International Construction Law Review
REVIEW OF INTERNATIONAL PRACTICE ON THE ALLOCATION OF RISK OF GROUND CONDITIONS
PETER FENN*
Lecturer, University of Manchester Institute of Science and Technology
INTRODUCTION
This article provides a review of international practice on the allocation of risk of ground conditions, in standard forms of construction contracts. The literature and theory of risk allocation is described and a survey of international practice and procedure, with responses from 20 countries, is reported. Conclusions for the allocation of the risk of ground conditions are presented based on the literature and the survey results.
BACKGROUND
“It is unwise to pay too much, but it is worse to pay too little. When you pay too much you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing what it was bought to do. The common law of business balance prohibits paying a little and getting a lot. It can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that you will have enough money to pay for something better.”1
“This is not a speculative game at all. Our objective is not to avoid risk but to recognise it, price it and sell it.”2
It is a cliché
to start an article with quotations, but the thrust of this article can be summarised by the two quotations above. The article is concerned with a scientific study of the allocation of risk of ground conditions on construction projects. There are two major tools which achieve this allocation: the application of management techniques for risk assessment, analysis and management; and the conditions of the contract between the parties. Contract conditions have been used far longer than formal risk management.
* During the period of this research Peter Fenn was Visiting Professor and Scholar-in-Residence at the University of Kentucky. The author gratefully acknowledges the support, encouragement and funding of the Hong Kong Construction Association Council of Civil Engineering Contractors which enabled the survey work described in this article to be undertaken.
The respondents to the survey must necessarily remain anonymous; but without their expertise and their time (both freely given) this project would have been impossible. The author has also received much invaluable advice from: The Hong Kong Construction Association Council of Civil Engineering, Mr Stuart Nash, and Mr Michael Black QC.
1 John Ruskin 1891–1900 prominent English writer and intellectual.
2 Tony Ryan, Chairman, Guiness Peat Aviation, The Observer,
14 June 1992.
[2000
The International Construction Law Review
440