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International Journal of Strategic Property
Management
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Risk management in road construction: The
case of Sri Lanka
B.A.K.S. Perera a , Indika Dhanasinghe b & Raufdeen Rameezdeen c
a Department of Building Economics, Faculty of Architecture , University of
Moratuwa , Moratuwa, 10400, Sri Lanka E-mail:
b AL Jaber L.E.G.T. Engineering and Contracting (ALEC) , L.L.C. , Dubai, UAE
E-mail:
c Department of Building Economics, Faculty of Architecture , University of
Moratuwa , Moratuwa, 10400, Sri Lanka E-mail:
Published online: 18 Oct 2010.
To cite this article: B.A.K.S. Perera , Indika Dhanasinghe & Raufdeen Rameezdeen (2009) Risk management
in road construction: The case of Sri Lanka, International Journal of Strategic Property Management, 13:2,
87-102
To link to this article: http://dx.doi.org/10.3846/1648-715X.2009.13.87-102
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International Journal of Strategic Property Management (2009) 13, 87–102
International Journal of Strategic Property Management
ISSN 1648-715X print / ISSN 1648-9179 online © 2009 Vilnius Gediminas Technical University
http://www.ijspm.vgtu.lt
DOI: 10.3846/1648-715X.2009.13.87-102
RISK MANAGEMENT IN ROAD CONSTRUCTION:
THE CASE OF SRI LANKA
B.A.K.S. PERERA 1 , Indika DHANASINGHE 2 and Raufdeen RAMEEZDEEN 3
1 Department of Building Economics, Faculty of Architecture, University of Moratuwa,
10400 Moratuwa, Sri Lanka
E-mail: kanchana@becon.mrt.ac.lk
2 AL Jaber L.E.G.T. Engineering and Contracting (ALEC) L.L.C. Dubai, UAE
E-mail: dhanasinghe@hotmail.com
3 Department of Building Economics, Faculty of Architecture, University of Moratuwa,
10400 Moratuwa, Sri Lanka
E-mail: rameez@becon.mrt.ac.lk
Received 4 October 2008; accepted 29 April 2009
ABSTRACT. Risk is an unavoidable phenomenon in construction projects. Proper risk alloca-
tion in construction contracts has therefore come to assume prominence because risk identi-
fi cation and risk allocation have a clear bearing on risk handling decisions. The proper man-
agement of risks requires that they be identifi ed and allocated in a well-defi ned manner. This
can only be achieved if contracting parties comprehend their risk responsibilities, risk event
conditions, and risk handling capabilities. This research aims at identifying the risk responsi-
bilities of contractual parties in order to improve their risk handling strategies with regard to
Sri Lankan road projects. Semi-structured interviews were used for the primary data collection.
This was complemented with documentary evidence. The results show that road construction
projects in Sri Lanka are exposed to many risk sources while most risks are borne by parties
who were assigned with risks via contract clauses. However, parties not allocated with risks
too happened to bear the consequences of such risks. Therefore, it is concluded that there is no
one best way to respond to a risk and that different risk handling strategies should be adopted
in order to deal effectively with risks.
KEYWORDS: Risk allocation; Risk handling; Risk identifi cation; Road construction projects;
Contractual parties
1. BACK GROUND
Every human endeavor involves risk (Dey
and Ogunlana, 2004; Poh and Tah, 2006). The
success or failure therefore of any venture de-
pends crucially on how we deal with it (Dey,
2001). The construction industry is more prone
to risk and uncertainty than most other indus-
tries (Flanagan and Norman, 1993; Kim and
Bajaj, 2000; Tah and Car, 2000), the element
of uncertainty having to do with its inherent
characteristics (Hayes et al., 1986; Bunni,
1997; Kangari and Riggs, 1989; Bing et al.,
1999). But these risks are not always dealt
with properly by the industry (Thomson and
Perry, 1992; Mills, 2001).
According to Mills (2001), the productivity,
performance, quality and cost of the project
are affected by the risk. Edward and Bowen
(1998) identifi ed risk management as an im-
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portant tool to cope with construction risks
and to overcome above problems of a project.
Dey (2002) also shows that there are many ex-
amples of non-achievement of time, cost and
quality of projects due to the absence of risk
management techniques in project manage-
ment. Therefore, the success parameters of a
construction project, namely, the timely com-
pletion, staying within the specifi ed budget,
and achieving requisite performance would de-
pend upon the capability of each party in risk
management. Baker et al. (1999a) argued that
risk management is also useful in maximizing
profi ts. The construction industry however has
been very slow in moving towards understand-
ing the benefi ts of risk management (Flanagan
and Norman, 1993; Raftery, 1994; and Ward
et al., 1999).
