Supervisor: Hans Wamelink
Thanon Sommitr
5337119 - t sommitr@student tudelft nl
Christina Swinnen 4579968 - c m s swinnen@student tudelft nl
Bryan Westerink 4690710 - b e westerink@student tudelft nl
Daniël Mancoulov 4459849 - d mancoulov@student tudelft nl
Steven Donkers
5248965 - s.j.donkers@student.tudelft.nl
Annick van der Lingen 4608488 - a i vanderlingen@student tudelft nl
This research is focused on analyzing the transformation case of Hart van Zuid, elaborating on the PPP, the procurement, the stakeholders, and the public values followed by an in-depth research on the question: ‘’What types of risks are involved in the Hart van Zuid case and how are these risks managed in the SPC formed for this project?’’ The analysis and research were conducted by literature research and interviews with professionals in the project The analysis shows that the redevelopment case of Hart van Zuid is very complex This resulted in a huge number of internal and external stakeholders in the project The municipality works together with contractors Ballast Nedam and Heijmans in a PPP The private parties and the municipality work together in a DBFM contract. This enhances the overall quality of the redevelopment as the different stages in the project are better aligned The private parties are also responsible for the finances of the project and to be able to lend enough capital they formed a SPC. This separate organization is able to work without the influence of pre existing debt and extra shareholders from the parent companies. The research on the risks shows that the SPC entails some particular risks that can negatively impact the project The handling of risks is presented through the risk management model by Winch, which outlines the risk identification, assessment, response and control. Showing that the SPC co-owned by two companies comes with extra risks as the different cultures and interests can bring conflict The allocation of risks in this case is established through much negotiations during the contract phase and the creation of the VOF (general partnership)
Keywords: Complex (re-)development, Hart van Zuid, Rotterdam, SPC, PPP, Stakeholders, DBFM, DevCo, Risk management
Table of contents 2
0 Introduction 3
0 1 Description of the Plan 3
0 2 Phasing - What has happened, where are we now and what’s to come? 4
0.3 Structure of the Report 5
1 Procurement methods 6
1 1 Public Private Partnership (PPP) 6
1.2The project delivery method 6
1 2 Special purpose company (SPC) 7
1.3 Organizational structure 7
2 Stakeholders 10
2 1 Internal Stakeholders 12 2 2 External Stakeholders 12 2 3 Stakeholder management 12 3 Public Values 14
4 Risks of the SPC 16 4 1Analysis with the tools, model 16 4 2Approaches to managing uncertainty and risks 17 4 3 Risks in Hart van Zuid (in special purpose company (SPC)) 20 4.3.1The risks management of Hart van Zuid project consortium 20 4 3 2 The risks allocation of Hart van Zuid project consortium 23 4.4 Risks other than consortium and SPC related risks 24 5 Conclusion 25 References 26
In this analysis report, the Hart van Zuid case is described The Hart van Zuid case is a complex redevelopment project in the southern part of Rotterdam which consists of the Zuidplein shopping center, the Zuiderpark and the Ahoy, a famous accommodation for fairs, events, concerts, conferences and meetings in Rotterdam
Rotterdam Zuid has around 200 000 inhabitants and almost all nationalities can be found there. It is one of the less economically vibrant parts of Rotterdam, with a lot of unemployment and undereducated people Through the HvZ project, the municipality wants to improve the quality of the surrounding neighborhoods At the start of the project, the area functioned as a place where people pass through, without staying there The project aims at creating a qualitative area where people want to stay for work or leisure (van de Braak 2021) This aim ties in with the ambition of the municipality of Rotterdam of creating a new centre in the southern part of Rotterdam. In the autumn of 2011, the basis for the current development of Zuidplein and the surrounding area was laid After this, an agreement was signed in November 2013 between the Municipality of Rotterdam and Ballast Nedam to initiate the transformation (Heijmans, n.d.-a).
The municipality set out 5 main objectives for the Hart van Zuid plan (Gemeente Rotterdam & Ballast Nedam, 2014) These are:
1 creating a “Vliegwiel” (meaning an economic driver of the South of Rotterdam)
2. creating an appealing Hart van Zuid
3 Hart van Zuid “works” (provides jobs, education and internships)
4 Connected urban junction of the South (good functioning public traffic)
5 creating a sustainable and healthy living environment
In short, Hart van Zuid must give the southern part of Rotterdam an economical and social boost, provide jobs and better services for the inhabitants The Hart van Zuid area development must ensure a good connection of the activities in the area with good public space facilities.
