J. Cent. South Univ. Technol. (2011) 18: 558-567

DOI: 10.1007/s11771-011-0731-5

Using analytic network process to analyze problems for implementing turn-key construction projects in Taiwan

WANG Dan-chi(王丹绮)¹, WANG Lung-chang(王隆昌)²

1. College of Engineering, National Taipei University of Technology, Taipei, Taiwan 10608, China;

2. Department of Civil Engineering, National Taipei University of Technology, Taipei, Taiwan 10608, China

? Central South University Press and Springer-Verlag Berlin Heidelberg 2011

Abstract: The turn-key construction project is implemented in Taiwan not by a single company but by a make-shift group of several companies. Hence, problems to coordinate the professional construction management (PCM) and the supervising architectural company often occur for the lack of long-term experience to work together. The various factors that affect the implementation of turn-key projects currently practiced in Taiwan are analyzed using the analytic network process (ANP). The objective is to study how the twelve key factors in the four layers of “Role assignment”, “Signing contract”, “Operational procedures” and “Losing capital investment” affect the progress of implementing the turn-key project in Taiwan. The results reveal that “Delay in payment” has the most negative influence with 15.62% weighing factor; “Latent risk” comes next with 11.14% weighing factor, and “Responsibility of construction company for project quality” is the third with 10.79% weighing factor.

Key words: turn-key; turn-key construction company; professional construction management; analytic network process (ANP)

1 Introduction

The construction project is traditionally implemented in Taiwan by conducting the design and construction in separate phases. After the project design is completed by the owner or consulting firms entrusted by the owner, the project construction is then bid by constructional companies. This implementation method easily leads to discrepancies between the design and construction of the project, ambiguous responsibilities and obligations, and difficulties in project alterations. In recent years, some projects have been implemented using the turn-key mode for overcoming the bottle-neck of construction projects. The owner provides preliminary design and guidelines for detailed design to a selected company for integrating the design and construction; the selected company coordinates all interfacial work so that the project can be completed with fewer problems and in a shorter time. For managing the turn-key projects, a professional construction management (PCM) must be hired to apply the knowledge, technology and equipment of the company for optimizing the cost, schedule, and quality control for the project.

The “Design and Build” project is totally the responsibility of a turn-key construction company for a complete design and construction of the project.  The definitions and brief explanations of “turn-key” and “Design and Build” from different sources are shown as follows.

1) Fédération Internationale des Ingénieurs Conseils (FIDIC)

(1) Turn-key

“Turn-key” refers to the turn-key construction company that carries out engineering design, procurement and construction for the whole project until the project is put into service.  The company is also responsible for the operational effectiveness and results of the project. Under certain conditions, the company may also be responsible for raising funds to finance the project involved.

(2) Design and Build

“Design and Build” indicates that the turn-key company is only responsible for the design and construction without involving other aspects of the project.

2) United Nations Centre on Transnational Corporations

The “Turn-key” contract is also called the “Design and Build” contract. The contract includes design, construction, equipment procurement and testing prior to service. The contractor is also responsible for the contractual responsibilities of the design and construction of the whole project.

3) American Society of Civil Engineers

The so-called “Turn-key” contract is to be carried out by a single company for completing the project design and construction specified in the contract.

4) The American Institute of Architects

(1) Turn-key

The terms “Turn-key” and “Design and Build” are usually interchangeable. However, the “Turn-key” contract often exceeds the scope of design and construction so that the company also provides other services such as land acquirement, financing, operation, maintenance, and training.

(2) Design and Build

The so-called “Design and Build” project is the responsibility of a single company for completing the project design and construction; a single contract is signed by the owner and the engineering company.

Based on the above definitions and explanations excerpted from these sources, the difference between “Turn-key” and “Design and Build” projects lies between the scope of services specified in the contract to be provided by the contracting company. The scope of “Design and Build” is relatively small, and the contractor is only responsible for the design and contraction of the project. Comparatively, the “Turn-key” contracting company offers a relatively more extended scope of services that include financing, site evaluation, land acquirement, licensing and certification, initial operation and maintenance for evaluating the efficiency in addition to conducting design and construction.