The Road Development Authority (RDA) of
Sri Lanka, due to the ever-increasing traffi c
volume, is planning for the future development
of a national highway network (RDA, 2006).
Road projects however often confront many
uncertainties due to factors such as the pres-
ence of interest groups, resource availability,
the physical, economic and political environ-
ments, statutory regulations, etc. According
to Wang and Chou (2003), such risks have a
signifi cant effect on the outcome of a road con-
struction process.
Proper risk allocation in construction con-
tracts will reduce the impacts of adverse condi-
tions, and increase effi ciency and effectiveness
in management (Barnes, 1983; Abrahamson,
1984; Thompson and Perry, 1992; McCallum,
2000; Rahman and Kumaraswamy, 2002).
Risk allocation upon risk handling of road
projects in Sri Lanka has not been satisfac-
torily established because of different inter-
pretations of risk allocation between owners
and contractors. This research highlights the
signifi cance of understanding proper risk al-
location between contractual parties in Sri
Lankan road projects. It aims at assisting Sri
Lankan road contractors and employers to
a) identify the risk sources inherent in road
projects, b) understand their risk responsibili-
ties, and c) improve their risk handling strat-
egies so that they would optimize the scarce
resources and enhance the socio-economic
value of Sri Lankan road projects. Section 2 of
this paper discusses the literature pertaining
to risk management in construction highlight-
ing risk identifi cation, risk allocation and risk
handling. Section 3 gives the research meth-
odology followed by results in section 4. Sec-
tion 5 concludes the paper with a discussion
on risk handling techniques to be followed in
road projects.
2. THE LITERATURE ON RISK
MANAGEMENT IN CONSTRUCTION
Bufaied (1987 cited in Akintoye and Ma-
cleod, 1997) has described risk in relation to
construction as “a variable in the process of
a construction project whose variation results
in uncertainty as to the fi nal cost, duration
and quality of the project”. According to Dey
(2001), such variation is due to the absence of
risk management techniques in project man-
agement. Hence, risk management, as defi ned
by Toakley (1989 cited in Uher and Toakley,
1999) describes a procedure which controls
the level of risk and mitigates its effects. A
number of scholars have come up with defi -
nitions of risk management (Boehm, 1991;
Edwards, 1995; Jaafari et al., 1995; Kerzner,
2001; Chapman and Ward, 1997; Edwards and
Bowen, 1998; Hastak and Shaked, 2000; Lyons
and Skitmore, 2004; Project Risk Management
Handbook, 2003; Gray and Larson, 2005). The
proposed defi nitions divide the risk manage-
ment process into a number of steps which
varies from three steps to more. However, the
defi nitions are consistent in recognizing risk
identifi cation, risk analysis, and risk handling/
risk response as the key steps of the risk man-
agement process. Only the important elements
of this procedure are discussed in terms of
their relevance to the stipulated objectives of
this research.
B.A.K.S. Perera et al.
88
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2.1. Risk identifi cation and classifi cation
Hayes et al. (1986), Williams (1995), and
Godfrey (1996) have seen risk identifi cation as
the fi rst important step in the risk manage-
ment process. Dawood (1998) has shown that
systematic risk management enables the early
detection of risks. This eliminates the need for
contingency plans to cover almost every even-
tuality. Risk identifi cation involves identifying
the source and type of risks. According to Flan-
agan and Norman (1993), an identifi ed risk is
no longer a risk but a management problem. It
has also been pointed out that a bad defi nition
of a risk may precipitate other risks. There-
fore, obtaining a clear view of the risk event is
the fi rst step when focusing on the sources of
risk and their potential effects.
Classifi cation of risks entails identifying the
type, consequence and impact of risk. Wiguna
and Scott (2006) have derived a risk hierarchy
under four risk categories: external and site
condition risks, economic and fi nancial risks,
technical and contractual risks, and manage-
rial risks. This classifi cation of risks adopted
in this study. According to Bunni (1997), when
a risk has been identifi ed, assessed and ana-
lyzed, it must be allocated to various parties in
order to keep it under control and to prevent
the occurrence of harmful consequences.
2.2. Risk allocation
Andi (2006) has argued that “construction
risks, can hardly ever be eliminated. They can
merely be transferred or shared from one par-
ty to another through contract clauses”. This
is supported by Mak and Picken (2000) who
emphasize the fact that contractors should be
ready to accept a certain level of risk due to
unforeseen costs they incur during construc-
tion and that risk is also an issue for clients.