As mentioned before, the project consists of the Ahoy, Zuidplein shopping center and the Zuiderpark In order to achieve the goals described above, a mix of different functions including culture, sports, commerce and education, will be, or are already realised. Figure 0 1 shows the mixed program for the plan (Hart van Zuid, 2011)
Figure 0.1: Program of the design (Hart van Zuid Rotterdam, 2011)
Sub-projects within the masterplan, such as the Kunstenpand (theatre) and the public space, were or will be realised by relying on the knowledge of parties other than Ballast Nedam and Heijmans Capital For example, the Kunstepand, which was delivered in 2020, was designed with the expertise of de Zwarte Hond
Figure 0.2: HvZ from the West, showing the connections (Hart van Zuid Rotterdam, 2011)
Apart from the extensive list of functions in the area, a lot of attention has also been given to the network of public space and street plan within the area The plan is based on a structure of connected public spaces, which are held together by the street plan. The aim of the connected public space is to create new opportunities for cultural, commercial and economic activities and initiatives, on the street and in the adjacent buildings (Hart van Zuid Rotterdam, 2011) All of this while also maintaining a safe and clear street plan which serves busses, cyclists, pedestrians and automobilists. The plan also includes an intensive public transport hub, with a zero emission bus terminal that is supposed to become the ‘gate to South Holland’(ten Kate, 2021)
0.2 Phasing - What has happened, where are we now and what’s to come?
The area around Hart van Zuid has been around since a long time. From the 60’s until the 80’s, major additions were made to the area, including a subway station, the Ahoy and the shopping centre In the 90’s the first steps to achieve the ambitions of the municipality were set. The shopping centre Zuidplein was then expanded with 11.000 m2 to a total of 55.000 m2 (Heijmans, n d -a) TheAhoy was also extended (Hart van Zuid Rotterdam,2018b)
Figure 0.3 Historical timeline based on Hart van Zuid Rotterdam, 2018b (TU Delft, 2021)
20 years later, the municipality set out a tender and challenged the companies to work in a Public Private Partnership (PPP) for over 20 years. The tender was won by Ballast Nedam, and later Heijmans joined the PPP (Heijmans, n.d.-b). In 2016 the building phase started. First, the transformation of the “deelgemeentekantoor Rotterdam Charlois” to a new 50-meter pool and an expansion of the Hoornbeeck College was started Since then, the swimming pool (including a 25 and a 50 meter pool), Hoornbeeck College and the Ahoy halls were completed in 2017 Three years after this, the Kunstenpand and international convention centre were delivered in 2020 The swimming pool and the Kunstenpand are being maintained by the SPC, which is a standard PPP sub-contract with the municipality (Raming, 2021). One of them is being rented out to the municipality and the other one is made available for the municipality, which is a public private partnership construction The municipality rents these buildings out to the sports company and the theatre Zuidplein (Janssen, 2021).
This brings us to the present, 2021 This year is the deadline for the delivery of the busterminal and the “leisure site”, which includes a cinema and hotel In the years after this, projects such as the Hart van Zuid Boulevard and appartements will be delivered. The whole project should be completed in 2040 (Heijmans, n d -a)
This report consists of a comprehensive analysis of the transformation case of Hart van Zuid. The first three chapters will further elaborate on the procurement strategy which was used in the project, the stakeholders involved and the public values All of this is followed by an in-depth final chapter about the risk management of the SPC by applying the risk management model of Winch (2010). The research questions for this in-dept risk management chapter is:
‘What types of risks are involved in the Hart van Zuid case and how are these risks managed and mitigated in the SPC formed for this project? “
Figure 0.4 Planning based on Hart van Zuid Rotterdam, 2018 a,b & c (TU Delft, 2021)In this chapter the procurement method of the case is described. First the PPP that occurred in this case, is analysed. This includes the actors involved, and a description of task distribution and responsibilities Secondly the project delivery method (DBFM) chosen for this project is explained In this part the advantages for the municipality of this chosen method are also explained. Thirdly the special purpose company, created to engage with the municipality in the contract, is mentioned Lastly, the organisational structure needed to complete the project will be described
As mentioned in the introduction, the parties with whom the municipality of Rotterdam is partnering a PPP, are Ballast Nedam and Heijmans PPP’s are defined as long-term contracts between a private party and a government agency for providing a public asset or service, in which the private party bears significant risk and management responsibility (Zeegers, 2013) The agreement between them comprises that they will be working together on the area development for 20 years The private parties will take on a significant portion of the risk during the partnership This is also the case in the Hart van Zuid Developments: during the tender it was made clear that the agreement, apart from the management responsibility for the area, would require the private parties to take responsibility for directing the implementation within budget and to take on the associated risks While the municipality would determine the objectives in the form of a package of requirements and wishes, the private parties were given the space to work out solutions themselves that would include all the requirements and as many wishes of the municipality as possible (Hart van Zuid Rotterdam, 2011)
The chosen procurement method for the Hart van Zuid project is a Design, Build, Finance and Maintain (DBFM) The municipality chose this type of procurement method because the municipality itself does not have the finances to create this project single handedly (Hart van zuid Rotterdam, 2011) In a DBFM contract the developing party, in this case the SPC, is in charge of financing the project A second important reason to choose this type of model is the division of risk This division of risks was something that was done very purposefully and a lot of attention was given to this task. The risks were divided in “baskets”, and then given to the party most capable of handling that risk Risks that none of the parties were capable of managing were shared, so that no party would have to bear it alone (ten Kate, 2021) These are important reasons for the municipality, but there are other reasons as to why the municipality chose this type of procurement, which could be:
● The contractor, in this case the consortium of the SPC, is tasked with the designing, building, and maintaining. This provides more alignment in several aspects of the project Due to this alignment the cost of the project would normally be lower than in the traditional mode, as a consequence can be the reduction of cost overruns
● The chances of a successful project delivery are increased due to the contractor also gaining from a positive result.
