International Research Journal of Engineering and Technology (IRJET) e-ISSN: 2395-0056

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MANAGEMENT OF RISKS IMPLIED BY CONDITIONS OF CONTRACT AND

SPECIFICATIONS
Chaitali S. Pawar1, Jalinder R. Patil 2, Suman S. Jain 3, Abhijeet M. Gaikwad 4
1 Post Graduate Student, Civil Engineering, RMDSSOE Pune, Maharashtra, India
2 Head and Professor, Civil Engineering, RMDSSOE Pune, Maharashtra, India
3 Asso. Professor, Civil Engineering, SCOE Pune, Maharashtra, India
4 Asst. Professor, Civil Engineering, RMDSSOE Pune, Maharashtra, India

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Abstract- The study of various risks and their of civil engineering work is performed under contract. A
management is becoming pre-requisite for many contract provides a self-contained statement of
obligations as between its own parties . The analysis
construction projects and can significantly benefit most
has also identified several factors responsible for time
all parties. The construction activity involves a number and cost overruns some within the control of the
of agencies likeowner, consultant and contractor may enterprises and some beyond their control. The
have conflicting interests. In order to establish the contracts are vital to the success of a project is important
duties, obligations, rights, responsibilities amongst the difficult, costly and lengthy proceedings. The contract
agencies, a contract is required to be made between documents can be used as a tool to manage risk by
allocating risks to the various agencies through the various
them which will establish a mutual relationship to do a
contracts between them. It is very important for all the
work. The contracts may be used as a risk managing agencies that they are aware at all times of the extent of
tool to by allocating risks to the various agencies risk exposure or the risks that they have to manage. If this
through the various contracts between them and client, awareness is lacking then it may lead to a number of
contractors and investors. This paper proposes study of disputes, disagreements and disruptions. One of the major
risk arises in the condition of contracts and reasons of disagreement and conflict is inadequate and
specifications. The qualitative risk analysis is used to defective contract documentation and also inappropriate
contract arrangements and an unreasonable burden of risk
analysis helps to predict severity of risks. Risk
being allocated to one of the parties by the contract [4].
management includes identification of risks in contract
documents, risk classification, risk analysis and then The present study aims to identify the key problems in
risk control. It has been found that severities of certain critical areas of a construction contract, which
important risks have been calculated considering the if not attended properly have the potential to become
suitable control measures from client and contractors major roadblocks in the progress of the project In the
point of view. The findings of paper may be used as present work, two case studies of infrastructure projects in
Mumbai and Pune city of Maharashtra state, India, have
reference to similar construction projects in India i.e.
been referred. The study includes identification,
for local clients, contractors, investors and also for classification of various risks in a given set of contract
Government. documents and on basis of qualitative risk analysis find out
severity of these risks, suggests methods to mitigate risks
Keywords: Construction project, Contract documents, in construction projects from the client’s and contractor’s
view point
Risks, Qualitative risk analysis, Risk management.
1. INTRODUCTION 2. BACKGROUND RESEARCH
A variety of unexpected events may occur in construction There are various research papers on the risks
projects and many of them can cause losses to the parties management in construction projects in various countries
involved. Such uncertain events or set of circumstances and various strategies for managing risk. During literature
that have an effect on achievement of one or more of study, S.Q. Wang [1] proposes Risk management
project’s objectives, are commonly called risks. The most
framework for construction projects in developing

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 International Research Journal of Engineering and Technology (IRJET) e-ISSN: 2395-0056
Volume: 02 Issue: 03 | June-2015 www.irjet.net p-ISSN: 2395-0072

countries,D. W. Stam [6] proposes Project risk and controlling projects, and L. Y. Shen [5], proposed aRisk
Management by suggesting an essential tool for managing a risk management is explained as a system whic
is exposed so that a conscious decision can be taken on Table -1: Referred Contract Documents
how to manage the risks. It also include; various risks;
agencies involved, their roles; exposure of projects to risk; Sr. No. Content
effects of project phase on risk. Contracting in 1 Tenderer Notice
Construction is also discussed and the contract documents 2 Detailed tender notice
essential are enlisted and their significance is spelt. The 3 Instructions to Tenderers
bridge between the two topics of Contracting and Risk is 4 Declaration of the contractor
then discussed and the qualities of a good construction 5 General Conditions of contract
contract are enlisted. There are various techniques are 6 Special Conditions of contract
available for assessment of risks as per purpose of study. 7 Technical Specifications
8 Bill of Quantity
2. METHODOLOGY
The research methodologyis used in order to collect data,
4. RESULTS AND DISCUSSIONS
Here the various risk related to the contract document of
analysis of data and report on findings and discussions.
The research methodology selected for this risk project are identified, studied, classified and analyzed.
From the study of contract document, it found that there
management project consists of comprehensive literature
are various clauses mentioned, as General conditions,
reviews, data collection followed by open interviews and
distributing checklists to the various agencies including Technical specifications and special conditions. With the
client, contractors, and consultants of the projects. The help of the checklist given by L.Y. Shen risks are identified
and grouped in eight different categories which are
collected data has been analyzed using statistical
physical risk, financial risk, legal risk, construction risk,
techniques to study variation between responses of
contractors and owners. Fig-1 shows the research political risk, design risk, environmental risk & contractual
risk. Table 2 shows the matrix of risks and types of risks
methodology flow chart used for present study.
for condition of contract. The risk assessment matrix is
Identify Objective and Scope formed according to the impact of risks on client &
contractor. Because every clause of contract is may be
converted into the risk and it may effects on different
Identification of Required Data
perspectives of the project i.e. time, cost, scope, quality.
Data Collection Table -2: Risk Matrix of Types of Risks in Contract
Documents
Literature Reviews ChecklistOpen Interviews Risks Classification

