Appraising the potential for joint risk management

Construction risks are apportioned by contract conditions that are eventually interpreted by 'self-interested economic agents' of the contracting parties. This may lead to prolonged claims and costly disputes. Moreover not all the risks are foreseeable at the planning stage, some foreseeable risks may change as a project progresses and some others may need joint efforts of the contracting parties for their effective management. Contract conditions alone are thus not sufficient to allocate risks properly. Unforeseen risks need to be managed with a Joint Risk Management (JRM) strategy that will work dynamically through coordinated efforts, provision for which should be made in the contract conditions. Attitudes of the contracting parties and cooperative relationships among the project participants are therefore important for successful project delivery. These are examined in the light of Transaction Cost Economics (TCE) and Relational Contracting (RC) principles. It is found that RC should reduce transaction costs, while also fostering cooperative relationships and better teamwork that in turn facilitate JRM. The usefulness of the latter is reinforced by relevant observations from a Hong Kong-based survey, and a pilot study on a follow-on (second) survey.