● The municipality, the client, is able to outsource all the tasks concerning the project and is therefore able to focus on the organization's core business.
This type of procurement method also had caused difficulties within the project During the process it became apparent that the DBFM contract might be too complex for this project, as a result of the size of the project. This is due to the large number of actors and sub-contracts involved A DBM contract for projects of this size might be more sustainable for future projects In this way reaching the environmentally sustainable goals is easier Also, the traditional way of contracting with an attached performance- compensation might have worked better in the Hart van Zuid case. Mainly, as mentioned before, because the great number of contracts involved a lot of people which made communication redundantly complex Elaborating every legal detail is not desirable, because the consortium needs space to discuss the details or suggest improvements to the project (Raming, 2021).
The municipality is in contract with the SPC which is called Coeur du Sud This is a separate organisation, set up with the specific goal of developing the Hart van Zuid project A SPC can be created by a parent company or two parent companies, which in the Hart van Zuid projects are Heijmans capital and Ballast Nedam (Van de Braak, 2021)
The reason to contract this company instead of contracting an existing developing organization is that an SPC can lend capital from external lenders. This is possible because the SPC is not influenced by outside forces like stakeholders and pre-existing debt Thereby ensuring the lenders that the risk of lending the funds is low enough for the lenders to provide a loan This type of agreement is used in the field in multiple forms, one of which is the DBFM (van den Berg, 2009). Other benefits from choosing the SPC of Ballast Nedam and Heijmans as the developing organization could be:
● Due to the risk averse nature of the bank, it is strict A Technical Advisor from the bank, paid by the SPC, evaluates, and monitors the process monthly. This not only gives assurance to the bank, but also to the SPC, as they feel the pressure to live up to the expectations of the bank For this reason, SPC projects hardly deliver late, as the bank provides large discounts for delivering the project on time (Van den Berg, 2009)
The disadvantages of this complex organisational structure could be:
● Every time the SPC wants to make changes, the bank must give permission, and this causes a lot of extra unnecessary work, especially during the exploitation phase
● The main disadvantage of this contract model is the complexity There are many stakeholders and contracts This creates a loss in flexibility If someone wants to make a small change in the design, this process takes long as it must be accepted by many people and entities (Raming, 2021)
The different aspects of the organizational structure created by the chosen procurement methods are as follows In the case of the division of equity the two developing shareholders have agreed to split the amount of equity fairly. This comes down to Heijmans Capital 2.5%, Ballast Nedam 2 5% and 3I 95% (Janssen, 2021) 3I is an English investing company
specialised in project financing The financing of the SPC by the municipality will be the responsibility ofThe Bank Nederlandse Gemeente.
The CDS (SPC) itself has two contracts.
The first contract is with the DBM, the Hart van Zuid VOF, which is a general partnership Both of the organisations in the DBM, Heijmans and Ballast Nedam, are responsible for 50% of the building, designing and maintaining of the area (Janssen, 2021)
The second contract, illustrated on the right in figure 2 1, involves the developing organisation This is the developing company (DevCo) Riederwaard Riederwaard consists of a collaboration between Heijmans Real Estate and Ballast Nedam Both companies are responsible for 50% of the DevCo. The DevCo is responsible for the optional development projects This starts when the municipality sells the building ground to the DevCo, whereafter the DevCo develops the buildings The buildings in Hart van Zuid which are developed by the DevCo are the cinema, hotel and parking garage (see figure 2.2). After finalising these buildings they are sold/rented out to exploiting parties (Raming, 2021) The organisation of the SPC and these two contracts and their interrelated connections are illustrated in figure 2 1(Rijksoverheid, 2021)
Figure 1.1: Contract model for Municipality and SPC (Source: Kate and van den Braak, 2021)
The redevelopments which fall under the DBM contract are the swimming pool, the Kunstenpand, Ahoy and the public space as illustrated in figure 2 2 These developments are (in the long term) funded by the municipality and they will also exploit the buildings (Raming, 2021) Through the DBM agreement that the SPC has with the Heijmans Utilities and Ballast Nedam, both organisations are responsible for the building, designing and maintenance of the swimming pool and the theatre The contract for the swimming pool lasting a period of 20 years and the contract for the theatre lasting a period of 24 years The theatre and the swimming pool are rented to the municipality as part of a provision
agreement The contract also integrated the D&B of the Ahoy and the ICC These buildings are after the development period delivered to the municipality. The redevelopment of the existing infrastructure in the region around and in the Hart van Zuid project is also mentioned in the agreement Heijmans Utilities and Ballast Nedam are responsible for the DBM of the infrastructure over a period of 16 years (ten Kate & van den Braak, 2021)
Figure 1.2: Contracts of embedded cases in DBM (Source: Kate and van den Braak, 2021)
This analysis about the structure shows that in complex organisations, multiple stakeholders are involved in the realization of the project To fully understand the project, these involved stakeholders need to be understood. In the next chapter the stakeholders are going to be analysed
The complex development Hart van Zuid project deals with a large amount of both internal and external stakeholders All these stakeholders have different needs and requirements that needed to be identified when the Program of Requirements was drawn up. This Program of Requirements contains all the requirements the finished project should deliver In the Hart van Zuid project the Program of Requirements is more than a thousand pages long and thus, very complex (ten Kate, 2021) Marije ten Kate (2021) also explained that the municipality had to have conversations with all of these stakeholders and understand what exactly they wanted, without promising anything
