Making Understandable Infrastructure Commitments Through ... · understandable Infrastructure...

Will Willson 484-467-2524

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Making realistic and understandable Infrastructure Commitments through risk based estimating.

Will Willson FRICS AVS Associate Principal Davis Langdon, Philadelphia

Cel 484 467 2524

November 2009


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Where have we been ……….

Transportation:Portland South Corridor Light Rail – On time On Budget Portland Commuter Rail – On time ; slightly over Budget but + $VFMSound Transit Airport Link – Challenging and a success storyPhoenix Central Valley Light Rail – On time On Budget

Schering Plough manufacturing facilities in New Jersey –production and support facilities – first use of Modular construction by Schering Plough – on time on budgetSingapore – fastest multi product production facility ever built – on time on budget

The common ‘thread’ - They all adopted Risk Analysis

Projects completed and lessons learned over last 8 years

Lessons Learned – Risk Assessment

Top 10 issues emerging from 2009 APTA / FTA1. Understandable and transparent or no ‘buy-in’2. Risk allows for informed decision making3. It’s a ‘view’ at a point in time; tomorrow things will change4. Optimistic characterization results in failure to mitigate 5. Too much pessimism “kills the project”6. It’s never too early to ‘identify’ risks 7. Don’t identify the expected risks that will naturally happen at the

next delivery stage. 8. No project is too small to have a risk register9. No project is too small to have a risk management plan.10. There is no ‘wrong way’ to do risk analysis as long as it identifies

the threats and opportunities


Lessons LearnedPMOC perspective

Risk assessments have been:

Overly optimistic (often driven by internal pressure)Political pressure to often play down risks Reluctance to listen but once “sold” pro-active to mitigate “My top 5 risks” went down well


Lessons Learned on PPP / AFP PPP – a personal perspective

Focus’s ‘risk transfer’ and ‘risk retention’ and the principal of not to transfer ‘unquantifiable and / or unmanageable risk’Principals apply to any form of procurement Value for money (VFM) is achieved where the additional cost of finance is more than offset by efficiency gains and innovation by transfer of risk and reduction in total costWhere there is little opportunity for ‘profit’ and little scope for ‘innovation and efficiencies’ there will be likely negative VFM Profit is not a given ; failure proves risk transfer O&M costs highly influential on VFM

US Corps of Engineers Military Housing, Channel Tunnel High Speed Rail Link, LUL Power Supply, LUL Station and Line upgrades, 407E, Windsor Essex Parkway, GO

Transit, SRT Toronto, VIVA BRT Toronto, Ottawa LRT



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Moving forwards …..

Transportation:407E West Durham LinkWindsor Essex Parkway Windsor Detroit International Crossing Highway 69Highway 11 Milwaukie Light Rail Portland ORDenver Eagle and Gold Lines Colorado ULink SeattleEast Link Seattle Central Sub-Way San Francisco Ottawa City Light Rail

The common ‘thread’ - They are all adopting Risk Analysis

Projects ongoing


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1. Recognize need for ‘achievement’ in the political term

2. Focus on ‘first shovel’ rather than last ‘shovel’

3. A “range” is better than one “figure” (eg WSDOT and Seattle Transit approach)

4. Making public aware of risks - ‘no surprises’

How can we better inform Politicians?.


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Never to early for environmental & utility investigations Be realistic about time to acquire ROW Complex projects are going to disrupt the community; Conservative ‘safe’ ridership forecasts results in pressure to be overly optimistic on costs to get the project approved:

Are Passenger numbers overly pessimistic ?Is Growth in communities (both domestic and business) under estimated ?

What have we learned?.


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Means and methods – complex projects are going to disrupt the community ; saying they won’t is misleading


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Means and methods – complex projects are going to disrupt the community ; saying they won’t is misleading


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Identifying problems before they happen helps to make the right choices

Is this going to cause a big problem to the schedule or budget?


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Three top issues that are under estimated in scope and have greatest potential to ‘delay’ projects

Utilities Property Environment

Water crossing and fish windows Protected rare plants and animalsArchaeologyHistoric buildings

How can we better estimate schedule and cost?


