Strategies for Appropriately Allocating Risk on Transportation Projects

Procurement of construction services for transportation infrastructure facilities in the United States is overwhelmingly done through low bid contracting and a design-bid-build process. With this traditional approach, prospective contractors are given plans, standard specifications, and special provisions for the project and they can choose to bid under those contractual terms or not. It is typical for public owner agencies to minimize their risks in construction by allocating the risks to the prime contractor through the contract documents. The prime contractor’s in turn then attempt to push this risk off to lower-tier subcontractors through their contract arrangements. This often results in the parties with the least ability and least amount of control and influence over decisions carrying the majority of the construction risk burden. To alleviate this problem, the risks in a construction contract must be identified and then assigned to the party best able to control, mitigate, and minimize the costs of those risks. The current state of risk allocation will be identified and referenced in the development of a model to assist transportation agencies and prime and sub-contractors in utilizing a new risk allocation strategy. The objective of this project is to provide owner agencies with a new reference for evaluating risk allocation strategies and methodologies for effectively allocating risk in their standard provisions and boilerplate contract language on a program basis. Also to provide tools, such as contract language tables, for prime contractors and sub-contractors to employ before construction to best allocate risk on specific projects to better prepare the project for overall success. The value of this research will be seen through increased project success, better relationships between the construction team and between the contractors and owner agency, fewer claims, and reduced overall project costs.