In order to manage the requirements of the most important stakeholders, the tender included a “package system”. In the tender it was stated which “basic requirements” had to be realised through the developments and within the budget The Basic Package included, most importantly: the theatre and library, a bus station, the convention centre, sustainable exposition halls, the swimming pool and the public space (see figure 3.1). Next to this compulsory Base Package, there was a Plus Package In the plus package, some ambitions that would be “nice to have” were included However, these elements were not guaranteed in the realization of the project, as are the elements of the Base Package An example of one of the elements of the Plus Package which was eventually realised, is the 50 meter swimming pool Which is in contrast with what was in the base package The Base Package included the agreement on a 25-meter swimming pool by the City Council, which is what they had the budget for. However, when Ballast Nedam won the tender, the City Council decided that they wanted a 50-meter swimming pool. So, the City Council provided the extra budget, since they were the ones that proposed the change in plans (ten Kate, 2021)
The internal stakeholders in this project are the stakeholders whose interest comes through a direct relationship with the case. Such as employment, ownership or investment (Winch, 2010) Some of the internal stakeholders were already mentioned in the previous chapter about the procurement An overview of the stakeholders can be seen in figure 3 2 The most important stakeholders will be further elaborated under the headers internal stakeholders and external stakeholders
of Winch (2010), this matrix will indicate the options of maneuverability in the project decisions made during the project and planning processes. It will also illustrate the ability to broker compromise by renegotiating the project mission (Winch, 2010) The stakeholder power-interest matrix is illustrated in figure 3 3
Figure 2.3: Power-Interest Matrix based on Winch (2010) chapter 4. (own image).
The Municipality of Rotterdam, as mentioned in the introduction is involved as the client in this case. The Municipality had the ambition to give the region an upgrade and make it the new centre of the South of Rotterdam The role of the municipality is to steer the design to which they desire, as this is described in the project agreement as well as the selling of the land to the DevCo and for the DBM the municipality will only pay off the building costs by renting the building from the development company. The Municipality of Rotterdam has the most interest and power in the project (see fig 3 3)
Furthermore, the companies who make up the SPC consortium are internal stakeholders, as they have a contract with the municipality. These are, as mentioned several times before, Ballast Nedam and Heijmans These parties are each 50% responsible for the DevCo as well as for the DBMThe SPC consortium are the ones after the municipality which have the most power and interest in the project.
Another internal stakeholder, which is also part of the SPC and which is also under contract is the lender Bank Nederlandse Gemeente which has a financial agreement to provide finance of the project. Another financial party in the project is 3i, which is an investment vehicle (Janssen, 2021) This party funded, as described in the previous chapter, the project for 95% The lender and financier (3i) have less power in the project, but high interest, they will have to be kept informed.
Besides the internal stakeholders, the project does also have external stakeholders which may also be influenced by the outcomes of the project Here we again use a definition of Winch (2010): ‘’External stakeholders are stakeholders that do not directly work on the project but are affected somehow by the developments and outcomes of the project ’’
A main external stakeholder will be made up by the inhabitants of Rotterdam, the future users of the region, the employers in the area and the parties which will be renting the buildings from the municipality after completion like the sports company (NGO’s) After completion, these will be the parties which will be occupying the area again These groups all have a big interest in the redevelopment of the area, as they are the ones who will be the users of the facilities
These external stakeholders all have high interest, but less power in the project They also need to be kept informed and especially the future users will be influenced by the performance of the product of the project (fig 3.3.).
The stakeholder management for the Hart van Zuid project the municipality of Rotterdam created an internal project group called ‘Hart van Zuid’ This project group operates independently from the other municipal organisation and includes an independent project budget They can act within the framework of their mandate, staying within their own budget This means that the budget does not need to be reviewed every 4 years with the change of newAlderman and political objectives, creating problems for the project (Janssen, 2021).
For example, for realising the Ahoy extension agreements about severe penalties had to be made. This was to prevent a concert being interrupted by building noises. On top of that a lot of communication days with inhabitants have been organized. These were to prevent disturbance from the building project as much as possible For example there was a penalty for blocking a road for longer than 1 hour (Janssen, 2021)
Since Hart van Zuid is a complex redevelopment project, there are a lot of different stakeholders involved, as can be seen in the previous chapter These stakeholders have different values, needs and goals. In this chapter, public values will be further elaborated on. Public values are what society believes are important values in the creation of certain products or services and whose provision is the responsibility of the government (Kuitert et al , 2019) Values of the public organisation include values that also serve the public interest outside of its organization. The analysis of the public values in the Hart van Zuid case will be based on table 3 1 which shows an overview of different public values distributed over different public client sectors The figure shows that different public client sectors share the same
op 5 value interests according to the degree of publicness (Kuitert et al., 2018)
Public values that are of greatest interest in the figure are collaboration, reliability, quality, integrity and transparency.
