Perceptions of Contractual Risk Allocation in Construction Supply Chains

Abstract

Common perceptions of contractual risk allocation are the basis of a harmonious, effective and efficient construction project. This paper explores the extent to which common perceptions of risk allocation exist along the construction supply chain. The results of a survey indicate that differing perceptions are worryingly high in all relationships, but particularly further down the supply chain. The paper indicates the relationships in which this is most likely to occur and the types of risk it is most likely to affect. The results provide important lessons for project managers, negotiators and contract drafters. In particular, by providing a better understanding of where and how differences in risk perceptions are likely to emerge, they help those negotiating and drafting contracts focus their energies more effectively to help minimize the potential for unnecessary loss and dispute. Finally, our results indicate that the key to better managing perceptions of risk is fundamentally one of communication, consultation and involvement in contractual decision-making. The key point is that contractual allocations of risk have little meaning if they are separated from the social and behavioral context in which risk is experienced by those involved in a project.