The original intention of turn-key project is to eliminate many unnecessary engineering interfaces by entrusting the whole project to a PCM so that the project progress and efficiency can be effectively controlled. However, most turn-key projects are currently implemented in Taiwan by a make-shift group of companies headed by a major construction company. Fig.1 shows the schematic diagram of the organizational structure of a typical make-shift group for undertaking the turn-key construction projects in Taiwan. The construction company and the architectural company may not closely cooperate and coordinate as expected, thus leading to some coordination problems. A major company bids for the turn-key project and sub-contract the project to many other companies. The contract is usually considered by the turn-key company to be unreasonably strict on the risk responsibilities, design alterations and implementation. When the project checking, reviewing and confirming are done by a PCM hired by the owner or the architectural company, uncertain standards or interpretation of standards will cause the major company to complain that the procedures are too tedious and complicate to be implemented. Additionally, the project schedule and cost are not controlled by the major company in the current turn-key contract. The major company is burdened with extra costs for complying with urban design, green building, and structure for construction license, and other costs for reviewing the five big pipeline constructions (i.e., electricity, telecommunication, water, sewage systems, and gas), permitting water and electricity, and passing environmental effect appraisal and conservation of water and soil plan. Different interpretations of laws and regulations by regulatory agencies will cause serious delays of the project. Because the design and construction phases in the turn-key project are improved simultaneously, a serious problem of withholding funds will affect the project progress. Hence, in this research, the ANP is applied for analyzing the problems caused by inappropriate “assigning responsibilities and obligations”, “contracting”, “implementation procedures”, and “losing capital investment” are analyzed.

Fig.1 Turn-key execution organization

2 Analytic network process

Analytic network process (ANP) is an advanced decision-making model originated from analytic hierarchy process (AHP) [1]. The latter was developed by SAATY [2], and has become the most common method for conducting multiple criteria decision making (MCDM). The major advantage of AHP is that a complicate problem can be decomposed into simpler elements, which are grouped based on their mutual correlation to form layers of structural relationship. ANP allows mutual correlation and feedback among elements in the same group (internally dependent) and in different groups (externally dependent). It also provides a complete structure for decision-making so that the various elements in a group can be connected to elements in other groups based on the need of user for investigating the process to generate various scales. There are two networking groups in ANP: the first group contains the layers of internal inter-reactions or the network criteria and sub-criteria; the second ground contains the network of mutual influence for elements in the criteria and sub-criteria groups. This is the reason why the mode of thinking used in ANP (Fig.2) is capable of mimicking human thinking more than AHP in decision making [3-4]. In recent years, ANP has been applied for solving various problems such as strategy selection, production-related decisions, project selection, logistics decisions, product design and development, product purchasing decision, quality management, and financial forecasting [5-20].

Fig.2 Schematic diagram showing network structure of ANP method [4]

The most unique advantageous feature of ANP is the use of a super matrix (Fig.3) for expressing how elements are correlated and the strength of correlation. Various groups and the elements contained in the groups are ordered and placed on the left and upper sides in the super matrix to form many sub-matrices, which encompasses the elements and the eigenvectors obtained after mutually comparing these elements. A “0” in the super matrix indicates that the elements or groups in question are independent. Hence, the major advantage of the ANP method is that it can be used to evaluate the “outer dependence” among groups or “inner dependence” among elements.

Fig.3 Standard form of ANP super matrix [18]

Elements w₁₁, w₁₂, …, w_NN in the super matrix (Fig.3) are the eigenvalues calculated by conducting Pairwise Comparison. Such calculations will solve the progressive situation expressed as: “Factor A influences Factor B, and Factor B influences Factor C”. Hence, ANP is a method of relative measurements that can be used to extract the scale for individual elements from the scale of composite priority to indicate the degree of influence of elements on the control criteria. Thus, it can be used for conducting the prediction on the mutual relationship, and the degree of mutual influence for competitors during the decision-making process.

The process of the ANP consists of major steps [1, 3, 9]:

Step 1: Definition of policy issues and establishment of policy-making members

All the factors that may affect policy issues are incorporated based on the nature of the policy issues in order to define the domain of discussion. A body of decision makers is established in order to collate the opinions of experts in the relevant fields based on the level of complexity and fields in which the domain issues are involved.

Step 2: Construction of network hierarchical layer structure of problems

After consolidating and categorizing relevant information, key issues that affect the decisions are identified. In the structure, the interdependency that exists within each layer and loop arcs is used to indicate the feedback relationships.

