMENT CHARGES
2. MANAGEMENT AND STAFF
3. INITIAL SITE ESTABLISHMENT & MAIN CONTRACTOR
4. TEMP SERVICES
5. TEMP WORKS
6. SECURITY
7. EMPLOYER’S REQUIREMENTS
8. CONTRACT CONDITIONS
9. FEES AND CHARGES
10.INSURANCE, WARRANTIES, GUARANTEES

14. PRELIMS-CLASSIFY FIXED &/OR TIME RELATED EXPENSES
DESCRIPTION TIME RELATED FIXED
START END
11. HEALTH, SAFETY AND ENVIRON PROTECTION
12. QUALITY ASSURRANCE
13. SURVEY, CONTROL & PROTECTION
14. HOUSEKEEPING & WASHING
15. SITE RECORDS
16. NON MECHANICAL PLANTS
17. MECH PLANT MAJOR
18. MECH PLANT-MINOR
19. POST COMPLETION REQUIREMENTS/AS BUILT DRAWINGS/SITE CLEARANCE/DEMOB
20. DEFECT LIABILITY REQUIREMENTS

15. PART 1-PROJECT INFO & EMPLOYER’S REQMNT

16. PART 1-PROJECT INFO: TENDERING CONTRACTORS GIVEN GEN
DESCRIPTION OF PROJECT, WHICH MAY AFFECT THEIR BID PRICE
• DRAWINGS & PRE CONSTRUCTION INFO USED TO PREPARE BILLS OF QTYS
IF PROVIDED
• QUALITY ASSURANCE PLAN, SAFETY MANUAL
• ANY DESIGN RESPONSIBILITY
• IDENTIFICATION/SUPPORT OF EXISTING UTILITIES REQUIRING
SHIFTING/RELOCATION OF UTILITIES
• TRAFFIC DIVERSION, BARRICADING, TOPO/ALIGNMENT SURVEY
• ANY FOLLOW UP ACTIONS ON BEHALF OF EMPLOYER?
• ANY OTHER WORKS ON GOING AT SITE
• AS BUILT DRAWINGS, VIDEO RECORDING
• O&M MANUAL, SPARES AND TRAINING BEFORE TESTING AND
COMMISSIONING
• DISPOSAL OF DEMOLITION WASTE, EXCESS SOIL

17. • HOW PROJECT WILL BE MANAGED BY PMC OR CLIENT DIRECTLY FOR
SUPERVISION, PROGRESS MONITORING AND SHE REQUIREMENTS
REQMNTS OF SITE OFFICES, ACs FOR EMPLOYER, CONSULTANTS:
• TRANSPORT REQUIREMENT
• FURNITURE, IT AND OTHER OFFICE SUPPORT
• POWER, BACK UP DG, WATER SUP, OPERATIONS AND
MAINTENANCE
• ANY STAFF/OPERATORS?
• ARE THESE REIMBURSABLE BASIS OR DEEMED TO BE INCLUDED IN
RATES?
PART 1-EMPLOYER’S REQMNT:

18. PART 2-MAIN CONTRACTOR’S COST ITEMS

19. 1. STAFF: CONTRACTOR’S MANAGEMENT OF STAFF-
RELATED TO “THE” PROJECT BUT NOT INCLUDED IN
CONTAINED IN UNIT RATES OF ITEMS OF MEASURED
WORK. INCLUDING HSE
2. SITE ACCOMODATION: ALL
3. SITE SECURITY-STAFF, EQPT, HOARDINGS, FENCING.
EFFECT ON INSURANCE PREMIUMS
4. TEMP WORKS: DRAINAGE, SITE ROADS,
HARDSTANDINGS, CAR PARKS, STORAGE, OFFICE,
QUALITY LABORATORY
5. FFE-FURNITURE, FITTINGS AND EQPT OF TEMP WORKS
INCL MAINT
6. TEMP UTILITY SUPPLIES- BACK UP, IT/COMNS INCLUDING
MAINT & CONSUMABLES