First, the public value of transparency will be discussed Transparency towards other parties in the process of the redevelopment was a requirement for making this DBFM procurement method work The scope, goals and budget of the development have been made public before the tender as this is an important requirement in the legislation for tenders in Europe Because the municipality decided they were looking for a partner in this project for a very long time span, they really had to make clear what their goals were with Hart van Zuid leading to the clear objective explained in the first chapter of this analysis Not only was this required to find market parties to collaborate with but also to explain to citizens what their
goals were and where they were planning to spend their (public) money on (Ten Kate, 2021) The choice for a DBFM has contributed a lot to this value.
The second public value is that of collaboration In this case this is comparable with the public value of integrity Integrity is being honest and having strong moral principles As the project is a PPP, in which both public and private organisations work together, good, fairly structured and honest collaboration is essential As both parties have different values that might be incompatible or incommensurable with each other, value pluralism might arise This must be avoided For this purpose, a VOF was set up The aims and goals of the VOF are aligned easier, as it can be seen as a separate company. The creation of the SPC also had a large influence on the integrity and collaboration between the parties This has as a starting point that the amount of risk is fairly shared between the parties (Van Gurp, 2021), being integrant has a large influence on this.
In the collaboration with market parties, another value contributing to the public, is neighbourhood participation in the project Heijmans participated in the talent development of the citizens through various events 5 % of the budget for labour has to be spent on hiring people who cannot get a job, increasing the social return on investment of the project and contributing to citizens development (Janssen, 2021)
The third public value is the reliability which is obtained by the long term DBFM agreement. Ensuring a collaboration of 20 years demands a long term commitment from the procurement parties, which enhances reliability in the project This also covers the problem often appearing in long term redevelopments of changing political forces within the municipality endangering the progress and therefore the reliability of the development. In the specific case of Hart van Zuid the municipality tackled this problem by establishing a fixed budget in the DBFM contract to be spent in the next 20 years regardless of possible political changes (Ten Kate, 2021)
The last public value is quality It is essential that the delivered end-product is of good quality, as it contributes to achieving the main goals set by the municipality for the Hart van Zuid project introduced in chapter 1. Quality is a value which is hard to define, as all parties can have different views on what quality is (van de Braak, 2021). It is therefore important to define quality itself and all aspects needed to achieve quality properly, to diminish conflict between qualitative visions of the parties Quality can be safeguarded with the use of a DBFM contract, as the various quality-related aspects are aligned better and maintenance is more likely to be worthier (Raming, 2021) Performance measurements are implemented in contract and the municipality has set certain requirements which the area has to meet after the 20 year period and looks along with the design to ensure a certain quality
In this chapter, the in-depth information of Hart van Zuid SPC risks is analyzed and clarified to answer the research question of the report The major risks that involve in the Hart van Zuid as well as the measures that are used to manage and mitigate the risks could be identified from the perspective of key player stakeholders and some scientific paper by using the risk management model of Winch (2010) as an analyzing theoretical framework
Although Special Purpose Company (SPC) offers a variety of risk mitigations and advantages over other delivery models of Hart van Zuid project as mentioned in chapter 1 (procurement), some particular risks need to be concerned before and during working as a SPC for construction projects For example, a conflict of interest between the companies in the project consortium due to the culture and organization in the background of both companies (Janssen, 2021) Besides, risk could arise since there are many stakeholders involved in the project, poorly manage the stakeholders could lead to delay or dispute (Dwars, 2021)
Risk can be seen as a threat to the success of the project Risk management essential for managing a project successfully, especially a complex project like Hart van Zuid Risk management is a process of dealing with uncertainty, through identifying, assessing and responding to project risk The goal is to maximize the positive opportunities and minimize the negative consequences of an uncertain event (Osipova & Eriksson, 2013) The management of risk that occurs in SPC is a very crucial aspect.
The risk management model from Winch (2010) is a theoretical framework for analyzing Hart van Zuid case According to Winch (2010), there are three dimensions of managing the risks and uncertainties on projects, the risk source, the impact of the risk event and the extent to which management can effectively respond to the risk source and the risk event The risk source is the underlying condition that can generate a possible risk event at some time forward from the point of decision-making, while risk event is an event that can happen given an underlying state of affairs (Winch, 2010). The management of tackle the risk (risk response) could be done in two ways, respond to a risk source and plan a response to handle the impact The relationship between the risk source and the risk event is expressed in terms of the probability of its occurrence given the risk source (Winch, 2010).
Winch (2010) explained that there are four schools of thought on the definition of risk and its relationship to the concept of probability:
● Objectivist school, Predictive in that it predicts future events by looking at known data or history of the risk sources
● Logical school, Predictive in that it predicts future events from logical reasoning by engineers who understand the system.
● Subjectivist school, Prescriptive because it provides techniques for decision making while keeping in mind the subjective nature of the belief on a probability of the decision maker.
