Developing and implementing a balanced incentive and risk sharing contract

Chris Chapman and Stephen Ward

Construction Management and Economics, 2008, vol. 26, issue 6, 659-669

Abstract: An important aspect of stakeholder management in construction projects is the contractual approach to managing risk and uncertainty. Clients need to choose an appropriate form of contract from available common options, like fixed price, design and build (D&B), and design, build, finance and operate (DBFO). Facilitating appropriate choices is usefully addressed within a balanced incentive and risk sharing (BIARS) contract framework, 'balance' implying incentives that align client and contractor objectives. What this means in operational terms, within the context of a best practice approach to project risk and uncertainty management, is explored and clarified. The work is based on a mix of conventionally funded academic research and consultancy-based research. It was stimulated by the need to explain these ideas to a client using target contracts with unbalanced risk sharing, a common practice. Best practice requires a balanced approach, and the difference is significant. Best practice also involves a number of other relevant features. The key conclusion is that full integration of contract choice decisions and other aspects of a best practice approach to risk and uncertainty management is practical and advantageous, and a reasonable next step in the evolution of best practice.

Keywords: Contract conditions; risk management (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (2)

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DOI: 10.1080/01446190802014760

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