Risk Management

RISK CONSIDERATION OF VARIOUS PARTIES IN CONSTRUCTION

(Adapted from: Effective and efficient project risk management by Lim Meng Tong (2002)

CLIENTS’ RISKS

Some of the typical construction related risks resulting in delays and/or increased costs to a client are as follows:

Third party-controlled risks

 Approvals
 Planning approvals
 Consents for the use of hazardous substances on site
 Tree preservation orders
 Conservation area consents
 Scheduled monument consents
 Need for environmental impact assessments
 Public inquiries
 Legal agreements
 Rights of way
 Way-leaves
 Noise control requirements
 Sites of special scientific interest
 Pressure groups, local protests
 Industrial action
 Terrorism in some locations, particularly overseas
 Changes in regulations
 Changes in statutory legislation

Inherent site-specific risks

 Access restrictions or limitation

 Existing occupiers/users
 Alternative provisions (eg; accommodation, parking, etc)
 Working hour restrictions
 Maintenance of access (road, footpath, barriers)
 Maintenance of services
 Effect of existing buildings
 Protection required
 Demolition required
 Existing site boundaries
 Requirement to protect and keep in good condition
 Requirement for temporary enhancement to suit works
 Security
 Protection of works in hand, including temporary works, particularly many contractors on the same site
 Security provisions including staffing
 Additional land requirements for permanent and temporary works
 Requirements for new services from statutory undertakings, includes water, gas, sewerage, electricity,
telephone
 Use of existing services and their availability to suit site requirements, capacity and conditions
 Need for relocation around site
 Known ground conditions

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 Extent of pre-construction investigations

 Soil types and variability
 Possibility of mining works
 Contaminated land
 Climate and weather conditions

Direct client-controlled risks

 Inaccurate or insufficient terms of reference

 Changes in requirement
 Occupancy, usage, scope, pre and post contract award
 Changes to time-scale
 Late decision taking
 Late handing over of site
 Postponements, accelerations of delayed programme
 Early hand-over of part or whole of contract
 Financial implications
 Availability of funds, generally
 Availability of funds to meet payments due to contractor or needed for third parties
 Liabilities to others if contract completed late

Design-team risks

 Inaccurate interpretation of terms of reference

 Error in design, contract documents, drawings
 Failure to meet required time-scale:
- For producing various phases of duties as required by client
- For co-ordination of sub-consultants
 Delivery of drawings and information to contractor
 Estimating inadequacies
 Changes in labour, plant, material costs
 Inflation
 Taxation changes
 Experience of team
 Experience of team members
 Continuity of staff
 Type of design
 Established design methods or prototype/leading edge/unusual structure type designs
 Inadequacy of client protection
 Professional for maintaining foregoing after handing over works
 Liquidation/insolvency of members of design team
Contractor risks

 Failure to meet programme

 Inadequate resources, estimates of duration of activities
 Poor coordination of subcontractors
 Price changes permitted under certain contracts
 Disputes and claims
 Poor workmanship
 Poor site management, quality control, staff experience, continuity
 Accidents or injuries for which client may retain responsibility
 Latent defects

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- Under contract
- Due to client staff or joint site occupancy
 Liquidation/insolvency of contractor

Other risks or Project Risk

 Changes in conditions affecting viability of completed project

 Political change, ie those leading to changes of project scope of cancellations, sanctions and
embargoes, tighter exchange controls, repatriation of funds
 Government legislation
 Uninsurable risks, e.g: force majeure

CONTRACTORS’ RISKS

The following, lists some of more usual contractors’ risks.

Client risks

 Client cancels project

 Client delays start of project
 Client suspends works
 Client delays payments of certificate and claims
 Client delays taking over works
 Client insolvency give receiver material on site for which suppliers have not been paid
 Deficiencies, errors, contradictions, ambiguities and drawings by client’s designers, architects, etc
 Unexpectedly onerous requirements by client’s supervisors
 Unexpected inadequacy of pre-construction site investigation date in terms of interpretation or
recommendations
 Unforeseen ground conditions

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 Late project changes in size, scope

 Consequences of delay in interconnecting contracts

Supplier/subcontractor risks

 Supplier delay start

 Supplier poor performance, quality of materials, timing, delivery of information
 Subcontractor (nominated or otherwise) delay start
 Subcontractor poor performance, quality of materials, workmanship, design, timing, delivery information
 Subcontractor insolvency

Constructional plant risks

 Delay in availability of constructional plant

 Poor performance of construction plant
 Lack of standby plant, spares
 Fall in expected resale value

Direct contractors’ risks

 Shortage of experienced staff and labour

 Contractor delay start
 Contractor poor performance, inappropriate materials, workmanship, design, timing, management
inefficiency
 Liabilities for injury, damage or interference to person or third party property on or off the site
 Responsibility to correct defects in the defects liability/maintenance period
 Long-term responsibilities for latent defects which become evident after the end of contract
 Strikes, labour disputes
 Consequential losses, e,g loss profits arising form incidents
 Accident to key operatives, management staff
 Frustration of contract due to some fortuitous intervening event altering the nature of the contract to the
extent that it can no longer be undertaken as intended
 Adverse weather
 Fire, theft, other physical risks
 Significant temporary and permanent works failure during construction due to design, materials or
workmanship
 Unforeseen services, obstructions, contamination, ground conditions, water inflows, gases, vertical
shafts, mine workings
 Archaeological finds
 Explosive finds

Overseas risks

 Overseas skill/supervision shortages

 Overseas plant, spares and material shortages
 Local customs
 Import/export difficulties
 Exchange control restrictions
 Unexpected exchange rate movements
 Bureaucratic delays
 Remoteness of site access and/or facilities and/or communications

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Litigation/arbitration risks

 Delay in resolving litigation/arbitration disputes

 Uncertainty of result of disputes
 Unfavourable decisions
 Cost of legal processes

RISK RANKED AS PER THEIR SIGNIFICANCE IN RELATION TO THEIR PROJECT OBJECTIVES

(Adapted from Identifying Key Risks In Construction Project: Life Cycle And Stakeholders Perspectives
Dr Patrick Y.W Zou, Dr Guomin Zhang and Professor Jia-Yuan Wang)

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