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Research on the risks and opportunities

of international railway projects based on FIDIC-EPC contract

 

STUDENT PAPER

By Shangxin Yang

SKEMA Business School

Paris, France

 



ABSTRACT

The globalization encourages the rise of international construction project. The risk which can be positive or, in most case negative, is no doubt one of the most important parts to control in the project. This article is based on international railway projects under FIDIC-EPC contract, trying to explore the risk factors and the opportunity factors which are less considered in the project, using Multi-attribute decision-making (MADM) method to choose best solution for responding to risks or opportunities and finally give relevant recommendations.  This might help owners and contractors to understand and choose optimal risk response solutions to improve their risk management. It is concluded that there are five main risk factors: external, operational, project management, engineering and financial, and four main opportunity factors:  scope, technology, working process and external. The best risk response solution is to mitigate while the best opportunity response is to share. Focusing on risk prevention and projection, also exploring the opportunities and sharing them can lead to more competitive advantages in the project.

Key words: International railway projects; EPC; International contract; Risk analysis; Decision making

INTRODUCTION

Globalization and urbanization are becoming a trend in the world. The railway transport is booming following the city growth. Just in China 2017, the government has invested 100 billion euro on railway construction and about 30 billion euro on oversea railway construction [11]. International railway projects have both opportunities and risks. Generally, they use the FIDIC-EPC contract, on the condition of which risks balanced mechanism was changed. The owner pays a higher price at the same time the contractors are supposed to get a lot of extra additional risks, such as accidents, unforeseen difficulties and quality requirements [3].

It is well known that railway construction projects are always being a large-scale projects with high investment (For example, Shanghai metro line 2, construction cost is up to 10 million dollars per kilometer); taking a long time from construction to final operation phase will need 5-6 years in general and high risk. As a result, international railway projects face various risks which may diminish project profitability or even cause a project to fail. In 2004, a railway construction accident of Shanghai line 14 has caused hundreds injured and 150 million yuan lost, which was caused by the changed construction method with bad control of quality.

People began to study risk management after World War II [6]. In the 1950s, researchers undertook fundamental studies of risk management. Until now, In PMBOK (2000), it expands the risk management part from 4 aspects to 6 aspects [6]. It’s becoming more and more important so that lots of international researchers are focused on this subject. It is found that there is a strong relationship between the amount of risk management efforts undertaken in a project and the level of the project success [3].

This paper will focus on international railway projects in terms of EPC contract and go into the different aspects of risks including external risk, financial risk, project management risk, engineering risk and operational risk. We will answer two questions:

  • What are the main risk factors or opportunities that owners and design-builders must consider when selecting the railway project under EPC contract type? Because only when we fully understand the risk factors during the railway construction projects can we take effective measures to make sure the project is accomplished well.
  • Which risk response strategies are better in dealing with the risk and opportunities?

The findings will be able to help stakeholders make better decisions or considerations for controlling or reducing risks.

More…

To read entire paper, click here

 

Editor’s note: Student papers are authored by graduate or undergraduate students based on coursework at accredited universities or training programs.  This paper was prepared as a deliverable for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director [email protected].

How to cite this paper: Yang, S. (2018). Research on the risks and opportunities of international railway projects based on FIDIC-EPC contract, PM World Journal, Volume VII, Issue VI – June. Available online at https://pmworldjournal.net/wp-content/uploads/2018/06/pmwj71-Jun2018-Yang-risks-opportunities-international-rail-projects-student-paper.pdf



About the Author


Shangxin Yang

Paris, France

 

 

 

Shangxin YANG specialized in transportation engineering at Tongji University, Shanghai, China.  She has double competences in industrial risk management (MS l’Ecole des Mines de Paris) and project management (SKEMA Business School). Internship experiences at RATP (Autonomous Operator of Parisian Transports) in learning from experience of railway accidents and establishing procedures accordingly. Also, she had internship experience in Valeo PowerTrain System Business Group on knowledge management. Shangxin can be contacted at [email protected]