THE PRICE OF RISK IN CONSTRUCTION PROJECTS

Construction projects are risky. However, in practice, contractors may be unable or unwilling to make appropriate allowances for the risk. Formal risk models that contractors can incorporate into the bidding process have proliferated in recent years but they are not used in practice. Introducing more models may, therefore, not necessarily help. A better understanding is needed of how contractors arrive at a price, and how that price is influenced by the apportionment of risk. This question is the starting point for an ethnographic investigation into how contractors price risks. The purpose is to develop a model for assessing risk and opportunity in construction projects for the purpose of contingency allocation in a risk and reward sense. As risks can be spread, the price of building up a contingency will generally be smaller than the impact of a risk. Price of risk is smaller than the impact of risk.

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