Question

What is the typical approach in the contracts to shift the project risk to the other contracting party? What are the usual consequences of this inequitable risk assignment? Provide an example of contract provisions that are typically used to shift the project risk to other parties (Max 200 words).

Answer 1

In contracts owner usually tries to shift the risk to the contracting agency by adding some disclaimer clause in the contract. Mainly following disclaimer clause are incoorporated in the contract.

(1) Uncertainty of work conditions:- As per this clause all the uncertainity in the work conditions are to handled by contractor without extra payment. Consequency of this clause is loss to the contractor some times when any unexpected thing comes into picture which increase cost of contractor for carrying out the job.

(2) Delaying events:- As per this clause in case of any delay on any account will cause penalty on the contractor. Delay can be on any excusable account in that case penalty will not be justified.

(3) Indemnification:- As per this clause a indemnified bond is signed between owner and contractor to accept all type of risk by contractor.

(4) Liquidated damages:- As per this clause in case of delay in project. Then loss of owner due to delay in completion will be borne by the contractor.

What are the usual consequences of this inequitable risk assignment?

1. Decrease in competition of bidders:- Such clause of ineuitable risk will demoralize the bidders to participate and there will be restricted participation.

2. More disputes and claims in court:- In case of such clause incorporated in contract and contractor get loss in the project due to these clauses, then he have no way other than going to court.

3. Adverse contractor owner relation:- These clause will lead to dispute between conttactor and owner, which will lead to harm to project at the end i.e. or either delay or bad quality.