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Financial analysis of road project delivery systems

Financial analysis of road project delivery systems Purpose – A project delivery system (PDS) refers to the organizational framework of a project that defines the control mechanisms and the relationships between actors and their incentives. It is of major importance to the project owner as it, for instance, contributes to the project's level of efficiency. This paper aims to define indicative, relative cost performances of different PDSs in a road management context to support the road owner's strategy development. Design/methodology/approach – This study compares the costs of design‐bid‐build, construction management at‐fee, design‐build, design‐build‐operate and design‐build‐finance‐operate based on an international data capture focusing on the operational performance of these PDSs. A financial analysis was made to determine the systems' present costs to a road authority based on relevant market estimates. Moreover, a step towards understanding their overall efficiency was taken by focusing also on differences in speed of delivery which result in expenses or savings to the user community. Findings – Although the applicability of a PDS depends on project properties and constraints, the study concludes that, in general, the broader the scope of services supplied by a single contract, the lower the system's present cost to the owner. The inclusion of private finance and early commissioning advantage, however, change the ranking so that universal conclusions cannot be drawn. DBFO seems to be commonly in the middle category. Research limitations/implications – Here, PDSs are applied to a relatively large project, minimum size €30‐60m, in well‐known conditions and involving no factors of uncertainty due to third parties. The results are not valid in smaller and/or more constrained projects. Originality/value – The study provided new knowledge of the owner's and society's average comparable cost performances in the case of five different PDSs. Since a single‐value, exclusive solution hardly exists, the study on the sensitivity of different PDSs to key financial parameters is also valuable. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Management of Property and Construction Emerald Publishing

Financial analysis of road project delivery systems

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References (54)

Publisher
Emerald Publishing
Copyright
Copyright © 2009 Emerald Group Publishing Limited. All rights reserved.
ISSN
1366-4387
DOI
10.1108/13664380910942644
Publisher site
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Abstract

Purpose – A project delivery system (PDS) refers to the organizational framework of a project that defines the control mechanisms and the relationships between actors and their incentives. It is of major importance to the project owner as it, for instance, contributes to the project's level of efficiency. This paper aims to define indicative, relative cost performances of different PDSs in a road management context to support the road owner's strategy development. Design/methodology/approach – This study compares the costs of design‐bid‐build, construction management at‐fee, design‐build, design‐build‐operate and design‐build‐finance‐operate based on an international data capture focusing on the operational performance of these PDSs. A financial analysis was made to determine the systems' present costs to a road authority based on relevant market estimates. Moreover, a step towards understanding their overall efficiency was taken by focusing also on differences in speed of delivery which result in expenses or savings to the user community. Findings – Although the applicability of a PDS depends on project properties and constraints, the study concludes that, in general, the broader the scope of services supplied by a single contract, the lower the system's present cost to the owner. The inclusion of private finance and early commissioning advantage, however, change the ranking so that universal conclusions cannot be drawn. DBFO seems to be commonly in the middle category. Research limitations/implications – Here, PDSs are applied to a relatively large project, minimum size €30‐60m, in well‐known conditions and involving no factors of uncertainty due to third parties. The results are not valid in smaller and/or more constrained projects. Originality/value – The study provided new knowledge of the owner's and society's average comparable cost performances in the case of five different PDSs. Since a single‐value, exclusive solution hardly exists, the study on the sensitivity of different PDSs to key financial parameters is also valuable.

Journal

Journal of Financial Management of Property and Construction – Emerald Publishing

Published: Apr 17, 2009

Keywords: Roads; Project management; Project finance; Financial analysis; Finland

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