Risk Allocation in Construction Contracts

The construction industry is surrounded by a big uncertainty translated into known and unknown risk along the project life cycle. These risks shall be managed proactively in order to achieve the project objectives and eliminate the likelihood of the issues. Accordingly, risks shall be identified before sign the contract to involve and allocate them through the project contract. Therefore, the contract is an effective tool not only to highlight the risks but also to allocate it to the contractual parties.

It is not feasible to allocate all these risks either known or unknown to a specific contractual party. This definitely will affect the project negatively as no party can control and manage all the risk due to the limitation of scope, authority, power and etc. However, this fact, the risks are improperly allocated in the practical field which resulted in many issues raised during and after the project period. Accordingly, the fair allocation of risk ensures to allocate risk to the party who can bear it effectively. Also, some risk may be not allocated to a specific party because the nature of risk is better to be shared between the two parties.

Therefore, this paper aims to identify the most common risk of construction contracts and then determine the optimum contractual party to bear it based on a conducted questionnaire. 

Keywords: Contract, Management, construction, risk allocation, Contractual risk.