Understanding risk management in construction contracts

Construction contracts are much more complicated than the ones related to goods and services. All production activities and indeed all contracts involve an element of risk. Construction contracts are no exception to this rule.

While the risk arising from a contract may take any number of forms, that risk must be allocated between the parties as an integral step in the negotiation process.

The method of organising a project, that is its contractual structure, is one of the most basic methods of allocating the risks of that contract.

Claims avoidance mechanisms and defences to excessive claims start with design and specification preparation. Since public sector organisations generally tend to regard themselves as having limited experience in the construction field, there is a tendency on their part to allocate risk management to the contractor.

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In the increasingly complex procurement landscape, effective risk allocation is a critical consideration. A robust risk management document can gain you significant points in the tender process, to gain an advantage over the competition.

As a minimum, a risk management policy should tackle risk identification, risk assessment and risk management processes including:

  • A breakdown of possible risks – which demonstrates the supplier has knowledge of the contract and service provided.
  • Likelihood of risk occurring – scored as 1 – 5 or as high, medium & low
  • Impact if risk occurred – again scored as 1 – 5 or as high, medium & low
  • Mitigating factors – what are you as a business doing already to ensure these risks don’t occur
  • Contingency – what will you do to ensure business as usual if risk occurs
  • Continuity – how will you ensure business as usual
  • Timescale – provide a timeframe in which the risk will be resolved
  • Person responsible – note the person who will be responsible for managing each individual risk

At Win That Bid, and our partners, Thornton & Lowe, we pride ourselves in offering business-winning solutions. Our bid writing team can ensure confidence in displaying your top qualities and securing the opportunity to do what you do best. Our team will support you through the full tender process; including PQQs, ITTs and risk statements.

With an 80% + success rate in tendering and a 90% + success rate for PQQ assessments, why not see if we can help. If you are looking for bid writing training or simply with support responding to a PQQ or tender then please contact us.

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