Dealing With Risks In Contractor And Consultant Risk Management Process Of A Company

Background of the case

Discuss about the deals with the risk management process of contractor and consultant of a company?

This assignment deals with the risk management process of contractor and consultant of a company. Risk management refers to the systemic process of understanding and overcoming various types of risks while working in an organization. As the author have worked as a consultant of a team of engineers to supervise the whole project, have faced many risks. The author has also worked as a project manager or project consultant within administrative building of the construction project. Therefore, the author has faced several risks while working as project consultant. The author has faced several risks while working in remote place. The author has discussed those risks from the perspective of consultant or contractor of an engineering project.

After finishing the training I started working as a project consultant with a team of engineers to supervise a big project that cost around one billion SAR. This project has contained concrete and steel structure, steel structures, and asphalt roads with lights, STP, petrol station, power station, ground and tower water tank, communication building, and controlling towers. I have gathered a good experience while working on this project. However, after working as a member o consultant team, I worked as a project manager or project consultant within a construction of administrative building that was located in a remote area that was far from my house area. The area of the project was far about 80 km from my house. I used to travel for every day. I have enjoyed this post of consultant as I have enjoyed the post of project manager earlier. The cost is 48 million SAR and consists of administrative buildings, control building, soldiers’ barracks, 4 bunkers long 2km, roads long 6 km, substation room, ground water tank and 6 workshops.

During the period of project, contractor and consultant had to face some risks as they had no planned for potential management of risks. In this project, I had observed the outcome of a problem and the sort out process of the problem.  Those problems have affected negatively upon the contractors, workers and owners of the company. These risks have also influenced over the work schedule and quality time of the project. Therefore, I as a project consultant had experienced these risks from the perspective of consultant or contractor of the project. In the project area, the dust had irritated the workers and me. Sandstorm during the time of working had also impacted upon the quality of work of the workers. Health condition of the workers has also been affected by the condition of the workplace.

Climate Risk: The probable risk that is faced by the contractors is dust and sandstorm impact. According to Chapman, Ward & Chapman, (2012), high level of dust and sandstorm slows down the work which result decline in the productivity of the workers. Furthermore, it was out of control of the company and company cannot do anything in regards to it. Such risk arisen as the work was carried during the time when there is frequent flow of dust and sandstorm in the region. On the other hand, Cienfuegos Spikin,  (2013) pointed that health of the labours can be affected that can have long term effect. As a result of this extreme situation, the work has to be stopped from time to time. These risks occur because of the lack of forecasts, which have to be provided by presidency of meteorology and environment. In this case, the project manager cannot design the project schedule to match with climate.  However, the project manager was successful in mitigating risks by adopting a new system with their labours by making them work as a subcontractor. The company took such decision as the senior contractor was not present on the site all the time. As an outcome, it helped in increasing the productivity of labours as acting as a subcontractor motivated them to accomplish the work before any dust or sandstorm could hit them. It further reflected on project progress. On the other hand, the climate risk was frequent in the projects that were located in Hafr Al Batin.  It can be pointed that bad weather can have momentous sustained effect. Thus, the company had to prepare themselves to deal with such risk in order to keep the flow of work going.

Risk from the perspective of Contractors

Availability of Network Connections: The other risk that is faced by the contractor is related with lack of availability of network connections at project site. It is evident from the information of contractor that when he tried to contact to supervisor for stopping the work as there was a forecast that weather will turned bad in next one hour. Thus, network act as a villain and the contractor was not able to reach out to supervisor on time and labours had to face bad weather. As a result of this situation, further the project manager was not able to deal with daily duties to finish the project on time, causing delay to the project. Initially the contractor tried to adapt to this situation, but after few weeks he cannot deal with it, especially when some materials are delivered late to the site and created serious problems in the fulfilling the project schedule (Gall, 2012). Due to such issue, the contractor was forced to pay Saudi telecom to provide communication channel to the project site to avoid some of risks which was beneficial to some extent.

Delay in payment from consultant: The third risk that is met by the contractor is delay in payments from the consultant, because the approval process for the payment starts from engineers to review and ends to financial authority to approve which takes too much time. The long payment process led to rise in risk. Due to such delay, the payment process underwent eight different stages. Moreover, delay impacted negatively on cash flow schedule of payments for contractor. As a result of delay the suppliers were not paid on time which affected the flow of some material according to project’ schedule (Jackson, 2013). Further, it led to delay in clearing labours’ salaries more than three months which reflected on the project growth.

In order to solve such issue, the contractor decided to borrow loan from the bank for funding the project. As a result, it helped in avoiding risk and managing flow of payment. However, this solution succeeded to face the delay of payments but the contractor accepted the risk from loan which affected on project’ profit as bank took 10% on the project cost.

Approval of Labour Permit: There was delay in getting approval of labour permts due to constraints of policy in passing to project’ location. Such situation arisen as it was mandatory to get authorized permit before using equipment, materials and labour. As an outcome it took nearly 3 weeks to get permission. The time frame was large as the security department was located 80km away from the site of the project. Therefore, travelling 80km for fulfilling the requirements delayed in gaining permission. In addition, the contract states that all labourers of the particular site must follow the sub-contractor. It was often observed by the projector manager that the labourers spend times with other workers that led to delay the work (Cronja, Reyneke, & Van Wyk, 2013). This can cause risk to the contractor as the work can get stopped until the labours are not permitted to join the site. Therefore, the contractor accepted and adapted with this situation but he took this point when he was making up date for project’ schedule.