● Behavioural school, Descriptive about making decisions in the practice of risk management
Based on these mentioned four schools, Winch established a “Cognitive Approach” to risk With this approach he stated that the attitude of the decision-maker is defined by the amount of information and knowledge he has. In that sense risk is affected by the perception and confidence of the manager Winch introduces a cognitive model which builds upon the notion that risks exist somewhere in an information bubble between the certainty that it will occur and the impossibility of its occurrence. It also states that the confidence of the decision maker increases as the amount of information increases
Figure 4.1:Acognitive model of risk and uncertainty on projects (Winch, 2010 p. 349)
In this model, Winch classifies risks in four categories:
● Known knowns; The cognitive condition of risk: the risk source is defined and the probability of it occurring is assigned
● Known unknowns; The cognitive condition of uncertainty where a risk source is known but the probability of it happening or its impact is unknown.
● Unknown knowns; The cognitive condition of uncertainty where not all available information is known by the decision maker because certain actors are not sharing all their known information.
● Unknown Unknowns; The cognitive condition where the risk source is unknown and its impact or probability is also unknown by all parties (known as a ‘black swan’)
To deal with risks and uncertainties, the project manager should play a sensemaker role To be a good sensemaker, effective routines for managing risk and uncertainty are important as a sensemaker could develop through a learning process. Expert decision makers have been developing routines for eliciting subjective probabilities These routines are developed because there is often not a reliable data set to rely on (Winch, 2010)
With the next illustrations the basic principles to do so will be clarified There are 4 phases as followed.
Figure 4.2:The model is set up in a circular way to illustrate that risk management is a learning process (Winch 2010, page 360).
1. Identify & Risk Register: Finding the risk sources is mostly dependent on the experience of project managers The goal is to make a risk register that contains all known knowns, known-knowns could certainly be managed proactively and the design of the robust project consortium could help to mitigate unknown-unknowns reactively (Winch, 2010) . This risk register (as seen in the middle of Fig. 4.2) will serve as a base document and tells the project manager about the things to be managed from a risk and uncertainty point of view
2. Asses: There are currently a lot of tools to assess the different risks, these are mentioned in the context of managing schedule, budget and conformance Yet one of the most important tools is the probability/impact matrix in the figure above Here the different risk sources are identified in terms of their probability of occurrence and the magnitude of their impact
Figure 4.3:This table is used to categorize risk sources into four types of uncertainties according to their probability and impact.(Winch 2010, page 361).
3 Respond & Plan: to respond after identifying and assessing the possible risk (eg using the table in figure 4 3), you can decide how to act on the management challenges.The options are:
● Accept the risk and plan to respond to the risk event
● Externalise the risk
● Mitigate the risk
● Insure or hedge against the risk
● Delay the decision
The type of option you take depends on the type of risk, and you can see the most commonly used options for each of the classifications in the matrix above. The manager is limited in types of responses to probable disasters (mitigate risk) and rare catastrophes (insurance), but has a wider variety of options for managing the lower impact risk sources Often, externalisation is an attractive option and the general rule Winch identifies is: “to allocate the risk to the actor closest to the sources of the risk and then to motivate them to manage them effectively” (Winch, 2010) When you decide to accept the risk, you can start to plan to respond to the risk event Generally this is done by providing contingency in the budget or slack in the schedule Slack and contingency are planned amounts of available resources that can be used if a risk event were to occur Additionally, you should make plans for emergency response regarding environmental and safety risks
4. Control: The knowledge about risks and uncertainties needs to be monitored by updating the risk register during the project life cycle This will raise the awareness of possible growing unknown unknowns. Management techniques for controlling and monitoring are mostly informal. This means that the project manager will get the most
useful information by wandering around the construction site and organizing regular unrecorded meetings where team members do not feel ashamed to talk about things that are not going as planned.
4.3.1The
A complex project like Hart van Zuid consists of many stakeholders and development parties Risk management is one of the crucial methods in order to manage the project successfully Table 4 1 illustrates what major risks are that take place in the Hart van Zuid project and how the consortium deals with the risks.
In this table, there are 6 columns, the column on the left represents the stakeholders (interviewees) who informed the Hart van Zuid risk information for each row The other 5 columns to the right illustrate the risks of each stakeholder and how they are dealing with the risk by applying the mentioned risk management model by Winch (2010) in 4 2 The information for each column is from the interviews except “Assess (predictability and impact of the risk)” which are categorized by our group members by using Winch probability and impact model (figure 4 3)
The threshold that we use to distinguish between “high and low” risk predictability and impact are as follows.
● Predictability:
Low: likely to occur less than 3 times in a development lifetime High: could occur more than 3 times in a development lifetime
● Impact:
Low: effect either construction iron triangle aspect (time, cost, quality) or project coalition
High: effect both on construction iron triangle aspect and project coalition
Ballast Nedam Cost and time overrun -Acomplex project consists of complicated tasks, issues occur all the time → more cost and time spending
- Poorly define project scope - Inefficient supervision.
low/ high Planning -create timeline with clear objective per phase -create subsidiaries with in the project and allocate particular risk to each subsidiaries (top down management)
- Equally distribution of risks to sub-parties, which are controlled by top down management
-Extra support by the government (the municipality of Rotterdam)
Heijmans
Conflict of interest or a different vision on the project of employees (Heijmans and Ballast Nedam)
Change of political policy that could influence a project constructions
-The different od culture and organization in the background of both companies
high/ high The VOF Hart van Zuid is established.