Such allocation of risk becomes part of the risk
management process.
Thompson and Perry (1992) suggest that
a carefully drawn up contract will ensure the
right allocation of responsibilities in the same
way as the procedure which determines the
type of contract and the tendering procedure
for a project. It will defi ne the role of each con-
stituent in the contract, such as the contract
agreement, conditions of contract, specifi ca-
tions, preamble notes, bills of quantities and
drawings, etc., which determine the allocation
of risks. Although risks can be transferred be-
yond the limits of contract clauses that can
only be with the concurrence of both parties
as seen in the study by Wang and Chou (2003).
A party to whom a risk is allocated is con-
sidered to have the “ownership of risk,” which
according to Uff (1995) and Godfrey (1996)
has several meanings: a) having a stake in
the benefi t or harm that may arise from the
activity that leads to the risk; b) responsibil-
ity for the risk; c) accountability for the con-
trol of risk; and d) fi nancial responsibility for
the whole or part of the harm arising from the
risk should it materialize. Kartam and Kartam
(2001) have argued that all the risks should
rightfully reside with the owner and transfer
to another party should entail fair compensa-
tion. However, the common understanding on
risk allocation has it that the receiving party
has both the competence and expertise to fair-
ly assess the risk and to control or minimize
it (Hartman, 1996; Fisk, 1997; Godfrey, 1996;
Perry and Hayes, 1985).
2.3. Risk handling / risk response
Risk handling by lessening their impact is a
critical component of risk management. Man-
agers need to realize the contents and effects
of all alternatives before making decisions
about an appropriate strategy for risk han-
dling (Wang and Chou, 2003). Risk handling
is the choice of a proper strategy to reduce the
negative impact of the risk (Miller and Les-
sard, 2001). It is defi ned as the fi rst step in risk
control by Baker et al. (1999a). But Kim and
Bajaj (2000) defi ne risk handling/response as
Risk Management in Road Construction: the Case of Sri Lanka 89
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the way risk issues are dealt with. According
to Flanagan and Norman (1993), risk response
refers to how the risk should be managed ei-
ther by transferring it to another party or by
retaining it. Further, risk handling principles
are classifi ed mainly into four categories, i.e.
risk retention, risk reduction, risk trans-
fer and risk avoidance (Carter and Doherty,
1974; Flanagan and Norman, 1993; Raftery,
1994; Baker et al., 1999b; Dey, 2001; Wang
and Chou, 2003). Wang and Chou (2003) see
risk handling strategies as consisting of one,
or a combination, of the above methods. Stud-
ies have proved the validity of various strate-
gies chosen on the basis of individual projects.
However, the study by Fan et al. (2008) has
established that the risk-handling decisions of
a project are determined by project character-
istics (e.g. project size, slack, unit prevention
cost, risk situation, etc.).
3. METHODOLOGY
The research adopted the Multiple Case
Studies approach. According to Yin (1994),
multiple case studies validate results through
replication as the approach uses different cas-
es. Further Yin stresses that the criteria for
selecting cases is a matter of discretion and
judgment, convenience, access and to be those
which are subjective for purpose of the re-
search. Therefore this research focused on two
mega foreign-funded road projects which were
near completion to avoid complexities which
may arise in evaluating different types of road
projects simultaneously. Projects which adopt
traditional procurement method with ad-meas-
urement were selected as it is the most widely
used procurement method used in Sri Lanka.
The cases selected on the basis of having a
project duration of about twenty four months
or more, as researchers believe that a longer
period is necessary to get risk related informa-
tion. The Table 1 gives the details of the two
cases.
Multiple sources of evidence comprising
semi-structured interviews, documents such
as letters, weather records, bill of quanti-
ties, claim reports, non-conformity reports,
variation orders, project programme, public
complaint reports, certifi ed monthly bills and
monthly progress reports, and archival records
such as past weather records were used in this
study for data collection. Triangulation, which
is the rationale behind the use of multiple
sources of evidence, has been addressed here.
According to Love et al. (2002), the triangula-
tion approach is useful since it enables both
qualitative and quantitative data to be used
in generalizing the fi ndings.
The data was analyzed through the content
analysis method. The software QSR NVivo1.0
was used to codify interview transcripts. The re-
sults were arrived at after a cross case analysis.
