Risks in construction:
is the length of the contractual chain
ing a key role in choosing the
In Constructing the Team Mr. Latham
which may affect the risk since there
construction procurement method.
mentioned that: "No construction
are many parties are involved in the
For example if the employer intends to
project is risk free. Risk can be
construction process such as
not bear the risk of the defect in design
managed, minimized, shared, trans-
Employer, contractor, subcontractor
of a building and he want to allocate
ferred, or accepted. It cannot be
consultant project management and
this risk to the contractor, then the best
ignored."
supplier so that any reason affect one
procurement method is design and
The construction contracts have
of those parties may affect the others.
built. Usually, at the tender stage the
complex natures. In EmsonEastern v.
Finally, the interaction between the
contractor taking in to his consider-
EME Developments (1991) 55 BLR
time, cost and quality of any project
ation the cost of a possible eventuality
114, The Judge described the nature
has a inherent conflict and the parties
consequently, the tender price
of the Building Construction and
have various perceptions to this
includes some amount for this contin-
Highlighted the difference between
regard.
gency. According to Wallace: "wher-
the Building Construction and manu-
ever risk is to be shifted from the
facturing process as he mentioned
It is worth mentioning that NEC of
contractor to the owner, there should
that: "I think the most important back-
Contract Form adopts Project Risk
be a counterbalancing advantage of
ground fact which I should keep in
Register in the contract term which
price to balance the risk assumed by
mind is that building construction is not
aims at early identification of the risks,
the owner"
In addition, the contract
like the manufacture of goods in a
then appraise, re-appraise and
type plays a key factor in increase or
factory. The size of the project, site
proactively manage risks before they
decrease the risk allocated
to the
conditions, and the use of many mate-
occur.
parties. For example, if the contract
rials and the employment of various
Generally speaking the risk analysis in
type is a Lump Sum then the contrac-
kinds of operatives make it virtually
construction contract compromises
tor's risk is relatively high since any
impossible to achieve the same
two types of risks. The first one which
mistake in the pricing of the project is
degree of perfection that a manufac-
may lead to physical loss or damage
converted as loss. This is not the case
turer can. It must be a rare new build-
injuries such as collapse of the build-
in re-measured contract since the
ing in which every screw and every
ing due to defects in the design or
contract price is considered based on
brush of paint is absolutely correct."
defect in the workmanship.
The
the actual quantities.
Therefore, risks are inherent in
second type of risks is related to non-
It is not uncommon for any business to
construction projects. Like all
performance of obligations, delay or
gain money by dealing with risk that
contracts, construction contract it is all
extra cost. The first type is usually
others are not willing to deal with. It is
about
the prior allocation of risk.
specified in the contract and can be
important to understand the major
The risks in construction project vary
insured while the second type is
aspects of the process in which the
from project to another since there are
usually dealt with through the condi-
risk can be treated. It includes: 1-
many contributors that may hinder the
tion of the contract by allocation of the
Identification of the risk by under-
progress of the work. These are
risk to the parties. However, in many
standing the employer's needs. For
included but not limited to: unforeseen
projects the contract is silent which
instance, if the time is the most impor-
unexpected ground conditions,
may lead to dispute.
tant concern then the events related to
adversely exceptional weather condi-
time should be properly identified.
tions, lack of material and labors and
Procurement methods, cost and
2- Analyse the risks by considering
floods and war. In addition to the
risks allocations:
the probability of their occurrence and
aforementioned contributors, it is
The aim of the Risk management is to
severity of their impacts. 3- Respond
worth mentioning that the long dura-
reduce the cost of risks in a project and
to the risk by transferring, accepting or
tion of the project may affect the
minimize the risks regardless to whom
avoiding the risks. It is worthwhile to
agreed risk allocation at the outset of
the risks are allocated. It is worth
bear in mind that any transfer of risk
the project. Another important factor
mentioning that risk allocation is play-
means the premium should be paid.
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Issue 70 September 2013 2013 70

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