Climate Risk

Accident: The other problem met by contractor is when labours’ bus made accident in its way coming back to the accommodation location. As a result of 24 labours died and 9 labours injured also the electrical engineer is died in this accident that affected on manpower in project which was around 200 labours. The death of labours reflected on in the project performance, especially, the productivity in the site decreased approximately by 35%. The reason behind the accident was the tiredness of the driver as he was allocated number of tasks to perform each day in supplying materials from one place to other and carrying labours to other locations which affected on his concentration to drive (Gaudenzi & Borghesi, 2012). Further in order, to tackle such kind of risk the project manager decided to contract with subcontractor to complete some critical work in project. However, the manager faced a fear of increase the price of subcontractor as they refuse to work with normal price because the project’ location was in remote area. Thus, the project manager agreed on paying asked price in order to mitigate risk and safeguard labours. On the other hand, some employees were changed with other project in order to avoid risk. Therefore, it can ascertained that increase in subcontractor’ price and treatment of injured labours and compensation to victims’ families led to the increase in additional cost.

Limited appointment of task: The other risk bear by contractor is due a rule related to limit appointment of sub-contractors as per the contract which mentioned that a contractor cannot allot work more than 30% of the total project to sub-contractors. It was considered very risky for the contractor as the contractor suffered from the lack of manpower to increase the productivity in the project. In addition to that contractor has to allot technical work outsource too. Further, in the project the contract has already exhausted its 30% limit and due to that fact contractor was unable to execute the remaining work which became a possible reason in project delay. This type of fixed condition can lead the project to greater risk (Hopkin, 2012). Therefore, in order to solve this issue, the contractor must get a written and signed document for approval of employing a sub-contractor. On the contrary, if the approval is not received, the government has the power to cancel the contract of the contractor and seek compensation for the poor quality of work that may be employed by the sub-contractor.

In order to gain intense success for this project the necessary criteria is analysing the risks that it has faced and the possible solutions that may have occurred or could have been rendered. In this section of the researcher report, the researcher is going to shed light on some of the potential risks that seems to have been faced.

In this project, in comparing with the wage of the other construction sites, the wage of the employees seems to have been low. This in no way let the employees work hard and devotedly for the success of the project. Low salary leads to the dissatisfaction of the workers (Cassel and Hinsberger, 2013). Quality of the project, from the very beginning, is getting compromised. It paves way to misuse of the public funds and entertains the corruptions. More the day passes by, more problems of corruption it may seem to inflict upon. The employees in this order are estranged from this project gradually which created more poignancy.

Availability of Network Connections

It has been mentioned by Corvellec (2011), the government projects problems that arise from lower price bidding war in Saudi Arabia.  In this project, it was given to the contractor who bids lowest. It results in low performance in execution and the high cost of maintenance. The quality of work deteriorated and the work was delayed. As like the lowest bidding the project has also emerged in the deprivation. It seems to have created severe problems in this project work. This leads to low quality in project because the contractor who submits the lowest price, Balmforth (2011) critically asserts, was lowest efficient of the other contractors. This has created financial deficits. It is mandatorily mentioning that this project could not have been completed in so less money, therefore, from the beginning the project was on a high note of dwindling.

For a construction work, as mentioned by Cutter et al. (2013), proper consultation and exact supervise is mandatory which for the current project seems to have been severely violated. The consultant faced problem of the availability of consultant’s staff to supervise on this project because his engineers supervise on many project in Hafr Al Batin. As the project site was far from the urban vicinity more emphasise and staffs were needed to be transported which seems to have created problems in successful accomplishment of the project (Zipperer and Amori, 2011). The inspection works and quality were affected by this lack of proper engineering. No proper communication between the workers and the high level employees could have been managed. This has created all the problems. At the same time, all the decisions taken by the consultants were not at all sophisticated in nature which cast an immense pressure on the organisational ethics.

Delayed penalties were seemed to have been ineffective. The maximum penalty for work delay is only 10% of contract price irrespective of the number of days. Therefore the contractors were not so much aware about this matter. As a result of this, as mentioned by Cutter et al. (2013), this project delayed around 14 months. The penalty of this project is being literally less creates more problems. This situation affected the quality of the service that has been provided or intended to be provided. This risk comes because the contractor knows not more than 10% penalty for work delay will be imposed on him. The problem started with this task from the initial stage and continued all through the time to meet the ultimate deficit and inefficiency.

These problems were the most sophisticated ones that seem to have created more difficulties. Despite managing the approaches, the project had been sunk into more troubles. The affluence and continuity of the project has attained immense sophisticated.

Conclusion:

Throughout this current study the researcher has mentioned what are the risks that the particular project seems to have faced. The researcher has critically analyzed the essence of the factors and the approaches applying which the risks could have been mitigated. In this approach more conditionality could have been maintained for the successful accomplishment of this task. But nothing sophisticated is applied. From the days of beginning the work has been getting lingered and suffering from the weaknesses and rickety approaches.

Delay in payment from consultant

In looking at former risks both from the perspective of consultant and contractor, it can be seen all these risks appear from lack of project planning of contractor and consultant. It leads to the mal-assistance of the work, and creates more budgetary problems. More to be added, these risks can be stated both in the form of exogenous or endogenous. These are based on six categories in this order: Social, Legal, Economic, Environment, Political and Technological (SLEEPT). The contractor and consultant should deal with new disciplines and techniques of risk management to avoid or mitigate any future event of uncertainty can impact on project objectives.

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