Semantic Risk Assessment for Ad Hoc and Amended Standard Forms of Construction Contracts

Abstract

In spite of the widespread availability and documented advantages of using standard forms of construction contracts (SFCs), actual practice and recent evidence suggest that owners still rely on ad hoc (bespoke) or heavily amended SFCs. This practice is problematic to contractors who are required to submit tenders within tight time frames and hastily assess the risk allocation of these nonstandard forms of contract. This paper presents a semantic model and quantitative assessment framework to help assess the risk allocation of these contracts and hence allow more informed decisions to be made by contractors prior to tender submission. The model is based on 9 clause families and 41 construction clause components that were determined based on a detailed analysis of 4 major SFCs as well as several bespoke and heavily amended SFCs, in addition to a subsequent verification by domain experts. The analytical hierarchy process (AHP) is further used to assign relative weights to the clause families and components based on collaborative input from 1 construction contract experts. The model was tested on two case studies for a residential construction and hotel retrofit projects. Results show that the contract risk rating (CRR) computed by the model closely correlates to the contingency values allocated by contractors into their tender price.