Step 3: Questionnaire surveys and expert preference integration

According to the network hierarchical layer valuation model structured for the decision issues, weighing factors are assigned to all elements according to their corresponding upper elements. The relative importance of different elements is gathered via questionnaires issued to experts. If a number of experts are involved in the evaluation, the averages can be used to compute the collective weighing factor for integrating the preferences of the experts. Using geometrical averages will yield better results [2].

Step 4: Establishment of comparison matrixes

After consolidating judgments and preferences from various experts, the construction of a comparison matrix of multiple valuation criteria and options can be carried out. The ANP method applies a measurement scale of 1-9 [1] shown as the Satty’s 1-9 scale in Table 1 to derive relative weighing factors. These weighing factors are then entered as values of the super matrix structure so as to reflect the interdependency and relative importance of each valuation criterion and option.

Step 5: Consistency test

In the ANP method, decision makers or experts who make judgments or preferences must go through consistency tests using the consistency ratio (R_C) of the comparison matrixes defined as

where I_C denotes the consistency index; I_R denotes the random index.

Consistency indicators denote the level of variances between the maximum characteristic value and the number of hierarchy levels, and serve as the measurement for the level of consistency. If I_C is smaller than 0.1, the level of consistency is satisfactory; if I_C is larger than 0, the decision makers and experts have conflicting judgments. The random index is based on the number of levels in the comparison matrix, i.e., the N number of comparative elements. If R_C is equal to 0.1, the level of consistency of the comparison matrix is satisfactory and acceptable [2]. Table 2 presents the average random index for various matrix sizes.

Step 6: Computations of super matrixes

A super matrix contains all the sub-matrixes consisting of all the clusters and necessary elements arranged in order and placed on the left and upper sides of the matrix. If the aggregate of the column vector of a super matrix is not equal to 1, the matrix is called an un-weighted super matrix, which may be converted with specific procedures to a weighted super matrix. Afterwards, the matrix will be limited, and gradually consolidated to derive the interdependency and relative weighing factors [1].

Step 7: Selection of best alternative

The priority weighing factor of the mutual correlation between the evaluation criterion and alternatives can be evaluated. A larger priority weighing factor indicates a higher priority to be accepted so that the most appropriate project can be selected.

3 Methods of investing problems

3.1 Interviewing experts

Gathering information from experts can be done in two steps, and the first step is to interview experts. This method is a direct, face-to-face method, and is limited in collecting information. In this study, the experts interviewed included seven owners of turn-key companies, six consultants on management, two supervising architectures, and two design architects. All experts interviewed consider that the existing turn-key system has much room for improvement in engineering suitability, administrative management and coordination, and contract implementation among many others. The opinion and suggestions recommended by experts interviewed can be classified into the following categories:

1) Operational procedures and external approval seriously affect the project progress and funding. Due to ambiguous standards or different interpretations of the standards, the process for verifying, approving and checking the project by PCM or supervising architects may be over-complicated to cause the following problems.

(1) Procedure to approve

The procedure for conducting “Municipal Design Reviewing and Approving” may involve alterations of the original design or material, and the resulting increase of floor area, etc. needs to apply for “alteration of design” permit. The uncertainty of the procedures not only increases the cost but also delays the project completion data.

The companies are responsible for relocating the existing utility lines, and their operations are not managed by the turn-key major company, and the costs are not specified so that the companies may ask un-reasonable payment for their service without much room for negotiation.

Issuing the permit for temporarily altering the existing road is too prudent and too slow, thus seriously affecting the progress of temporarily relocating the existing utility lines.

The procedures for applying construction permit and the time to receive after submitting the application cannot be predicted so that the construction is affected.

(2) Standards for reviewing and approving projects

PCM and supervising architects seem to have un-limited requests when conducting reviewing and approving. Additionally, there are no standardized procedure and schedule for examining and reviewing the project, and the reviewers’ comments are not respected for lacking an appropriate licensing system.

Table 1 Saaty’s 1–9 scale for pairwise comparison [18]

Table 2 Average random index for corresponding matrix size [2]

The architects cannot perform the design independently, and thus their role in the project is like a draft person.

The design architect is a member of the turn-key team; architectural design addressing project cost, value engineering, and substitute engineering among many others will lead to modified contract, specification and turn-key proposal, etc. The PCM considers that the specifications, materials and supplying companies, among many others are parts of the contract, and always fights the turn-key company for complying with those specified in the contract.

