V.

Sivasubramanian
Director
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 Initiation
 Feasibility study and evaluation
 Design development/detailed design & preparation of bid
documents
 Finalization of specifications or Terms of Reference (ToR)
 Cost estimates and budget
 Contract conditions
 Approvals
 Bidding
 Pre-qualification / Issue of bid documents
 Submission and opening of bids / bid evaluation
 Letter of Acceptance / Performance security / Signing of contract
 Construction, manufacture, installation and
commissioning
 Operations and maintenance
 Take over
sivas05@iimb.ernet.i
n
 Turn-key contracts
 Usually for large engineering projects, but not suited for non-
routine high-tech procurement
 Fixed price or lump-sum contracts
 Cost reimbursable contracts
 Cost plus incentive fee
 Cost plus fixed fee
 Cost plus percentage of costs
 Unit rate (piece rate or item rate) contracts
 Time based contracts (remuneration + out of pocket
expenses, estimated over the period of contract)
 Public private partnership (PPP)
 Contract formats
 Standardization of contract conditions (WB, ADB, FIDIC,
MoS&PI, etc.)
 Use of INCOTERMS, etc.
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 Interpretation, applicable law
 General rights, risks and responsibilities of the Client and
the Consultant
 Performance security
 Contract price and payment
 Advances / Periodic or milestone based payments / Final payment
 Commencement, delays and suspension
 Technology, materials and workmanship,
measurement/testing and evaluation
 Variations
 Suspension or termination of contract either by Client or
the Consultant
 Risk and responsibility, insurance and Force Majeure
 Client’s taking over, defects Liability, warranties
 Claims, disputes and arbitration 5
Issue of Bid Submission Issue of
Take over of
documents of bid Performance
works Rectification Certificate
Performance of Defects
security Original date
of completion

28
days  42 days Time for completion
21 days

21days delay

Base
Commencemen
date Return of
LoA t date Actual date of
Notify Performance
completion
defects Guarantee

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n
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 Unanticipated variations in costs, earnings and
cash flows
 Bullwhip effect
 Projects involve costs and benefits extending over a long
period of time
 May be caused in terms of sources which are:
 Project Specific
 Competitive
 Industry-Specific
 Market
 International
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 Standalone Risk
 Easiest to measure (if at all)
 Firm or Corporate Risk
 Contribution of a project to risk of the firm
 Market or Systematic Risk
 Risk of project from the view of a diversified investor

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 Lifecycle Risk analysis
 Allocate the risk to the part best able to manage it –
Optimum Risk Allocation

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Category Coverage Usual Where to look in contract
Allocation provisions
Design Risk Green field projects Private Output specification,
and major duration, price and payment,
expansion availability, performance,
variations, defects liability
Pre- Land acquisition, Project Conditions precedent,
Construction utility shifting, Authority lease/license provisions,
Risk environmental indemnities to third party
clearances rights
Construction Cost and time of Private Output specification, work
Risk construction/ completion, duration,
Commissioning price and payment,
escalation, LDs, Authority
step in, compensation
events, termination

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Category Coverage Usual Relevant contract
Allocation provisions
Operating Risk Availability Private Output specification,
Operating costs duration, price and payment,
Performance availability, performance,
variations, performance,
benchmarking, Authority
step-in, termination and
compensation
Demand/ Volume or usage Authority in Output specification,
Traffic Risk Annuity duration, price and
projects and payments, price variation
Private in
concessions
Residual/ Value at the time of Authority Handback arrangements,
Transfer Value termination or Transfer payments
Risk completion of
concession 13
Category Coverage Usual Relevant contract
Allocation provisions
Changes Change in law, Authority Changes to project
including political acts, variations + documents, changes in law,
change in law taxation Discriminatory compensation events, force
changes in law majeure, termination
 Authority; payments
Contractor
variations +
general changes
in law  private
sector
Project Credit, interest Private Price and payment, price
Financing Risk risk, servicing variations, insurance,
refiancing

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 Sensitivity Analysis
 Responses or sensitivity of NPV to variations in values of
specific underlying variables/parameters (usually one)
 But does not tell us how likely such variation is?
 Scenario Analysis
 Factors around which scenarios are built are selected
 Estimate values of each of the variables such as
investment outlay, revenues, costs, project life, etc. for
each scenario and calculate NPV and/or IRR for each
 Best, worst and most likely (or normal) cases

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 Break Even Analysis
 Minimum quantity at which loss is avoided.
 Accounting Break Even point = (Fixed costs +
Depreciation)/Contribution margin
 Cash Break Even Point = Fixed cost / Contribution
 Simulation
 Model the project including parameters and their
probability distributions
 Values randomly generated in terms of probability
distribution and NPV plotted in terms of the model
 Powerful and versatile technique

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 Decision Tree Analysis
 Delineate the decision tree assigning probabilities
 Evaluate the alternatives

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 Pay back period (computed besides NPV and IRR)
 Risk adjusted discount rate
 Certainty Equivalent method
 Safety Margin

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For further queries e-mail:
v.ssmanian@nic.in /
manianvss@gmail.com