Table 1. Details of cases
Characteristic Case A Case B
Road classifi cation Class A Class A
Name of the employer RDA RDA and Ministry of Highways
Length of the road 80 km 95 km
Construction period 24 months 36 months
The original contract sum $ 10million $ 11million
Procurement method Traditional ad-measurement Traditional ad-measurement
B.A.K.S. Perera et al.
90
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4. RESULTS AND FINDINGS
4.1. Risk sources associated
with road projects
The study began with 26 risk sources which
were gathered through the literature review and
through interview transcripts. However, it was
found that only 23 risk sources were pertinent
to the two cases. The 23 risk sources have been
classifi ed in Figure 1 under four types of risk
sources in order to formulate a risk classifi ca-
tion framework based on the literature review.
There were only two risk sources that were
not common to the two cases out of identifi ed
23 factors. They were delayed payments and
insuffi ciency in the preliminaries bill. There
had been a delay in two interim payments and
the contractor’s facilities had not been includ-
ed in the preliminaries bill in one case.
All other risks were common to both the
cases. Construction activities had to be halted
for a few days after the Tsunami disaster. With
regard to the other, the reason had to do with
earth slips. This could be classifi ed under Acts
of God. The impact of adverse weather condi-
tions was such that materials had been washed
away and critical work affected by the unexpect-
ed rainfall. In addition, changes imposed by the
Engineer, dealings with utility agencies, late
handing over of the site and late approvals too
caused signifi cant diffi culties to the Contractor.
The risk of defective design and scope
change cannot be underestimated because
this would lead to poor performance of the
completed road. The dependence on foreign
funds too was a risk as the contract sum in
both projects had exceeded the forecasted sum
while the amount of funds was limited. Insuf-
fi cient estimation was a risk mainly because
price escalation had not been considered for
recurrent preliminary items. The increase in
the contract sum by more than fi fty percent
was due to infl ation. Legislative changes were
also signifi cant since there had been a change
in the labour act which required the salaries of
labourers to be increased and fuel adjustment
charges on electricity bills.
Special attention was also paid to the risks
of low labour and equipment productivity and
procurement of resources. With regard to re-
lations with neighborhood, many complaints
had been received from the neighbourhood
such as house damage due to cracks, damages
to boundary walls and access paths, the prob-
lem of land fi ll, endangerment of houses due to
land cutting, accumulation of waste in paddy
Figure 1. Risk classifi cation framework
Risks in road projects
Technical and
contractual risks
Economic, financial
and political risks Managerial risks External and site
condition risks
Types of risk sources
Risk sources
·
·
·
·
·
Delayed payments
Dependence on
foreign funds
Regulations and difficulty
in obtaining permits
Inflation
Legislative changes
·
·
·
·
·
·
Insufficiency of the
Preliminaries Bill
Changes imposed by
the engineer
Defective design
Late handing over
of the site
Tentativedrawings
Scope change
·
·
·
·
·
·
·
·
·
Contractor competence
Dealing with utility agencies
Defective construction work
Improper estimation
Late approvals
Low labour and equipment
productivity
Relations with neighbourhood
Procurement of resources
Public security and safety
·
·
·
Acts of God
Adverse weather
conditions
Unforeseen site ground
conditions
Risk Management in Road Construction: the Case of Sri Lanka 91
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lands, etc. The risk of public security and safe-
ty was also high in this type of infrastructure
project. Both the regulations and the diffi culty
in obtaining permits was also a risk as the
projects were required to obtain permits for
the use of explosives in road works and in the
quarry. The contractor had to pay royalty too
for the quarry because it had been forest land.
Scope change and tentative drawings were
the risks that contributed the most to the cost
and time overrun in both cases. Increase in the
road width, change in the road surface from
Double Bituminous Surface Treatment (DBST)
to asphalt paving in one case, and the addition
of a binder course layer and the introduction
of a hard shoulder instead of the earth shoul-
der in the other case were due to the change
in scope. Finally, the risk of unforeseen site
ground conditions was signifi cant due to the
diffi culty in identifying underground cables, or
due to changes in sub-grade requiring the use
of rock fi ll or type-1 soil in areas where the
water table was high and extra excavations for
places where soil conditions were weak.
Having identifi ed risk sources, their proper
allocation becomes necessary to apportion the
risk responsibilities of the parties.
