How Do We Control Risk?

Development Agreement

The first resource in addressing owner risk is the terms of the final development agreement. The final agreement should address all the items from the business terms negotiation and the construction terms negotiation. The agreement will be the basis for administering the financial structure, the construction contracts, the commissioning, closeout and turnover process, and the transition into full operation. A thorough review of the proposed language is advised to identify any gaps that should be addressed with further mitigation measures. Some items may be addressed through reference to the program management plan or other contract documents. When this method is used, a review of the reference documents should be conducted to ensure accurate representation of the intent. Some specific items referenced in the program management plan will require additional review and negotiation during the early phases of project execution. The owner should plan sufficient manpower and expertise to address these items at the appropriate time.

Partnering & Risk Workshops

When approaching commencement of construction, it is appropriate for the project team to conduct a team-building workshop with the extended execution team. Some members of the group that have not been involved in the early phases of project development will be unfamiliar with team ground rules and accepted norms. It is an important aspect of succeeding in such a complex environment to build and maintain a level of trust within the project team. Establishing conditions of satisfaction is an important first step in developing a long-standing and solid partnership with the private partner. Partnering sessions are an effective way to begin building an environment of trust and collaboration that can carry the project through the difficult issue sure to be encountered during delivery. In addition, a focused effort to identify and mitigate risk for all participants will encourage transparency and help maintain trust amongst the participants. Proactive identification of project risks and active measures to avoid, reduce, or minimize the impacts of issues will reduce budget and schedule impact both to the owner as well as the other project participants.

Construction Phase Support

Developing a plan for monitoring and controlling activity during the construction phase is an important part of reducing risk for the owner. Active representation for the owners’ program requirements will ensure the goals and benefits identified early in the process are realized during execution. Thorough documentation of execution activities and construction progress will enable both effective administration of the development agreement as well as provide support and defense for any potential claims. Active monitor and management of risk items will provide an opportunity to avoid and reduce the impact of identified risks while bringing visibility to emergent risk items. Inevitably, issues will arise that require changes to the project. The owner should be prepared to engage in integrated change control throughout the project delivery process, evaluating proposed changes for cost, schedule, and functionality impacts.  The use of skilled construction professionals to review and advise during execution is an important protection for the owner to consider.