Identification, quantification and classification of risks pertaining to building contractors in the JBBCC (Principal Building Agreement)

Abstract

Risks are present in every aspect of business. As one of the biggest industries worldwide, the construction industry is plagued with risks. Being such a large industry, there are hundreds of contracts signed every day. These contracts range from new construction, refurbishment to maintenance. Some projects are simple and worth few thousands of dollars where others are complex and may cost hundreds of millions. Irrespective of how simple or complex the project is, all projects are exposed to risk and can go wrong (Edwards and Bowen, 2005). Construction is governed by complicated contracts and involves complex relationships in several tiers (Abdou, 1996). According to Sawczuk (1996) as soon as the employer and the contractor have signed a contract they have taken on board risks. Their awareness of the risk and the steps to be taken to manage their share of the risk, will determine the likelihood of problems occurring. Construction projects have an abundance of risk, contractors cope with it and owners pay for it. The construction industry is subject to more risk than any other industries. Taking a project from initial investment appraisal to completion and into use is a complex and time-consuming design and construction process. It requires a multitude of people with different skills and a great deal of effort to co-ordinate a wide ranges of disparate, yet interrelated, activities. Inevitably, this complex process is compounded by many unexpected events that may cause loss to the client and other involved parties (Shen, 1999; Flanagan and Norman, 1993). According to Carter et al. (1997) the construction industry is facing a more challenging environment than any time in the past. Client expectations have grown higher and they call for better quality and service. Smith (1998) highlighted that for years the South African building industry had a very poor reputation in managing construction risks. These risks could be prevented or reduced if management takes action at early stages ofthe project life cycle. In order to overcome these limitations and improve the image of the South African construction industry, this research aims to develop an innovative framework to enable construction contractors to identify, quantify and classify the risks associated with the Joint Building Contracts Committee (JBCC) Principal Building Agreement (PBA). This will help making decisions on informed bases. In addition, it will enable contractors develop particular course of actions to mitigate the effects ofthese risks. The research methodology designed to achieve this aim consisted of literature review, questionnaire and interview. Firstly, the literature review was used to review risk management in construction, construction contracts, Risks are present in every aspect of business. As one of the biggest industries worldwide, the construction industry is plagued with risks. Being such a large industry, there are hundreds of contracts signed every day. These contracts range from new construction, refurbishment to maintenance. Some projects are simple and worth few thousands of dollars where others are complex and may cost hundreds of millions. Irrespective of how simple or complex the project is, all projects are exposed to risk and can go wrong (Edwards and Bowen, 2005). Construction is governed by complicated contracts and involves complex relationships in several tiers (Abdou, 1996). According to Sawczuk (1996) as soon as the employer and the contractor have signed a contract they have taken on board risks. Their awareness of the risk and the steps to be taken to manage their share of the risk, will determine the likelihood of problems occurring. Construction projects have an abundance of risk, contractors cope with it and owners pay for it. The construction industry is subject to more risk than any other industries. Taking a project from initial investment appraisal to completion and into use is a complex and time-consuming design and construction process. It requires a multitude of people with different skills and a great deal of effort to co-ordinate a wide ranges of disparate, yet interrelated, activities. Inevitably, this complex process is compounded by many unexpected events that may cause loss to the client and other involved parties (Shen, 1999; Flanagan and Norman, 1993). According to Carter et al. (1997) the construction industry is facing a more challenging environment than any time in the past. Client expectations have grown higher and they call for better quality and service. Smith (1998) highlighted that for years the South African building industry had a very poor reputation in managing construction risks. These risks could be prevented or reduced if management takes action at early stages ofthe project life cycle. In order to overcome these limitations and improve the image of the South African construction industry, this research aims to develop an innovative framework to enable construction contractors to identify, quantify and classify the risks associated with the Joint Building Contracts Committee (JBCC) Principal Building Agreement (PBA). This will help making decisions on informed bases. In addition, it will enable contractors develop particular course of actions to mitigate the effects ofthese risks. The research methodology designed to achieve this aim consisted of literature review, questionnaire and interview. Firstly, the literature review was used to review risk management in construction, construction contracts,