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ABSTRACT. Risk is an unavoidable phenomenon in construction projects. Proper risk allocation in construction contracts has therefore come to assume prominence because risk identification and risk allocation have a clear bearing on risk handling decisions. The proper management of risks requires that they be identified and allocated in a well-defined 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 responsibilities 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 identification; 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 depends crucially on how we deal with it (Dey, 2001). The construction industry is more prone to risk and uncertainty than most other industries (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) identified risk management as an important tool to cope with construction risks and to overcome above problems of a project. Dey (2002) also shows that there are many examples of non-achievement of time, cost and quality of projects due to the absence of risk management techniques in...