In the first article of this series, we examined the concept of fair risk allocation in construction contracts. Aided by the views of our panellists, we concluded that the theory that risk should be 'allocated to the party best placed to bear it' does not automatically create fair risk allocation in practice. To achieve objectively fair risk allocation, it is necessary to move beyond a blanket application of the Abrahamson principles, and to look at risk allocation project by project in a realistic, transparent and informed way.
In the second article we tested whether the poor performance of the industry has primarily resulted from a collective failure to fairly allocate risk, or whether other factors are also culpable to a greater or lesser degree. Our panellists' collective view was that risk allocation, and specifically the drivers dictating certain types of risk allocation, contributed significantly to the poor state of the market but other factors still played a major part. These other factors included poor pricing practices, low levels of industry equity, constrained resources and the overall structure of the industry – which is geared towards surviving bear markets, rather than excelling in bull markets.
In this third article, we assess a number of options and initiatives for mitigating and allocating risks – both at an industry level and at a project-specific level – to look at where efforts for reform and improvement might best be directed.
In doing so, we asked our panellists a series of short-answer questions to uncover shared viewpoints on these options and initiatives. Many of these questions lend themselves to a 'yes/no' response, and panellists could choose from suggested options or provide their own response. Their answers and comments, and Bell Gully's own views, are set out here and in the document below.
The topics discussed include:
- Construction Sector Accord
- A certification scheme to set minimum finance, governance and skill standards
- ‘Alternative’ contracting models
- The suitability of NZS3910:2013 as an industry standard
- Other standard form contracts (such as FIDIC or NEC4)
- Problematic special conditions of contract
- Understanding the contract
- Disclosure of risk allocation
- Consultant limits of liability
- Responsibility for buildability
- Liability for buildability
- Time bars
- Retentions
- Bonding