The document discusses various aspects of estimating and pricing construction contract risk. It provides examples of risk drivers in construction contracts related to scope, performance standards, changes, loss shifting, and schedule. It also discusses different approaches to pricing risk such as using risk premiums between 8-20% depending on market conditions. Effective risk management requires understanding different risk types and their impacts, and well prepared estimates can help document scope and risks to aid the project team.

1. American Society of Professional Estimators March 26, 2010 Contracts, Risk and Construction Pricing Jim Scott Greensfelder, Hemker & Gale

2. It is tough to make predictions, especially about the future. Yogi Berra Baseball Coach

3. Introduction Estimating Contract Risk Methods Risk Drivers Content Risk Drivers

4. The impossible sometimes happens; the inevitable sometimes does not. Daniel Kahneman Nobel Prize Economist

5. There are things we know, things we know we don't know, and things we don't know we don't know. Donald Rumsfeld Secretary of Defense 2001-2006

6. Pricing Contract Risk The construction industry . . . is one of extreme competitiveness, with high risks, and margins of profit generally low. . . Pricing mostly takes place in the bidding process. . . There has only been one pricing approach used in construction: cost-based pricing. Mochtar and Arditi, 2000

7. Construction Contract Risk Contracts are usually Owner prepared 75% contain following risks: Uncertainty of work conditions Delay Indemnity Liquidated Damages Sufficiency of Contract Documents

8. Pricing Risk is a Dart Throw In setting the markup, contractors mainly rely on their intuition after subjectively assessing the competition. Mochtar and Arditi, 2001

9. RISK PREMIUMS Average of 8% to 20% based on ideal or adverse market conditions . Zaghloul/Hartman, 2002

10. Federal Highway Administration October 2006

13. A Black Swan Event Surprise Major Impact Later Explained as Something to be Expected

14. RISK MANAGEMENT Umbrella Ostrich Gut Brute Force Snowboard Ride

15. Predicting rain doesn’t count; building arks does. Warren Buffet

16. METHOD RISK DRIVERS Form of Contract Method of Project Delivery Pricing Arrangement

17. CONTENT RISK DRIVERS Scope Performance Standards Change Loss Shifting Schedule

18. Scope Division of Responsibility Detail Exclusions Deliverables Clarifications Contingency

20. Performance Standards Warranties Performance Guarantees

21. Change Changes Changed Conditions Force Majeure Commodity Price Spikes

22. Loss Shifting Indemnity Waivers of Consequential Damages Limitation of Liability

23. Schedule Time extensions No damages for delay provisions Liquidated damages Incentives

24. The Well Prepared Estimate Document scope. Communicate knowledge of the project by demonstrating an understanding of scope and schedule as it relates to cost. Alert project team to potential cost risks and opportunities. Record key communications made during estimate preparation.

25. Well Prepared Estimate (con’t) Provide a record of all documents used to prepare the estimate. Source of support during disputes. Establish baseline for scope, quantities and cost for use in cost trending throughout the project. Provide historical relationships between estimates throughout the project lifecycle. Facilitate the review and validation of the cost estimate

26. Risk is a choice rather than a fate. Peter Bernstein

27. Thank you.