4.2. Actual risk allocation vs. risk
allocation through contract clauses
The Conditions of Contract that had been
used in both projects was FIDIC the one pub-
lished by the International Federation of Con-
sulting Engineers (FIDIC, 1987). Since risks
are allocated to contracting parties through
contract clauses, the administration of con-
struction risks was fi rst analysed with the aid
of the Conditions of Contract which had been
used in the two cases. Since the Conditions of
Contract used in the two cases was the same,
there was an identical basis for the analysis.
Secondly, the actual allocation which is the al-
location of risks beyond the contract clauses
but within the consensus of contracting parties
is identifi ed and these risks were also analysed
in line with the views of respondents and in
particular the archival sources (refer Table 2).
It was found that actual risk allocation and
risk allocation through contract clauses were
the same for majority of risk factors, although
the risk of Acts of God becomes a risk to the
Employer through the sub-clause 20.4 (h) [Em-
ployer’s Risks], it was revealed that the Con-
tractor too had to share in this risk. Similarly,
though the risk of late handing over of the site
had been allocated to the Employer under the
sub-clause 42.2 [Failure to Give Possession],
the Contractor too had to share this risk be-
cause of irrecoverable diffi culties he had to
face. The Employer had borne the risk of scope
change in both projects as in sub-clause 52.3
[Variations Exceeding 15 per cent], while the
Contractor too had to carry a certain risk due
to delays in the completion of the project. In
other words, in the three instances cited, the
risks had been shared by both parties though
the allocation was only to the Employer ac-
cording to contract clauses.
According to sub-clause 20.4 (g) [Employer’s
Risks], Defective Design, that is, loss or dam-
age to the extent that it is due to the design of
the Works rather than any part of the design
provided by the Contractor or for which the
Contractor is responsible, constitutes a risk to
the Employer. However, the risk also lies with
the Contractor according to the sub-clause 8.1
[Contractor’s General Responsibilities]. Howev-
er in both cases this risk had been transferred
to the Consultant through a separate agree-
ment between the Employer and the Consult-
ant since the Consultant had been appointed
as an independent party. Moreover, it could
be seen that the Employer in one case had
taken measures before the start of the project
to eliminate design defects. Accordingly, this
risk had been shared by all three parties in
actual fact. In accordance with sub-paragraphs
(a), and (b) of sub-clause 19.1 [Safety, Secu-
rity and Protection of the Environment] and
the sub-clause 22.1 (a) [Damage to Persons
and Property], the risk of public security and
safety lies with the Contractor and as in the
B.A.K.S. Perera et al.
92
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sub-clause 23.1 [Third Party Insurance], it is
a risk to both the Employer and Contractor.
With regard to the two cases, it could be clear-
ly seen that this risk was borne by the two
parties including the Consultant.
The risk related to unforeseen site ground
conditions has been allocated to both the Con-
tractor (through the sub-clause 11.1 [Inspec-
tion of Site]) and to the Employer (through
the sub-clause 12.2 [Not Foreseeable Physical
Obstructions or Conditions]). Again, it was
evident that this risk had been shared by all
three parties. The risk of late approvals is al-
located to the Engineer as per the sub-clause
37.3 [Dates for Inspection and Testing], but
it was the Employer and the Contractor who
happened to carry the risk. Although the risk
of tentative drawings is assigned to the Con-
tractor according to the sub-clause 7.1 [Sup-
plementary Drawings and Instructions], all
three parties had borne this risk in the two
case study projects.
Table 2. Actual risk allocation vs. risk allocation through contract clauses
Sources of risk Risk allocation
Employer Contractor Engineer
1. Acts of God ●
○○
2. Adverse weather conditions ● ●
○○
3. Changes imposed by the engineer ● ●
○○
4. Contractor competence ●
○
5. Dealing with utility agencies ● ●
○○
6. Defective construction work ●
○
7. Defective design ● ●
○○○
8. Delayed payments ●
○
9. Dependence on foreign funds ●
○
10. Insuffi cient estimation ●
○
11. Infl ation ● ●
○○
12. Insuffi ciency of the Preliminaries Bill ●
○
13. Late approvals ●
○○
14. Late handing over of the site ●
○○
15. Legislative changes ●
○
16. Low labour and equipment productivity ●
○
17. Relations with neighbourhood ● ●
○○
18. Procurement of resources ●
○
19. Public security and safety ● ●
○○○
20. Regulations and diffi culty in obtaining Permits ● ●
○○
21. Scope change ●
○○
22. Tentative drawings ●
○○○
23. Unforeseen site ground conditions ● ●
○○○
Note: ● – Actual risk allocation; ○ – Risk allocation through contract clauses
Risk Management in Road Construction: the Case of Sri Lanka 93
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Table 2 shown above compares the actual
risk allocation (denoted by the dark circle – ●)
against risk allocation through contract claus-
es (denoted by the light circle – ○).
