Managing risk is one of the most critical aspects of tunnel construction strategy. As experienced tunneling professionals know, the many unpredictable aspects of a tunnel project can result in additional costs, construction delays and expensive litigation that drain the resources of multiple parties and seldom produce a “winner.”

When owners study and define the risks well in advance of the project and take prudent steps to mitigate, assign and/or insure against them, they are making a wise investment in their project. Accordingly, they’re much more likely to successfully deliver the project on time, on budget and in scope.

Tunnel construction risks

The primary risks associated with tunnel projects are related to the ground in which the tunnel is being constructed. The geotechnical qualities of the tunneling site are sometimes difficult to fully anticipate. There are many factors as to why this may occur, such as whether or not the project planning included an adequate investigation, representation and interpretation. Crews also can encounter unanticipated ground conditions at any location along the tunnel path. Those conditions can lead to slower production, impacts to the technology and techniques used to create the tunnel, differences in the tunnel support requirements and countless additional issues that could impact its costs.

New York City’s Water Tunnel #3 

Water Tunnel #3, bid in 1970 by a consortium of contractors, provides a good illustration of potential tunneling risks and the results of a failure to manage them. The $254 million project ($1 billion+ in today’s dollars), involved 13.7 miles of 23- and 27-foot diameter excavated tunnels at depths reaching 750 feet below New York City. It was the largest non-federal contract

ever let. The project started with no geotechnical reports or data and only sparsely spaced boring logs. The contract bid documents indicated the tunnels would need only 750 linear feet of steel support, blocked and lagged with timber.

As the project progressed, the contractor found the rock structure of the tunnel path — its faults, bedding and other factors — to be much more challenging than anticipated. Instead of 750 linear feet of steel ribbing, the tunnels needed several miles of steel support. The additional work dramatically slowed the process and increased the costs. The contract documents assigned the risk to the contractor, who was not compensated for these changes.

The delays and costs led to multiple lawsuits countersuits, and no clear winner emerged. The project went on a 25-year hiatus. By the time it was completed in 1995, the costs had likely risen to several billion dollars. This huge and highly visible project

taught a dramatic lesson: We can’t entirely avoid the risks associated with subsurface construction. We can, however, anticipate, define and allocate them. And we can manage them just as we do other project elements.

Industry and government respond with risk sharing

The Water Tunnel #3 project was a milestone for the tunneling industry. Previously, contractors were assuming nearly all the risk, and many of them failed because of it. Similar issues on other projects as well as that of Tunnel #3 prompted the federal government and industry leaders to begin enacting regulations and standard practices to support a process for:

• Risk sharing among owners and contractors

• Including a mechanism in the contract to encourage fair, prompt and cost-effective resolution of claims and disputes within the contract documents

Among the key developments was the federal government’s Differing Site Conditions Clause, which recognized that owners would assume the risk of unanticipated ground conditions, and that contractors may be entitled to equitable adjustments to their

contracts and that contractors can rely on information available at the time of the bid. A 1989 report from the Underground Technology Resource Council and the American Society of Civil Engineers outlined a triad of interwoven risk management recommendations. The report, “Avoiding and Resolving Disputes in Underground Construction,” suggests:

• Full disclosure of geotechnical information and establishment of a baseline of existing conditions

• Establishment of a Dispute Review Board

• Placement of contractors’ bid documents in escrow Ingredients for a successful, proactive risk management approach

Current industry best practices are largely based on the UTRC/ASCE report.

Geotechnical Reports
The standard Geotechnical Data Report includes boring logs, test data and geological descriptions. It reports facts only — no interpretation. The Geotechnical Baseline Report goes further, establishing the risk allocation among owners and contractors. It provides a consistent base for bidding, which helps prevent subjective interpretation of data. This document also sets the baseline for the project’s change condition clause.

Dispute Review Boards
The contract documents also should provide for the establishment of a Dispute Review Board — a group of tunnel experts who are able to be impartial regarding this particular project. The owner and contractor each select one member, and they choose the chair together. Regular job site visits throughout the construction process allow the DRB to expose potential issues
early and foster cooperation between owners and contractors. DRBs typically help resolve disputes, claims and other controversial issues by making recommendations regarding timing and financial adjustments based on newly discovered risks. Their findings are non-binding but may be admissible in court.

Escrow Bid Documents
Another standard risk management practice involves protecting the contractor’s ownership and the propriety of the bid document. The document is placed in escrow with a third party shortly after the bid is accepted, and it’s reviewed only if a specific dispute or claim warrants it. The document returns to the contractor when the work is completed.

Prequalification
Another key component of risk management is ensuring the tunnel contractor is qualified to do this complex work. Prequalification must go beyond the financial perspective and assess the contractor’s technical experience with the specific needs of this project and the availability of the personnel who have that experience and capability. This is one of the risk
management steps that’s often overlooked, as owners seek to make the bidding process open and equitable.

Risk Registers
A more recent development has been the implementation of Risk Registers as part of the process to manage risks that develop during all phases of a project. The process entails developing a list of potential risks or issues associated with the project, ranging from technical, environmental, permitting, contractual, third party, etc, and define risk’s severity in terms of impacts to schedule, health and safety, and costs. A strategy is then developed for each of the risks which are then managed throughout the project. Management tools include avoiding, mitigating, assigning or sharing, insuring against these risks.

Overcoming barriers to prudent risk management

Those who are new to tunneling may not necessarily feel comfortable at incorporating these conditions and steps into standard contracting process. After all, they have carefully developed and evolved their process over time, and it has likely proven successful for them repeatedly.

However, tunneling is a different animal due to the unknowable aspects of the ground in the tunneling path. As demonstrated by cases where the risks were not managed well, the cost of failure can be devastating. In fact, some tunneling contractors will
refuse to bid on a project that doesn’t include some or all of the steps described here. Others will place huge contingencies in the bid to protect themselves, significantly driving up the project costs.

Another potential concern that may occur is developing a Risk Register early in the design process and letting it lie fallow as the project progresses. The tool should be updated regularly as the project proceeds through its different stages, from design
through construction, with new risk elements being added while others are removed.

Finally, tunnel project owners can expect the unexpected. Even the best risk management plan doesn’t preclude surprises, but it does give us the tools to manage and resolve them when they arise.

For information about tunneling, consult the following:

Hugh Caspe, PE
Vice President, National Director of Tunnel Services
hcaspe@hntb.com

Samer Sadek, Ph.D., PE
Associate Vice President, Principal Tunnel Engineer
ssadek@hntb.com

HNTB’s proprietary Risk Register tool helps owners anticipate and plan for managing their largest risks both before and during the project. The tool — and the expert consulting aligned with it — assess both the likelihood and severity of the risk so owners can be fully prepared to manage and/or insure against them. HNTB has a long history in design and support services for tunnel structures, from planning through final design and construction. The firm has completed award-winning work on some of the country’s most complex tunneling projects, including highways, transit, rail, aviation and water resources. Our experts have the insight and knowledge to provide innovative solutions to tunneling challenges, from small-diameter excavations to the largest machine-bored tunnel in the world.

For other HNTB-issued papers and viewpoints, visit HNTB.com

HNTB Corporation is an employee-owned infrastructure firm serving federal, state, municipal, military and private clients. With nearly a century of service, HNTB has the insight to understand the life cycle of infrastructure and the perspective to solve the most complex technical, financial and operational challenges. Professionals nationwide provide award-winning planning, design, program management and construction management services. For more information, visit www.hntb.com.

© 2011 HNTB Companies. All rights reserved. Reproduction in whole or in part without written permission is prohibited.

Taming tunnel risk