Research Projects

Managing Risk in the Mega-Project Era

It is imperative that entities preparing to undertake a major airport terminal or expansion project understand what risks are involved and how those risks can be mitigated. If the proposed research is conducted and an intuitive database of risk-management contract provisions is created, entities interested in participating in such a "mega project" would be able to identify how best to manage the associated risk: this would dramatically increase the potential returns from participating in such a future construction project, thereby increasing participation in the construction, maintenance, and enhancement of airport terminal and expansion projects.

Background (Describe the current situation or problem in the industry, and how your idea would address it.)

At a time when "mega projects" dominate the U.S. aviation industry, it is imperative that an evaluation of such projects be undertaken to identify the risks involved and to identify how best to manage and allocate those risks at the outset of a project. While "risks" exist at every stage of a construction project, a properly negotiated and drafted contract that correctly allocates risks can help entities manage their potential liability and limit their possible exposure.

Therefore, in light of the ever-expanding magnitude of aviation projects—which can easily exceed $1 billion—it is imperative to research and identify successful ways to manage the risk of these "mega" projects. While this can be in the form of proper insurance limits, risk can also be allocated through performance and payment bonds, warranties, damages limitations contract provisions, and in a myriad of other ways. Therefore, this proposed research project seeks to create a database of contract provisions such that any entity contemplating risk-management strategies can have comparators of similar-sized projects with similar project delivery methods to serve as a guide. Properly managed risk will ideally promulgate increased market participation for mega projects.

Objective (What is the desired product or result that will help the airport industry?)

Simply put, the purpose of this proposed research project is to create a database of risk-management provisions from "mega project" contracts, from which trends can be identified (e.g., MCO, LAX, KIA, SLC). Such a database would allow entities to evaluate the risks associated with similar-sized projects and for such entities to properly allocate the associated risks on the front-end of a project to avoid claims and catastrophes on the back-end. After such a database of risk-management provisions is created, market trends can then also be identified.

Approach (Describe in general terms the steps you think are needed to achieve the objective.)

Understandably, the more data collected, the more comprehensive this proposed research would be. Therefore, while the research approach is relatively straightforward, the success of this proposed research topic hinges on the cooperation of the entities surveyed. Barring unforeseen difficulties of obtaining such risk-allocation data, the data collected for each "mega project" would include the following:
- Date of Contract
- Size of Contract
- Parties Involved
- Delivery Method (e.g., design-bid-build, design build, construction management, public-private partnership)
- Insurance Limits
- Performance and Payment Bond Limits
- Limitation of Damages Provisions (e.g., caps on consequential or liquidated damages)
- Warranties Requirements
Additional research considerations include:
- Data points for 100 distinct transit projects with at least 10 in excess of $100 million
- Contracts from different states
- Variation in delivery method
- Projects that began no earlier than 1998
The greatest barrier to implementing the proposed research would be getting entities to participate in the "survey" portion (i.e., to provide their contracts). It could be that an entity negotiated specific terms it will not want disclosed, or because the entity has no incentive to provide such documents. When faced with such situations, creative solutions could resolve the issue such as formal submissions of Public Records Requests, soliciting the same contracts from other involved parties, etc. If none of these solutions work, then this proposed research problem will still be successful if other project contracts are solicited and obtained.

Cost Estimate and Backup (Provide a cost estimate and support for how you arrived at the estimate.)

This proposed research project is estimated to cost approximately $300,000.00. This cost would allow two- to three-research professionals to solicit and review the required documents and prepare a final report spread across the course of a year. A rough outline of events is as follows:
- Initial Three Months: Identify relevant, already-published statistics and contracts; Create a list of entities and projects from which to request helpful data
- Next Six Months: Survey specific entities, projects, and contracts; Compile "Mega Project Contracts Database"; Prepare draft report containing findings
- Final Three Months: Review and revise Final Report and Deliverables

Related Research - List related ACRP and other industry research; describe gaps (see link to Research Roadmaps above), and describe how your idea would address these gaps. This is a critical element of a synthesis topic submission.

As it currently stands, there are countless major aviation projects currently underway, currently being procured, or even, currently being considered, each containing a unique way to mitigate and offset the associated risk. While some insurance and risk-management plans will sufficiently cover the exposure, others are inadequate. This proposed topic will allow there to be a database of contract provisions that identifies which risk-mitigating strategies have been used by other entities in the past. If the proposed research is conducted and an intuitive database of risk-management contract provisions is created, entities interested in participating in such a "mega project" would be able to identify how best to manage the associated risk. This would dramatically increase the potential returns from participating in such a project, thereby increasing participation in the construction, maintenance, and enhancement of aviation facilities.

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Idea No. 208