Modeling the Relationship between Risk and Dispute in Subcontractor Contracts

Abstract

Construction projects generally involve high risk because they are widely based on estimations of future events. Disputes between the project participants, including contractors and subcontractors, are often related to inaccurate projection and inadequate knowledge of the consequences of the risks involved. The aim of this study is analyzing and modeling the relationship between risk and dispute in subcontractor contracts. By examining 60 subcontractor contracts and related project documents and interviewing contract and project managers who worked on these projects, the risk in each contract has been measured and occurrences of disputes have been quantified. The results show that while disputes in infrastructure works are more related to site supervision and personnel, disputes in superstructure works are more related to project planning/design and management. The correlation analysis performed reveals that regional risks have the highest correlation with the total dispute score, followed by financial risks, design risks, construction risks, and finally subcontractor risks. A regression model to explain the relationship between risk and dispute in subcontractor contracts has also been presented in the study, and statistical tests have been carried out to demonstrate its validity. The results obtained can be used by the parties involved in subcontractor contracts for a more structured risk assessment, a better understanding of potential sources of disputes, and therefore more informed decision making before signing a contract.