International Construction Law Review
THE ALLOCATION OF CONSTRUCTION RISKS ON A MEGA-BOT: THE TAIWAN HIGH SPEED RAIL PROJECT
PAUL TOBIN
Senior Associate, Clayton Utz *
The allocation of construction risks is a significant matter for stakeholders in all building and engineering projects. Given the high costs of constructing public infrastructure, the ultimate risk allocation in such projects has considerable financial implications. In privately financed infrastructure projects the number and sophistication of stakeholders increases from that of a traditional, government funded project. As a result, the analysis and allocation of risks, including construction risks, on privately financed infrastructure projects is a substantial and complex undertaking.
This paper provides general commentary regarding the allocation of construction risk on building and engineering projects and, in particular, privately financed public infrastructure projects. It then analyses those identified risks and allocation principles in the context of one of the largest Build Operate and Transfer (“BOT”) project ever undertaken in the world. The Taiwan High Speed Rail (“THSR”) project, with a total projected cost (including land acquisition) of US$18.9 billion,1 involved a mostly greenfields construction of 345km of railway, including new stations, depots, rolling stock and electrical and mechanical systems. The service, which opened in January 2007, operates at speeds of up to 300 kilometres per hour through Taiwan’s major cities. This paper discusses:
* The author thanks Bernard Fleming, Vice-President, Taiwan High Speed Rail Corporation, for his invaluable input in the preparation and review of this article.
1 Michael Bowe and Ding Lun Lee, “Project Evaluation in the Presence of Multiple Embedded Real Options: Evidence From the Taiwan High-Speed Rail Project” (2004) 15 Journal of Asian Economics 71, 76.
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Allocation of Construction Risks on a Mega-BOT
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