4.3. Proposed risk handling framework
Having considered the allocation of risks be-
tween contracting parties all actual handling
of those risks, a risk handling framework was
developed. Semi-structured interviews with
documentary evidence were used for this task.
This allowed the researcher to ask for the facts
as well as for the respondent’s opinions about
an event. Respondents were allowed to disclose
the current handling methods and also propose
their own views regarding possible handling
of these risks. These results are summarized
in Table 3. In developing this framework, the
risk sources were categorized into four types
initially. The actual allocation of risks, which
was identifi ed using the case study approach
is shown against each risk source along with
the risk response that could be used in deal-
ing with it. The last column provides the risk
handling actions that could be adopted for the
relevant risk response.
5. CONCLUSIONS
The research was initially begun with
twenty six risk sources. However, during the
analysis it was found that there were a few
risks that were not relevant to the two cases
under study. The observance of real cases, as
the literature on the subject demonstrates
reveals the extent to which the environment
determines construction work and the many
risks to which they are exposed throughout the
entire process.
With regard to Acts of God, it is evident
that they are specifi c to the geographical lo-
cation of the construction project, so that any
party to a contract is expected to identify the
probability of occurrence of such events. Simi-
larly, the effect of the dependence on foreign
funds was also specifi c to each project as the
terms of the funding arrangement are not the
same.
Risks of defective design, late approvals,
late handing over of the site, tentative draw-
ings and unforeseen site ground conditions
had thwarted the Contractor on many occa-
sions. Moreover, relations with neighbourhood
and public security and safety were also very
important in pursuing these social capital de-
velopment projects. Infl ation and scope change
can also be cited as factors that determine
the failure of the parties concerned to confi ne
themselves to the cost and time limits of the
two cases. Therefore, these risks are identifi ed
as very vital.
Another important aspect in risk identifi -
cation is that the contractual parties should
adopt a continuous learning approach. Past
projects and past events are real-life scenar-
ios from which to gain experience that might
stand the parties in good stead in the future so
that probable risks that might be encountered
in a new project can be identifi ed beforehand
and measures taken in order to avoid trigger-
ing those risk events. Thus, it was felt that
early identifi cation of a risk source was essen-
tial for its proper allocation.
It is a fact that the employer allocates con-
struction risks through contract clauses before
the contract is awarded. This should encour-
age Contractors to obtain a clear understand-
ing of the risks they are allocated with. Disa-
greements may also occur from the absence of
related contract clauses, unclear stipulations,
and queries on the fairness of risk allocation.
In such situations, though certain risks had
been allocated specifi cally to a party through
contract clauses, it might transpire that the
other parties too might have to bear conse-
quences that have arisen because of those
risks. Risk sharing by the contract team has
proven to be more effective in dealing with
such risks.
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Risk Management in Road Construction: the Case of Sri Lanka 95
Table 3. Risk handling framework
Risk source Risk allocation Risk response Risk handling action
Technical and contractual risks
i). Insuffi ciency
of the
preliminaries
Bill
Contractor Risk avoidance Consideration of general items that had not been covered in the Preliminaries Bill
at the bidding stage
Taking into account the likely amount of price escalation at the bidding stage for
recurrent preliminary items for which price escalation is not paid
ii). Changes
imposed
by the
engineer
Employer &
contractor
Risk avoidance Early attendance to identify likely changes so as to incorporate them before the
start of works (public participation is essential)
Agreeing on overhead and profi t component at the project initiation for new items
which might come up during construction
Contractor Risk transfer Claiming for variations
Keeping written records of instructions
iii). Defective
design
Employer Risk mitigation Conduct of a design review
Contractor Risk avoidance Communicating any design defect in advance to the Engineer in writing
Engineer Risk transfer Recovery of any damage through his Professional Indemnity
iv). Late
handing
over of
the site
Employer Risk retention Employing outside specialists in the absence of in-house skills
Risk mitigation Handing over of the site to the Contractor in its existing condition and not waiting
till the land acquisition is completed fully
Contractor Risk transfer Claiming for the number of delayed days
Claiming for the idling cost of labour, equipment, mobilization and demobilization
Risk mitigation Leaving the locations that had not been acquired and working elsewhere
v). Tentative
drawings
Contractor Risk mitigation Informing the Engineer whenever a design change is found
vi). Scope
change
Employer Risk retention Use of unallocated funds or money of the Treasury in fi nancing the increased
amount
Risk mitigation Confi ning to the old profi le of the road which results in a huge cost saving
Contractor Risk transfer Claiming for an extension of time (EOT) (Continued )
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B.A.K.S. Perera et al.