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Avoid early Public commitments on non-disruption construction because they significantly impact cost and time

Underground tunnels and caverns Street closuresContinuation of normal services (buses, street cars etc)Crossing closures

How can we better predict schedule and cost


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Where do you want to be on this curve ?

You can not afford to be here ! But it might end up here


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Failing to be honest about capital costs, operating costs, schedule and risk impacts results in incorrect decision making

Avoid unrealistic assumptions about risk.


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Deterministic schedule may not show the true critical path


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Lets talk about…….Granting Programs Validation and Due Diligence by potential ‘funders’

Is the ‘applicants’ estimate robustIs the ‘applicants schedule’ realistic Is this project good value for money Are other projects more ‘worthy’ of the limited fundsAre the assumptions used for revenue generation well founded (passenger forecasts, expected promotion of economic and social growth) sound


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Parametric “top down” estimating to remove optimism biasRequire due diligence of

Passenger Capacity and Operations Agency Capability and CapacityScope Cost Schedule Contracting packaging strategy Risk identification and management Contingency planning and ‘secondary mitigation capacity’Execution planning Monitoring and implementation of risk management

Best Practice for evaluating Grants


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One might suggest just applying a ‘historic’ contingency is about as good as a ‘guess’ and is totally useless as far as helping anyone make a rationale decision


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Contingency versus UncertaintyWhy apply a contingency?1. To ensure we keep our job2. To make the project managers life ‘easier’3. To protect ‘ourselves’ from embarrassing overspends4. To allow for uncertainty

Why identify and quantify uncertainty? To ensure the ‘right’ decision is made on the chosen option To make realistic judgments with respect to mitigationTo ensure public money is well spent


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Uncertainty in life

Some things in life are more certain than others

Check-in at an airport Changing a ‘flat’ tire Boiling a kettle Pouring concrete (note wind on the Hoover Dam Bridge Mass Pour)Assembling false work / formwork Laying ‘track’Installing ‘piles’ (I-5 undercrossing extraction & drilling)Moving ‘dirt’Permitting

We constantly and sub-consciously make decisions based on our own historic knowledge and experience


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Key Questions to challenge Assumptions

Where did the quantities come from? What assumptions were used? What was not included? How much ‘bounce’ was built into the base estimate? Where did the ‘rate’ come from Was it the ‘highest’ price from a subWhere did you get the pricesWhich items have a ‘narrow range’ and which have a ‘wide range’ and why’


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First step, Risk Identification


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Risk Allocation:

Soil pHThe natural pH of the soil that will be encountered in the tunnel varies from 5.5 to 9.8. For baselinepurposes, 20 percent of the excavated untreated soil will have a natural pH greater than 8.5; 3 percent of the excavated untreated soil will have a pH less than 6.5. The actual pH of the muck will vary depending on construction means and methods, which will affect disposal options.


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The basis of an estimate

Building (accommodation) projects:Buildings, subject to ‘functional space’ chances and a few site specific issues (ground, permitting, ‘iconic special’ features) fall into a fairly predictable range Cost / m2 can be adjusted based on functional mix and site abnormals

Peculiarities with Transit projects:Vary significantly in make-up and influencing factors Component composite rates can also vary significantly

Analysis of many transit projects has shown that to provide a realistic estimate and schedule:

a knowledge of data source (location and project specifics) is requiredproject estimates and schedules must be built up from a component scope based estimate (ie not all-in cost / mile)


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You need to know where the ‘data’ came from

The source data is important, recognizing the extremes and what the ‘base’ reflects


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Typical sensitive ranges in quantity and cost (civils):Tunnels excavation advance rate: machine type, soil type, geotechnical variability, contractor, access, means and methods, interfaces Underground Stations – method (mined / drill and blast / SEM) access, faces available, temporary support, waterproof liners, staging, removal of spoil, interface with tunnel, restrictive working Property acquisitions costs – inability to establish tenants and evaluate businesses, widening constructions land take required, politicalcompromises, zoning changes Earthworks – haulage distance, rock type, soil consistency, re-use / off site disposal, contamination, staging, working hour constraints Large bridges – construction methods, construction ‘restrictions’ (in-water work, fishery protection), plant access, plant type, available capable and qualified contractors Utility relocations – outages, specials, constrained labor, moving x to get at yPavement / street repairs and scope creep