20. 7. MECH PLANT & EQPT-USED ACROSS SITE (NOT SPECIFIC TO A SPECIFIC ITEM OF
MEASURED WORK): TOWER CRANES, HOISTS, TMs, DUMPERS, EXCAVATORS,
MOBILE CRANES, CONCRETE BATCHING PLANT ETC. COSTS.. REFURBISMENT OF
USED PLANT BY OTHER PROJECTS, TRANSPORTATION, INSURANCE, INCL RTO
(FIXED), TRANSFER FROM OTHER STATES ETC.
8. SCAFFOLDINGS & TEMP WORKS- REQD FOR PERMNT WORKS: ERECTION &
DISMANTLING COSTS (FIXED), WEEKLY HIRE CHARGES (TIME RELATED); INCLUDING
DESIGN OF TEMP WORKS.
9. SPECIALISED ENGG DESIGN & CONSTR OF CAISSONS/COFFER DAMS/
(SIGNIFICANT COSTS) IF NOT INCLUDED IN MEASURED WORKS
1 0. TESTING & COMMISSIONING- QUALITY LAB, TESTING AND COMMISSIONING
COSTS PRIOR TO HANDOVER AT SUBSTANTIAL COMPLETION-ONLY OWN SCOPE.
11. STATUTORY-PROVIDENT FUND, ESI, INSURANCE, (IF NOT INCLUDED IN
LABOUR); BONDS, GUARANTEES & WARANTIES UNDER THE CONTRACT;
APPROVALS
12. SITE CLEARANCE-COSTS OF DISMANTLING/SITE CLEARANCE/DISPOSAL OF
WASTE

21. PART 3-SUB CONTRACTOR PACKAGE COSTS

22. SPECIAL ATTENDANCE
ALL SPECIFIC REQUIREMENTS FOR SUB CON INCLUDING:
• SPEC SCAFFOLDING
• UNLOADING
• HOISTING
• SPEC COVERED STORAGE
• SPEC LIGHTING
• POWER SUPPLY
• TEMP ACCESS ROADS & HARDSTANDINGS
[ALL THE ABOVE WOULD BE PROVIDED FROM SPACE/EQPT OTHER
THAN FOR MAIN WORK]

23. GENERAL ATTENDANCE
• USE OF TEMP WORKS, PATHS, PAVING
• USE OF STANDING SCAFFOLDING
• USE OF STANDING POWER OPERATED HOISTING PLANT
• USE OF MESS ROOMS, SANITARY, ACCOMODATION, WELFARE, TEMP
LIGHTING AND WATER SUPPLIES
• PROVN OF SPACE FOR SUBCON OFFICE ACCDN
• PROVN OF SPACE FOR STORAGE OF PLANT AND MATERIALS
• CLEARING AWAY-RUBBISH
[ALL THE ABOVE WOULD BE PROVIDED FROM SPACE/EQPT FOR MAIN
WORK]

24. SUB CONTRACTOR/SUPPLIERS
OVERVIEW: NEED FOR SUBCON? TYPES:
• LABOUR SUPPLY
• DOMESTIC SUB CON/SUPPLIERS: CONTRACTOR’S CHOICE SUBJECT TO
APPROVAL BY ENGINEER/CLIENT
• NAMED (PANEL TO CHOOSE FROM) AS GOOD AS DOMESTIC
• NOMINATED/DESIGNATED SUB CONTRCATORS-CLIENT SELECTS AND
NOMINATES. (NO CHOICE WITH CONTRACTOR). COST IMPLICATIONS?
• NOMINATED SUPPLIERS
• DOMESTIC HIRING AGENCY
• NOMINATED HIRING AGENCY

25. SUB CONTRACTOR/SUPPLIER COSTS
(A) MOBBILISATION/DEMOB COSTS
(B) LABOUR COSTS WITH TOOLS/TACKLES ONLY
(C) LABOUR COSTS WITH SHUTTERING
(D) WITH MATERIAL COSTS
(E) WITH MATERIALS/EQPT SUPPLIED BY CLIENT/OWNER
(F) WITH PLANT & EQPT COSTS
(G) GENERAL SITE OH
(H) HO OH
(I) PROFIT

26. COSTS TO MAIN CONTRACTOR
• SUBCON COSTS
• SPECIALISED EQPT OR SERVICE REQD BY SUBCON (SPEC ATTENDANCE)
• PROPORTION OF GENERAL SITE OH USED BY SUBCON (GEN
ATTENDANCE)?
• PROFIT THAT MAIN CONTRACTOR WOULD HAVE MADE ON SUB CON
WORK