Roger Boothe, Director, Infrastructure P3, Cost & Project Management, Altus Group
Infrastructure projects are akin to icebergs, in that there is typically a lot more going on beneath the surfacethat you don’t see. Recent world events have created a new environment in which project and commercial risk must be newly understood, priced, and allocated through proper management and contracts. To do this, a fundamental understanding of market dynamics, coupled with emerging technology, is key.
The Planning Phase
The New Environment – What We Don’t Know
With infrastructure, there is always a multitude of unknown risks that occur during projects. The new reality presents a challenge to the way we manage and deal with such risks.
Insurance and Project Security Packages – Most proponents are realizing their insurance coverage doesn’t address pandemics. For projects in procurement, owners may look to require such coverage, but can such insurance products be found? With respect to contractual and project security, it’s conceivable that there’ll be pressure to increase this in orderto achieve financial ratings.
Contractual and Risk Pricing – In the U.S., projects such as Maryland’s Purple Line have applied for Force Majeure relief related to COVID-19, but it will likely be months before legal wrangling renders an outcome. Meanwhile, projects in procurement are including specific language regarding pandemics in their contracts, where asprojects past financial close are lamenting the lack of specificity in their contract language. Clear risk allocation and responsibility will be a necessity for projects going forward.
A key tool for early risk assessment is the various software packages available. Recent updates are driving technology forward, while the traditional standbys for management of project information flows continue to improve their products, while also being challenged by new entrants.
Duration of Impact – We don’t know when this pandemic will dissipate or when global economies will recover,and what this means for private investment. Other potential impacts, including rising international tensions and civil unrest within the U.S., add layers of uncertainty toproject planning and procurement.
Commercial Models in Procurement – With respect to transportation, the key unknown is how quickly demand will rebound across modes. Long-term structural changes to work and travel may impact revenue streams.