All impact the ‘range’ and are not necessarily risks but can be ‘managed’


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Influencing factors on an estimate

Typical sensitive ranges in quantity and cost (buildings):Curtain wall – type, fixings, access, finish, available manufacturers Ground conditions / foundation type – temporary support, dewatering, pad footings v’s piled foundations Permits – facings (cladding / siding), lighting (eg to car parks)Functional Space (hospitals, retail, education)Specification (rental market, anchor tenant, changing tastes)Type and size of equipment and systems and controls (industrial / Pharmacutical)

Typical sensitive ranges in quantity and cost (environmental)Noise abatement (sound walls)Wetland mitigation – protection, alternate construction methods Protected endangered species – relocation options, alternative habitats, time and process to implement, ratio of replacements to displacedOdor control (necessary to meet background targets)Discharge quality (purity of water, quantity of water, recharge capacity)


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The FTA’s 10th percentile ‘Concept’

Objective Avoid ‘risk on risk’Identify all uncertainties Remove all contingencies

The principals The lowest ‘sensible cost’ or ‘schedule duration’ that can be done if everything goes right first time and none of the ‘risks happen’

The advantages / OpportunityFlushes out ‘hidden contingency’Quantifies embedded uncertainly Provides a target for ‘least cost construction’Avoids ‘killing’ projects based on historic inappropriate data by challenging source against lowest likely current market costs


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Contingency planning and ‘secondary mitigation capacity’

DAVIS LANGDON Slide 11

Projects can not be allowed to exceed budget and timecommitments – there must be a responsibility to control and

manage risk

FTA • Identify a contingency • Agree on a ‘draw down’

against perceived risks • Agree mitigation if more

contingency is drawn down than available given what is needed to complete the project

• Agree mitigation strategies tied to specific project milestones


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Recognize that many components make up an infrastructure project and the variability of those components is different. The mix of those components on your project will therefore influencethe level of exposure


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So we know where ….now we need to have a plan


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Summary:

How can we better inform Politicians?Research environment, property and utilitiesRealistic estimatesAdvice on political timeframes

How can we better estimate schedule and cost?Question the ‘range’Identify and evaluate the risks

• What is best practice for granting agencies?• Risk based due diligence


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The LACMTA took a number of early steps to mitigate risks in addition to the methods of contractor procurement project delivery strategies. Examples of these include:

Co-ordination of public wet and dry utilities lump sum through Design/Bid/Build contract incentive clause which used a 50/50 pain / gain share for savings or extras over bid provisional values Schedule of rates used to obtain comprehensive competitive pricing for tunnel and station delays, archeology, standing time in street works, systems, utilities, rates for compensation grouting and the likeExpensive state of the art Earth Pressure Tunnel Boring Machine's were specified to deal with the challenging ground conditionsEstablishment of a Partnering Forum to regularly discuss current and future challenges and agree mitigation avoiding claims and maintaining a whole project team approach Top quality sound barriers around construction sites reducing both visual and noise impacts to local residents Installation of compensation grouting pipes at locations believed at high risk of settlement well in advance of the TBM’s

LA MTA Gold Line East Side Extension - pro-active risk management


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The current ‘market’ and ‘economy’ - New York Manhattan Tunnels

Pre-qualified Firms:1) Barnard of New Jersey andJudlau Contracting Inc., Joint VentureBozeman, MontanaBen CampbellBid: $583,000,0002) Shea / Schiavone Skanska, JointVentureWalnut, CaliforniaDennis PoultonBid: $584,503,9253) ARC Constructors, Joint Venture ofS.A. Healy Co. and CCA Civil /Halmar International LLC.Pearl River, New YorkChris LarsenBid: $598,148,672

This project has adopted ‘risk assessment’


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Contact Information

[email protected]

davislangdon.com

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