96
Risk source Risk allocation Risk response Risk handling action
Economic, fi nancial and political risks
(Continued )
i). Delayed
payments
Employer Risk retention Paying interest on delayed payments and acting promptly in future so as to avoid
a recurrence
ii). Dependence
on foreign
funds
Employer Risk avoidance Reducing the scope so as not to exceed the limited funds
Conducting a design review and identifying alternate methods of construction to
eliminate high cost items from the scope
iii). Regulations
and diffi culty
in obtaining
permits
Employer &
contractor
Risk mitigation Working together to obtain permits for the works
Contractor Risk avoidance Examining the rules and regulations applicable in the area of the project and re-
fl ecting on their cost implication when estimating
Using borrow pits in private lands and disposing excavated materials in the same
with the written authority of land owners
iv). Infl ation
Employer Risk mitigation Reducing the scope so not to exceed the limited funds
Risk retention Use of reserved funds and money of the Treasury to pay for price escalation
v). Legislative
changes
Employer Risk retention Requesting the Contractor to produce evidence for the payments to labourers and
consumption of diesel for the months during which these were not refl ected in price
indices
Contractor Risk retention Having to retain the additional cost of supportive staff included as preliminary
items
Managerial risks
i). Contractor
competence
Employer Risk avoidance Obtaining the Performance Bond from the Contractor
Contractor Risk mitigation Having a long-standing stake with employees and sub-contractors which encour-
ages good workmanship
Regular monitoring and strict supervision of the workmanship of both subcontrac-
tors and their own. (Continued )
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Risk Management in Road Construction: the Case of Sri Lanka 97
Risk source Risk allocation Risk response Risk handling action
Managerial risks
(Continued )
ii). Dealing
with utility
agencies
Employer Risk retention Paying for the shifting of services
Risk avoidance Incorporating any existing service into the design if the cost of shifting is unbear-
able
Taking away work from the custody of authorities with their consent if their re-
sponse to that particular work causes a delay
Risk transfer Claiming damages from utility agencies when they are responsible for damages
Risk mitigation Commencement of shifting of services few years prior to the start of the project
Conducting meetings with utility agencies at regular intervals
Contractor Risk mitigation Planning work in an alternate place if obstructions are met, thus causing a skip in
locations
Risk avoidance Advising workers on taking care over work so as to avoid damage to any utility ap-
purtenances
iii). Defective
construction
work
Contractor Risk mitigation Cooperating with the Engineer in changing the design of any defective work wher-
ever possible
Reuse of material for any other possible work if it becomes unsuitable for the in-
tended work
Risk retention Urging the Engineer to rethink the adequacy of the completed work in fulfi lling the
intended function before determining whether defective work should be demolished
iv). Late
approvals
Contractor Risk avoidance Taking prior approval to proceed with works
Risk mitigation Keeping alternate locations handy to work in case work is delayed due to absence
of approval
Encouraging the Engineer to ensure the presence of laboratory staff at the right
time
Risk transfer Keeping written records about the time of informing the laboratory staff to do a test
and the time of arrival, so the delay can be quantifi ed and claimed
Risk avoidance Remaining steadfast in the belief in “No work without the consultant’s supervision”
(Continued )
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B.A.K.S. Perera et al.
