Guidelines for Risk Analysis in Construction Contract Changes

This project will produce a guide for Alaska Department of Transportation (AKDOT) managers and engineers that will prepare them for negotiations regarding risks incurred when forward pricing a change order. It features seminars for AKDOT managers and engineers to review the guide. Changes are common in construction contracts. It is usually in the owner's best interest to forward price the change, that is, to negotiate a lump sum price for the changed work before the changed work starts. These negotiations are fundamentally asymmetric, since the costs being negotiated are those of the contractor and the contactor is the expert on his own costs; the actual costs will accrue to the contractor. Although the goal of both parties is a fair and reasonable price, and the owner's engineers are familiar with basic costs and estimating procedures, the owner also realizes that there are uncertainties that must be accounted for in the price. Since a firm lump sum price will pass all the reasonably foreseeable risks of the changed work to the contractor, the contractor must be compensated for assuming these risks. Risks include delays to the work and impacts related to the effect of the change on the contractor's planned operations. In addition, Alaska's extreme seasonality and often the remoteness of the project increase the risks of extending projects into the following year, with severe direct cost consequences for a second mobilization, but also indirect consequences for the contractor's staffing and bonding capacity for other projects in the following year. The guide will open with a brief overview of the change process and standard estimating procedures, then examine risks commonly considered when contemplating changes, and then examine risks that are often issues in Alaska transportation construction. The next section of the guide will provide analysis of these risks, and demonstrate common software tools used and provide working examples. Of course full training on the software is beyond the scope of the guide, but the methods of software analysis and how they are utilized will be described in the guide. Notes on two software packages often used to analyze claims and on a program used to analyze risk will be included in an appendix. After the seminar, and by referring to the guide, AKDOT project managers and project engineers should be better prepared for negotiations regarding changes and better able to make fair and reasonable offers to contractors.

Language

  • English

Project

  • Status: Completed
  • Funding: $10000.00
  • Contract Numbers:

    DTRT06-G-0011

    107059 / G00003238

  • Sponsor Organizations:

    Alaska University Transportation Center

    University of Alaska, Fairbanks
    P.O. Box 755900
    Fairbanks, AK  United States  99775-5900
  • Project Managers:

    Connor, Billy

  • Performing Organizations:

    University of Alaska, Fairbanks

    Department of Civil and Environmental Engineering
    P.O. Box 755900
    Fairbanks, AK  United States  99775-5900
  • Principal Investigators:

    Perkins, Robert

  • Start Date: 20070901
  • Expected Completion Date: 0
  • Actual Completion Date: 20080630
  • Source Data: RiP Project 13628

Subject/Index Terms

Filing Info

  • Accession Number: 01462829
  • Record Type: Research project
  • Source Agency: Alaska University Transportation Center
  • Contract Numbers: DTRT06-G-0011, 107059 / G00003238
  • Files: UTC, RiP
  • Created Date: Jan 3 2013 2:11PM