The project modification submitted by the turn-key company to suit the actual situation should be considered as a flexible adjustment but not a major design alteration, and thus should not cause the reimbursement of paid contract fund or the deduction of the payment.

(3) Auditing and supervising

Administrative procedures are too complicate with frequent audit and redundant paper work to greatly add to the project costs.

The owner may sometimes interfere with the progress of a turn-key project.

2) Signing contract and implementation

Some experts consider that the un-reasonable audit of a turn-key project leads to insufficient considerations of the project, and that government agencies usually favor a protective contract unfair to companies. Thus, the following problems may occur.

(1) Conditions for all three parties fulfilling their   responsibilities

The contents are un-realistic with inconsiderate requirements.

The PCM may be penalized for inappropriate act by the turn-key company. Hence, the PCM may impose penalizing conditions to restrict the turn-key companies but these conditions are not included in the contract.

When more items or quantities are completed than those specified in the contract, the turn-key company cannot request additional funds.

(2) Responsibilities for completing project

The contract requires a higher engineering fee than the design fee. The turn-key company, which is the major party to sign the contract, has to be responsible for fulfilling all obligations and paying the guarantee fund.  Under the current system, the ability to fulfill the sub-contract for the sub-companies will affect the ability to complete the contract for the turn-key company.

(3) Potential risk

Inclement weather that delays the project will cause higher risk for the turn-key company team.

Lack of skillful labor or labor strike will make the pro.

Risks due to market price fluctuation, geological conditions and excavation uncertainly cannot be controlled.

3) Assignment of roles and responsibilities

Poor coordination between the construction company and the design company, and between the design company and PCM for implementing the various engineering tasks will generate the following problems.

(1) Responsibilities to manage and supervise

Based on the contract, the responsibility of PCM is to supervise the turn-key company for carrying out the various engineering items. The law, which defines the responsibility of an entity responsibility for supervising the engineering project, requires that 100% of the interface alteration proposals is reviewed and approved by PCM. Thus, the turn-key company or the design architect who has engineering expertise is not involved in the reviewing and approving process, causing communication problems when the engineering project is implemented.

(2) Responsibility of design architect

The selection of a turn-key company is often emphasized on the background of the design company and the merit of the project design. Hence, the design company employs the first-class engineers for the preliminary design, and illustrating drawings and presentation posters. After being awarded the bid, the company uses the second-class professionals to complete the detailed designs of the project, and the third-class professionals to do the after-design services. Hence, the quality of the service offered by the design company seriously deteriorates.

The design and construction overlap somewhat in a turn-key operation. Delaying the project design will seriously compress the time frame for completing the subsequent construction.

The design architect is on the bottom of the functional echelon in a turn-key project so that they cannot fully apply its knowledge and expertise.

(3) Responsibilities of construction company on project quality

The contract requires that the turn-key company entrust an employee of the architecture company as the director responsible for managing the on-site task assignments according to the construction drawings. This requirement causes a great deal of difficulties for the architecture company and fictions among the subordinate companies of the turn-key company. The on-site construction drawing director needs to integrate the drawings for assigning the various project tasks to the subordinate companies, adjusting the on-site construction dimensions, and coordinating water, electricity, heating, ventilating and air conditioning (HVAC), fire prevention and distinguishing, and sitting. All these coordinating responsibilities, which have exceeded the responsibilities for managing the on-site construction drawings, also involve accounting the procurement costs for the turn-key company and sub-contract assignment.

The on-site project director is not fully empowered for the responsibilities. All decisions need the approval of his superior so that his position does not match the original intention of establishing the on-site project director.

Investigating the collapses of adjacent buildings is assigned to the turn-key company. If an adjacent building or structure has inclined more than 1/200 before the construction starts, the turn-key company cannot resolve the situation.

4) Losing capital investment

The simultaneous design and construction in a turn-key project easily cause delayed payment and accumulated un-paid funds by the turn-key company, leading to the following problems.

(1) Variations of price indices

Soaring costs of raw materials will cause higher project costs and difficulties to obtain raw materials, thus seriously delaying the project.

(2) Ability to control finance

The practice of doing design along with construction will cause difficulties to estimate the cost for all constructions completed prior to reaching supplementary agreement, and more un-reimbursed funds that have temporarily been paid by the turn-key company.

External reviewing increases the project costs.

