Risk Allocation and Risk Handling of Highway Projects in Taiwan

Abstract

Risks always exist in construction projects and often cause schedule delay or cost overrun. Risk management is a key issue in project management. The first step of risk management is risk identification. It includes the recognition of potential risk event conditions in the project and the clarification of risk responsibilities. We conducted multiple-case studies using a systematic analytical procedure to identify risks in highway projects in Taiwan, to recognize risk allocation by contract clauses, and to analyze the influence of risk allocation on the contractor’s risk handling strategies. The results show that the owner allocates risks by stipulating specific contract clauses into five kinds of risk allocation conditions. If a risk is more controllable by the contractor, the owner has a greater tendency to allocate the risk to the contractor. Risk allocation determines which kinds of risks the contractor would take and influences the contractor’s risk handling decisions. The analysis furthermore indicates that, if the probability of a certain risk event condition is uncontrollable, then with the increasing possibility of taking the risk, the contractor’s tendency of risk handling changes from actively transferring the risk to passively retaining the risk. In contrast, if a risk is controllable and certainly allocated to the contractor, the contractor tends to take the initiative to reduce the impact caused by the risk event rather than retain the risk.