In the VOF there feels no difference in the two companies.There is no competition, it is one company
-changes in law or political policies
Pandemic circumstance - Pandemic circumstance such as COVID-19, Earthquake
high/ high Adding contingency (at least 2 million Euro) to the contractor contract
low/ high All parties involving to cope with unexpected event together
-Contingency cost is added to cope with unforeseen changes
-All parties involved took a part of the responsibility and this way a good way to cope with the pandemic has been worked out
The Municipality of Rotterdam
Hart van Zuid (VOF)
Optimism bias - Being overly simplistic for stating, unrealistic expectation
Cost overrun, over budget (for the contractor)
Heijman will encounter the building tax and the insurance of the property being higher than anticipated (Janssen, 2021).
high/ high All possible risks (aspects) need to be discussed in the contract phase
High/low Planning and estimate the risks that they can surely handle.
-Share knowledge, discussion and anticipate risks based on realistic viewpoint (information based decision and measure)
- Equally distribution of risks to sub-parties
- Contingency budget
As mentioned before the SPC has a high level of complexity with a large number of stakeholders and contracts. This creates the risk of loss in flexibility. This can complicate the process as it increases the time and effort needed. The SPC consists of different parties, both having different visions, culture and ways of working, who now need to work as one organisation (Janssen, 2021) This brings the risk of conflict between those different visions, culture and ways of working of both companies. An example of different ways of working is that Heijmans uses a more elaborate package of standard options in the homes they built, which were not standard for projects from Ballast Nedam (Van de Braak, 2021) A big difference in the organization of both companies is that Ballast Nedam is privately owned and Heijmans is stock oriented. This led to a lot of negotiation and coordination. This is the reason why the VOF (general partnership) Hart van Zuid was set up Within the VOF, employees of both companies work together equally without any differences The VOF has its own annual accounts and can therefore be seen as a small independent construction company (Janssen, 2021)
There might not only be a difference in vision between internal parties but also with external parties. This brings along the risk of conflict between different visions of the SPC and other parties In order to reduce this risk, contracts with very specific requirements were set up (setting a standard for a whole consortium) For some buildings the contract was very detailed and specific about the requirements, which gives less uncertainty. For some buildings, the contracts were not specific on the requirements and led to different views on the requirements (van de Braak, 2021)
In all construction projects, there is a risk of delay in the delivery of buildings. This also applies to the Hart van Zuid project which contains multiple large scale buildings The municipality also sets strict deadlines that are set in the contract and if they are not met, the contract parties can be given a penalty (van de Braak, 2021) This pushes the contract party to deliver on time, but this in turn translates into a financial risk as well for them, if not capable of delivering on time
Construction projects with a long time span can deal with political risks. Over time, there can be a change in political parties in local governments, having different policies and views on the built environment that could perhaps influence the project These risks remain with the client (Raming, 2021) For the Hart van Zuid project, the contract stated that political changes would not affect the project (van de Braak, 2021). The amount of money made available by the municipality for this project was fixed at the beginning of the contract
An external risk that can occur with building projects, is the rise of building costs It is a risk from the outside that can not be controlled and together it was decided who could manage it best (ten Kate, 2021) Besides, managing stakeholders and time is something important and risky (Dwars, 20210) There are many stakeholders and contracts This creates a loss in flexibility. If someone wants to make a small change in the design, this process takes long as it must be accepted by many people and entities ( Raming, 2021) Those risks could lead to project cost and time overrun
In construction projects there is a risk of unforeseen circumstances. The Covid-19 pandemic is one of these unforeseen risks the Hart van Zuid project faced The pandemic hasn't specifilcy been put into contract Although there is a clausule for unforeseen circumstances,
not all of the pandemic impact can be fully put on that alone So, a suitable solution has been found for this outside the contract in good consultation (Raming, 2021). Banks are eager to make clear which risks are borne by what party (Janssen, 2021).