(3) Delay in applying funds

The complicated internal reviewing process by the owner causes serious delay of the project and the accumulation of un-paid funds.

The current practice of cost estimation based on quantity, and the payment made after signing the supplementary agreement cause a prolonged period for completing the cost estimation.

3.2 Questionnaires

The experts initially interviewed are allowed sufficient time to express themselves for revealing the problems on the turn-key project operations. The answers form the bases for undertaking the second-phase questionnaires targeting experts including four working turn-key company professionals, four special management advisors, three supervising architects, and three design architects.

The questionnaire responses were analyzed using the ANP method that consists of three tiers: the goal tier, the second criteria tier and the third sub-criteria tier, as shown in Fig.4 and Table 3.

Fig.4 Architecture of structure for evaluating turn-key project (mutual relationship among elements in group)

Table 3 Explanations of evaluation criteria

4 Results of analyses

The Super Decisions software developed by the ANP team headed by SAATY was used to manipulate the results [21] to evaluate the weighing factor of various elements in the evaluation criterion tiers. Using the Super Decision 2.0.8 version, the ANP method can be easily applied to obtain the analysis results that can provide valuable references for studying and solving the problems of turn-key project.

Using one of the questionnaire sent to experts as an example, the results are input to the Super Decision software to be calculated, and the results are expressed in un-weighted super matrix, weighted super matrix and limited matrix, as listed in Tables 4-6.

Table 4 Un-weighted super matrix

Table 5 Weighted super matrix

Table 6 Limited matrix

Two of 14 responses have CR value greater than 0.1, and hence they are excluded from the subsequent analyses. Geometric averages of 12 limited matrices to show the weighing factors of current turn-key projects are arranged according to their magnitudes in Table 7.

Table 7 Weighing factors of turn-key project problems arranged according to their magnitudes

5 Conclusions

1) ANP was employed to analyze the results of an expert questionnaire survey regarding turn-key projects in Taiwan. The analysis examined how the twelve key factors affect the “Role assignment”, “Signing contract”, “Operational procedures” and “Losing capital investment”. The analytical results indicated that, of these twelve factors, “Delay in applying funds” in “Losing capital investment” had a weighing factor of 15.62% and was the strongest negative influence on the turn-key projects. “Losing capital investment” mainly resulted from the owner using overly complicated internal payment procedures, which caused excessive payment delays. The second and third most adverse influences were “Signing contract” in “Potential risk” and “Role assignment” in “Responsibilities of construction company on project quality”, which had weighing factors of 11.14% and 10.79%, respectively. Other factors, in order of severity of effect on the project were “Ability to control finance”, “Responsibilities for completing project”, “Variations of price indices”, “Conditions for all three parties fulfilling their responsibilities”, “Responsibilities to manage and supervise”, “Standard for reviewing and approving project”, “Auditing and supervising”, “responsibilities of the design architect”, and “Procedure to approve”.

2) Currently, fund loss and accumulated un-paid funds are problematic in all turn-key companies. We recommend the formation of ad-hoc problem solving teams, the relaxation of un-necessary limitations, and the removal of inefficient and obsolete requirements so that emphasis can be shifted from procedures to final results and from bureaucracy to public service. The market price fluctuation can be reduced by adjusting the project funds based on the price indices whereas the inclement weather, geological conditions, excavation risks and other un-foreseen risks can be addressed by extending the deadlines after unforeseeable events. Companies that do not comply with the contract may be penalized, fined or released from the contract. Whether or not PCM is used to supervise the project, the company must recognize its responsibility to control the project quality whether or not has been entrusted with the right to supervise. The PCM still controls the “Responsibilities of construction company on project quality”.

3) In Taiwan, the use of turn-key mode in construction projects has grown in recent years as the size and complexity of such projects increase. However, current government offices and industries have limited understanding of the turn-key system and relevant laws and regulations. The turn-key companies in Taiwan lack sufficient volume of work to become sustainable; make-shift teams, however, lack sufficient time to thoroughly consider projects. Construction companies therefore assume excessive risk.

4) The analytical results obtained in turn-key construction projects in Taiwan are a valuable reference for owners, turn-key companies and consultants when implementing future construction projects.

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(Edited by YANG Bing)

Received date: 2010-01-12; Accepted date: 2010-10-12

Corresponding author: WANG Dan-chi, PhD Candidate; Tel: +886-953-037320; E-mail: wangdanchi@gmail.com