Impact of Procurement Methods and Procurement Requirements on Cost Over-run of Public Building Projects in Uganda

Cost over-run in building projects is endemic and routinely increases construction cost to as high as 52% of contract sums in Uganda. The consequence of this is underachievement of investment objectives due to additional costs to complete projects. This research investigated how procurement requirements and procurement methods combine to determine cost over-run of building projects. Procurement requirements of bid time, performance bond, insurance, workload and experience of contractors were investigated within contexts of procurement methods of open domestic bidding, restricted domestic bidding, open international bidding, restricted international bidding and requests for quotations. Purposive and snow-ball sampling were used in identifying construction professionals, consultants and contractors of building projects with cost over-runs. Correlation and independence of procurement requirements on 37 cost over-run datasets were analysed by Spearman's bivariate correlation co-efficient at 5% level of significance and variable inflationary factor of less than 5 respectively. Bid time and performance bond were found to reduce cost over-run of building projects most followed by workload and experience. Insurance increased cost over-run marginally. The novel contribution of this research is a model that explains 63% of cost over-run with 9% margin of error. Variants of the model, one for each procurement method is presented.

Modeling Municipal Yields With (and Without) Bond Insurance

We develop an intensity-based model of municipal yields, making simultaneous use of the credit default swap premiums of the insurers and both insured and uninsured municipal bond transactions. We estimate the model individually for 61 municipal issuers by exploiting the dramatic decline in credit quality of the bond insurers from July 2007 to June 2008, and decompose the municipal yield spread based on the estimated parameters. The decomposition reveals a dominant role of the liquidity component as well as interactions between liquidity and default similar to those modeled by Chen et al. [Chen H, Cui R, He Z, Milbradt K (2018) Quantifying liquidity and default risks of corporate bonds over the business cycle. Rev. Financial Stud. 31(3):852–897.] for corporate bonds. Toward the end of the sample period, our model also reproduces the “yield inversion” phenomenon documented in the literature. This paper was accepted by Neng Wang, finance.

A Candidate Proxy to be used in Intensity-Based Triggering Mechanism for Parametric CAT-Bond Insurance: Istanbul Case Study

We study the suitability of average peak ground acceleration ( PGA) as a ground-motion proxy for parametric catastrophe bond (CAT bond) design. We tie the selection of PGA (as a triggering parameter for CAT bonds) to computational convenience (fast retrieval from the recorded ground motion) and loss correlation (optimum monetary return on the investor side). Our case studies advocate that PGA, as a candidate ground-motion proxy, can be used confidently for parametric CAT bonds, particularly applications associated with dense coverage of seismic networks. It is still a compelling ground-motion proxy even if the seismic network coverage is sparse, provided that the accelerometric stations are deployed in the vicinity of assets that financially represent the most significant portion of the insured building stock. We establish an event-based risk model of the Istanbul city (via Monte Carlo simulations) to depict the rationale behind our proposition and compare its performance with other competing (more sophisticated) proxies in terms of accelerometric network density and spatial distribution as well as the different risk levels used in risk management.

The application of shipbuilding contract and refund guarantee

Purpose The purpose of this paper is to highlight the importance of independence principle of refund guarantees (RGs) and how to make the best of an arbitration clause in the guarantees so that a Korean shipbuilder, a guarantor and an export credit agency (ECA) may possibly protect themselves from buyers’ unlawful demand. Design/methodology/approach This paper firstly introduces a brief elucidation about RG and the concept of independence principle. By way of presenting factual backgrounds, legal and policy evaluation and analyses, this paper covered all issues and disputes arising out of one shipbuilding contract and the independent RG drawn from the shipbuilding contract, through in-depth cases studies of a judicial case on the matter of independence principle of RG between the beneficiary (the buyer or its assignee) and the guarantor reviewed by an English court, an arbitration case regarding whether the beneficiary (the buyer or its assignee) has any right of refund in the event of the acceptance of a repudiatory breach by the applicant (the builder) in the London Maritime Arbitrators Association, and the beneficiary (the buyer or its assignee)’s appeal to an English court against the award and a judicial case reviewing whether the guarantor has right of reimbursement in accordance with the terms of the export bond insurance with the Korean ECA. Findings While most RGs, in practice, are drawn as an independent guarantee which is payable on call without any evidence of default, there is another payment scheme in RGs, such as payment upon the submission of an arbitral award which may enhance the application of RGs in shipbuilding contracts. The paper suggested that under these circumstances, Korean builders may opt to make their shipbuilding contract be governed by Korean laws, with the Korean Commercial Arbitration Board as a competent arbitral jurisdiction and forum as far as possible. Originality/value This paper proposes prudent approaches and considerations in the issuance and application of RGs which are independent from shipbuilding contracts. The hope is to increase awareness in the utility of arbitration system as well as for fiduciary Korean banks and ECAs to play a more pivotal role in guiding shipbuilding industry stakeholders.

Warren E. Buffett, 2008

In January 2008, in the midst of the subprime-mortgage crisis, Warren Buffett is looking for good investment opportunities for his almost $50 billion in cash. As usual, he has been patient and careful in identifying the right opportunities; however, the amount of cash in his company has grown considerably, and with so much cash sitting idle, returns could suffer. This case can be used to pursue several objectives: (1) to showcase Warren Buffett's leadership in the financial markets; (2) to understand his principles and the principles of value investing more broadly; (3) to understand Warren Buffett as both a thinker and a leader in the world of investing and as an agent of stability in a world of capital markets characterized by continuous change; (4) to discuss Buffett's investment decisions (Swiss Re, Burlington Northern, the funding of his own new bond-insurance business, BHAC) and the timing of those decisions in the midst of the subprime crisis and in an environment of increasing energy demand; (5) to discuss his decision not to invest in banks in the current environment as well as his largest investment, the philanthropic Gates Foundation; and (6) to understand some of the new market forces, such as sovereign funds, as providers of capital.

Municipal bond insurance: identifying the best payment plan

Purpose The volume of municipal bond insurance declined dramatically following the financial crisis of 2008. Insurance now is making a gradual comeback. Two related considerations complicate identification of the best insurance plan. One is the current practice in the municipal market of issuing callable bonds with an above-market coupon; such bonds are very likely to be refunded. The other is that the cost of insurance may depend on when the bonds are refunded. This paper shows how contemporary fixed income analytics can be applied to identifying the best payment plan. Design/methodology/approach When the structure of the bond issue is fixed, the benefit from insurance is simply in the increase in proceeds from the better pricing. The debt service is adjusted to incorporate the cashflows associated with insurance. The optimum time of refunding depends on the adjusted cashflows. The effective insurance cost is the difference between the present value of the debt service with and without the adjustment for insurance payments. Findings The timing of refunding is a critical determinant of which premium payment plan is the best deal. For a given bond structure, the likelihood of refunding favors plans that are contingent on that event. Originality/value The paper proposes an analytically rigorous approach to identifying the most cost-effective bond insurance plan. The findings are relevant to participants in municipal finance, including issuers and their advisors, underwriters and bond insurance companies.