98
Risk source Risk allocation Risk response Risk handling action
Managerial risks
(Continued )
v). Low labour
and equipment
productivity
Contractor Risk mitigation Assigning labourers with targets and providing incentives to motivate them
Maintaining a close supervision on workers’ performance
Risk avoidance Recruiting labourers possessing vocational training qualifi cations
Drawing up labour contracts
Possessing enough and effi cient equipment
vi). Relations
with
neighbourhood
Employer Risk mitigation Appointment of offi cials to attend to public complaints and a committee to attend
to third party damage
Risk retention Provision of safety measures for the public
Provision of basic facilities which had been removed due to construction taking into
consideration the human needs
Reinstatement of access roads which had been obstructed
Contractor Risk mitigation Taking a middle-of-the-road approach to avoid unnecessary dealings
Risk avoidance Inspection of houses for cracks prior to the start of the roadwork so as to avoid un-
reasonable claims
Continuous inspection of houses where the relatedness of reported cracks to road
works is in doubt
Rejection of claims for house cracks which are due to improper construction
Risk transfer Insurance of third party property and bodily damages
vii). Procurement
of resources
Contractor Risk retention Subcontracting of works
Having one’s own machinery and plant
Looking for the easiest ways to procuring methods
viii). Public
security
and safety
Employer,
contractor &
engineer
Risk mitigation Provision of barricades and other safety measures
Regular safety inspections and night inspections for safety arrangement
Appointment of safety offi cers and safety assistants (Continued )
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Risk Management in Road Construction: the Case of Sri Lanka 99
Risk source Risk allocation Risk response Risk handling action
External and site condition risks
(Continued )
i). Acts of God Employer Risk mitigation Cooperation with the Contractor
Risk retention Allowing an EOT to the Contractor
Risk transfer Transferring the cost of removal of debris from earth slips to an insurer
Contractor Risk retention Release of equipment for immediate reconstruction work after the tsunami
ii). Adverse
weather
conditions
Employer Risk retention Allowing an EOT to the Contractor
Compensating parties affected because of measures taken against the effects of
weather
Contractor Risk transfer Claiming material damages from insurance
Risk retention Keeping costs of material damages below the deductible amount of the insurance
policy
iii). Unforeseen
site ground
conditions
Employer Risk avoidance Allocation of adequate provisions to fi ll materials in areas where the soil condition
is weak
Contractor Risk transfer Recovering underground cable damage from the insurer
Rejecting claims for damage to underground cables which had not been laid accord-
ing to the required standards
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It could also be observed that some risks
could be effectively reduced with corporation
among the parties concerned, for example,
risks arising from Acts of God, with utility
agencies, in relations to neighbourhood, in
public security and safety issues, pertaining
to regulations and the diffi culty of obtaining
permits. Intervention of the Employer, who
represents the government, is essential when
dealing in particular with neighbourhood, pub-
lic security and safety issues.
Transfer of risks is also an important risk
response method because it could act as a de-
fense against certain losses and to achieve the
organizational objectives of each party. Con-
tractors however were reluctant to forward
claims for losses in order not to harm the good
rapport with the Employer. In this instance
the involvement of insurers is signifi cant.
Risk avoidance, which is considered the
most effective risk handling method, can be
achieved with the early detection of events,
possibly at the estimating stage, and by keep-
ing written records and giving written notices
of possible negative events to the Engineer.
It is also evident that the effects of risks that
were to be retained by a particular party would
be minimal if that party were to handle it us-
ing other methods. It is also to be noted that
there is no one best way to deal with risk and
different handling methods would have to be
employed depending on the type and nature
of the risk.
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SANTRAUKA
RIZIKOS VALDYMAS TIESIANT KELIUS: ŠRI LANKOS ATVEJIS
B.A.K.S. PERERA, Indika DHANASINGHE, Raufdeen RAMEEZDEEN
Rizika – neišvengiamas statybų projektų reiškinys. Todėl svarbus tapo tinkamas rizikos paskirstymas staty-
bų rangos sutartyse, nes rizikos nustatymas ir rizikos paskirstymas daro akivaizdžią įtaką rizikos valdymo
sprendimams. Norint gerai valdyti riziką, reikia ją nustatyti ir tinkamai paskirstyti. Tai įmanoma tik tuomet,
jei sutarties šalys supranta savo atsakomybę už riziką, rizikos atvejų sąlygas ir rizikos valdymo galimybes.
Šiame tyrime, siekiant pagerinti sutarties šalių rizikos valdymo strategijas, mėginama nustatyti, kokią at-
sakomybę už riziką prisiima sutarties šalys pagal Šri Lankos kelių tiesimo projektus. Pirminiai duomenys
surinkti iš pusiau struktūrinių interviu. Jie papildyti dokumentiniais įrodymais. Iš rezultatų aiškėja, kad
kelių tiesimo projektai Šri Lankoje imlūs daugybei rizikos šaltinių, o daugelį rizikos rūšių prisiima šalys,
kurioms riziką priskiria sutarties nuostatos. Tačiau šalys, kurioms rizika nėra priskirta, kartais irgi patiria
tokios rizikos pasekmių. Todėl daroma išvada, kad nėra vieno geriausio būdo reaguoti į riziką ir kad reikia
taikyti įvairias rizikos valdymo strategijas, siekiant efektyviai spręsti rizikos situacijas.
B.A.K.S. Perera et al.
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