Environmental
Construction

Contractual
Financial
Physical

Conditions of Political
Design
Legal

Data Analysis
Contract

Results and Discussion

General conditions
Conclusion and Suggestions Suspension of work * *
Changes in design * * *
Fig -1:Flow Chart of Research Methodology Extension of time * *
Penalty for delay * *
Insurance and Indemnity * *
3. DATA COLLECTION
Labour regulations * * *
For the purpose of this study, two sets of contract Extra works * *
documents of the infrastructure projects in Mumbai and Accidents *
Pune city of India have been referred. Table 1 shows the Quality assurance plan * * * *
referred contract documents between client and Technical Specification
contractor. General and Supplementary
* *
tech. spec.

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 International Research Journal of Engineering and Technology (IRJET) e-ISSN: 2395-0056
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Prevention of property * * Table -4: Rating for Risks Identified in Contract

Tests List with frequency * * Documentsof Projects in Pune
Special conditions
PMC conditions Owner Contractor
Advance *

Probability

Probability
Dispute and Arbitration * *

Impact

Impact
Arrangement of traffic Risks
* *
during construction
Completion certificate * *
Environmental safeguard * * Change in Design High High High High
Price variation clause * * Opposition from very
Medium High High
Opposition from social Social Bodies high
* *
Bodies Suspension of Work High High High High
Extra Works Medium High Medium Medium
3.1 Qualitative Risk Analysis (QRA) Accidents and
Qualitative risk analysis determines the importance of Low Low Medium High
safety
addressing specific risks and guides risk responses. It Penalty or
helps to determine the likelihood and potential effect of compensation for Medium medium Medium Medium
the risks on the project objectives. It provides a quick and delay
clear picture of risks and is easy to understand. To do this Dispute and
Low Low Low Medium
analysis QRA Sheet as shown in table-5 was used which Arbitration
consists of identified risks classified into various types Extension of time Medium medium Medium High
requiring a subjective response on the probability of its Insurance and
Low Low Low Medium
occurrence on a 5 point scale of: very low, low, medium, Indemnity
Prevention of
high, very high and on the impact of these risks again on a Medium medium Low Medium
property
5 point scale of, very low, low, medium, high, very high.
Price variation Medium High Medium High
The responses on QRA sheet were analyzed using median Quality assurance Low medium Medium Medium
as a measurement of central tendency. Labour regulations Low medium Medium Medium
Table -3: Sample of QRA Sheet Excessive approval
Medium medium Medium High
by government
Probability Impact Material
Low medium Medium Medium
management
Very high

Very high
Very low

Very low
medium

medium

Traffic diversion Low medium Medium Medium

High

High

Types of risk
Low

Low

Table -5: Rating for risks identified in Contract Documents

of projects in Mumbai city
Physical PMC conditions Owner Contractor
Risk 1 * *
Probability

Probability
Risk 2 * *
Impact

Impact
Financial Risks
Risk 1 * *
Risk 2 * *
Suspension Medium Low Medium Medium
Construction
Expanses of Medium High Very Low
Risk 1 * *
political force Low
Risk 2 * *
majeure events
occur
From above mentioned risk classification in contract
Termination. Low Medium Low High
documents, these risks have given rating on the basis of
No permit from Medium High Medium High
their probability of occurrences & impact related to clients Govt. Bodies /
& contractors point of view. Table-4 shows rating for risks Organization/Mini
identified in Contract Documents of projects in Pune and stries
Table-5 shows rating for risks identified in Contract Expense as Medium Medium Low Medium
Documents of projectsin Mumbai. damages
Losses due to Low Low Low High
breach

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 International Research Journal of Engineering and Technology (IRJET) e-ISSN: 2395-0056
Volume: 02 Issue: 03 | June-2015 www.irjet.net p-ISSN: 2395-0072

Cash flow being High Medium Low Low  The contract documents are used as a tool to
affected manage risk by allocating risks to various agencies
Expense towards Medium Medium Medium Low
 To minimize the chances of failure or under-
through various contracts.
taxes
Accidents Low Medium Medium Medium
performance of project, risk management policy
Reduction in time Medium Medium Very High must be implements and evaluate regularly into
for completion Low
the construction project.
Delay Medium High Medium Medium
This study may be used as guidelines for researchers and
Direct liability Medium Medium Low Medium
Non- extension of Medium Medium Low Medium
any infrastructure construction projects in India.
completion date
Encroachment Medium High Low Very Low ACKNOWLEDGEMENT
This research study was supported by clients, contractors
Forfeiture of assets Medium Medium Medium Medium and consultants of projects. The authors would like to
Expense towards Medium Medium Medium Low thanks all the interviewees and respondents of the survey
taxes
for their precious comments, opinions, responses, and
ideas that have provided me with very useful background
From the study of contract documents various risks in
contract are related to client and contractor are data. The word sincere gratitude will not be adequate to
summarized. This help to understand the risks associated express the feelings; I have for my honored guide Prof. Dr.
with the conditions of contract document. J. R. Patil, Asso. Prof. S. S. Jain and Asst. Prof. A. M. Gaikwad.
In addition, I am also thankful to my parents and friends
In this paper qualitative risk analysis technique provides
who helped me directly and indirectly to bring this
an effective insight and clear picture of the risks involved
in infrastructure construction in Mumbai and Pune research study in reality.
city.This analysis helps to take necessary risk mitigation
action for project team of client & contractor. REFERENCES

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