4 3 2 The risks allocation of Hart van Zuid project consortium
There were extensive talks about the allocation of risks between the parties during the contract phase (Ten Kate, 2021). A list was made of all the risks that might occur and all tender parties and a decision was made who would bear the risks based on their capability of managing these risks
The SPC is split up into subsidiaries and the risks are allocated to the subsidiary responsible for that specific part in the project (Raming, 2021). So, the construction party (Hart van Zuid VOF) bears the risks related to construction and Riederwaard bears the risks related to the commercial development part (van de Braak, 2021) External risks that could not be controlled by the market parties such as the rising building costs were taken by the municipality (ten Kate, 2021) Risks that all parties were not capable of managing, are shared between all parties By splitting up the risks between the different parties, risks are divided more fairly
Most of the risks are allocated between the parties by contract However, there are risks that are unforeseen and are not mentioned in the contract Such as the covid pandemic There are some other risks that the project stakeholders did not mention in the interviews but could possibly occur in the Hart van Zuid, those are elaborated further in the table 4.2. Then all parties negotiate how these risks will be managed Though the risk at first would be borne by the development branch Riederwaard, because of it’s exceptionality a deal has been made in which all parties took a part of the responsibility (Raming, 2021). Also the risks related to the conflict in visions were risks that needed to be managed through negotiation in which sometimes a mediator was needed, as the contract did not mention the allocation of these risks
At the end of the 20-year contract period, the contract can be extended by another 20 years, or the project is sold back by the municipality (Van de Braak, 2021) In the last case, the risks are transferred to the municipality (Raming, 2021). The municipality has set certain requirements which the area has to meet after the 20 year period, with maintenance being one of them The municipality has therefore looked along with the design as they want to know what they will take over after the contract period This applies to the entire public area This to ensure that the municipality will be capable of managing them after the project is taken over by the municipality (Raming, 2021)
The VOF views and monitors risks at various levels Within Hart van Zuid VOF, risks are primarily monitored financially. In addition, there is a risk file for matters outside of that. Lastly, there is also a mechanism in the project, an administrative account Money is put into this account and is used the moment risks are encountered or opportunities are seen during the project. Of course with both the municipality and the contract owner agreeing to this. In practice, the account is sometimes also used to mitigate risks It is then especially important to share the risks that are too big directly with the municipality This allows such risks to be mitigated directly (Janssen, 2021)
Apart from the mentioned risks from the consortium of Hart van Zuid SPC, there are other risks that could occur in the project as well Table 4 2 shows the risks of other SPC (in similar projects) that should be concerned as they could possibly occur in the Hart van Zuid In this table, the information for each column came from other literature, only the information in the assess column that is analyzed by ourselves by using the same rubric of table 4 2, while the stakeholders column is not included in this table as the information is not derived though Hart van Zuid stakeholders.
Table 4.2: the risks management of other project consortium (source of the method: Winch, 2010a)
Risk Identify (risk sources) Assess (predictability/ impact)
Conflict between project coalition (Winch, 2010a)
- Unclear objective and task division of parties in the consortium
low/ high
Respond Control
Mediation - Involves the assistance of a neutral third party who facilitates negotiations between the parties.
Partnering -Forming alliance
-Aligning project coalition interest and objective
- Generate win-win culture on the project
Opportunistic behavior/ moral hazard (Kluwer, 2019)
- Information/ knowledge asymmetry
Reputation risk (Kluwer, 2019) - Risk for reputation that is carried by all the firms associated with a consortium.
Lack of consortium competence and cohesion (Kluwer, 2019)
Joint liability collapse (Kluwer, 2019)
- Failure of one member could lead to project collapse
low/ high Sharing knowledge Building trust
low/ high
Setting a standard of works and clear task division
Enhance consortium cohesion
high/ high
Sharing knowledge
Interest and goals of consortium alignment
- Well communication and collaboration within the teams
- Setting a standard of the whole consortium
- Well communication and collaboration within the teams
- Skill sharing
-Lack of control joint liability high/ high
- Controlling standard within the contract
This report was focused on analyzing the complex redevelopment case of Hart van Zuid, a project initiated by the Municipality Elaborating on the procurement, the stakeholders, and the public values followed by an in-depth research on the question: “What types of risks are involved in the Hart van Zuid case and how are these risks managed in the SPC formed for this project?” The analysis and research were done by conducting interviews, reviewing case materials and examining relevant literature
Through this project, the municipality aims at improving the quality of the surrounding neighborhoods, and make Hart van Zuid the new centre of Rotterdam South In order to realise this, the municipality entered into a long-term PPP with contractors Ballast Nedam and Heijmans. An SPC called ‘Coeur du Sud’, was also created for the realization of the project Furthermore, the project was procured under a DBFM contract In this contract form the private party arranged the financing for the project which was very important for the municipality as they did not have sufficient funds to finance the development single handedly. Also this contract form gives room to clearly divide risks which was very important for the municipality
Because this redevelopment project is extensive, there are a lot of internal and external stakeholders involved Important internal stakeholders are the municipality, the client, and the SPC consortium and the financial parties, while important external stakeholders are future users of the area and inhabitants of Rotterdam Zuid. The amount of stakeholders is also tied to the public values occurring in the project. These stakeholders have different values, needs and goals The five public values that are most important according to Kuitert et al (2018) can be directly related to the case Transparency comes forward in the tender process, collaboration and integrity are reflected in the PPP, reliability is guaranteed in the long term contract and quality will be obtained through the DBFM contract
In the final chapter of the report, the risks associated with using an SPC were discussed to answer the main research question: “What types of risks are involved in the Hart van Zuid case and how are these risks managed in the SPC formed for this project?” It was found that SPC’s could bring about several advantages such as risk mitigation by distributing and sharing external risks, however, some major risks can also occur. According to the interviews, the most important risk is the different culture and interest of each company, which could lead to major risks such as conflict between companies and information asymmetry To avoid this major risk in Hart van Zuid SPC, a separate VOF was founded This enhanced cohesion and aligned goals and interests of the separate parties. By setting a standard working method, an explicitly defined working scope and task distribution the whole consortium could work together under the same contract that they established together All concerned aspects are negotiated before the contract is written, therefore working culture and interest could be aligned by the contract. Furthermore, the DBM and the DevCo could be more integrated with each other according to Mark Raming In the current structure the two organisations were split up, however, there is a possibility to integrate these two organisations more, so collaboration is more effective and less people are needed to elaborate the work
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