Risk in Construction

HAWASSA UNIVERSITY
INSTITUTE OF TECHNOLOGY
SCHOOL OF CIVIL ENGINEERING
M.S.C in CONSTRUCTION TECHNOLOGY AND
MANAGEMENT
Course: Construction Contract & Law
Risk: it’s Regulation & Management under the MDB-FIDIC (2006) & the PPA
(2011) Conditions of Construction Contracts & the Applicable Laws: with
special emphasis to Construction Insurance Practice in Ethiopia
Submitted by:
Group Members Id Number

Alemtsehay Shiferaw GPCoTMR/002/11
Fortune Yifru GPCoTMR/021/11
Mathiwos Werku GPCoTMR/029/11
Sintayew Feyssa GPCoTMR/038/11
Submitted to: - Mr. Zewdu Tefera Worke

(Engineering Contracts Lawyer)
Risk: it’s Regulation & Management under the MDB-FIDIC (2006) & the PPA (2011) 2018 GC
Conditions of Construction Contracts & the Applicable Laws: with special emphasis to
Construction Insurance Practice in Ethiopia
Acknowledgements
First of all we would like to thank God for his guidance in all our way and our next deepest appreciation
goes to our instructor Mr. Zewudu Tefera (Engineering Contracts Lawyer) for his endless share of
academic knowledge and advice to perform our project study well.
Finally, we would like to thank all those who assisted us in providing the data and information
what we needed to accomplish our task successfully.
CONSTRUCTION CONTRACT AND LAW Page i

Abstract
Risks have a significant impact on a construction projects performance in terms of cost, time and
quality. As the size and complexity of the projects have increased, an ability to manage risks
throughout the construction process has become a central element preventing unwanted
consequences. Managing risks in construction projects has been recognized as a very important
management process in order to achieve the project objectives in terms of time, cost, quality,
safety and environmental sustainability. Poor contract management was found to be one of the
major causes of risk which has a high probability of occurrence and a high level of impact on
project objectives.
The main objective of this paper is to study the impact of risk management on construction
projects success with respect to insurance coverage specifically to contract condition that of
FIDIC Multi-lateral Development Bank and Federal Public Procurement Agency of Ethiopia.
Different literatures were assessed to show that risk management is a very important
management process that helps in making projects successful. Risk management is a process
which consists of identification of risks, assessment with qualitatively and quantitatively,
responses with a suitable method for handling risks, and then controls the risks by monitoring.
Keywords: Risk, Risk Management, Insurance and Role.
CONSTRUCTION CONTRACT AND LAW Page ii

Contents
CHAPTER ONE ............................................................................................................................. 1
1 INTRODUCTION ................................................................................................................... 1
1.1 Background of the project ................................................................................................ 1
1.2 Objective of the study ...................................................................................................... 2
1.2.1 General objective ...................................................................................................... 2
1.2.2 Specific objective ...................................................................................................... 2
1.3 Significance of Study ....................................................................................................... 2
1.4 Scope of the research........................................................................................................ 2
1.5 Organization of the research ............................................................................................ 2
1.6 Research methodology ..................................................................................................... 3
CHAPTER TWO ............................................................................................................................ 4
2 LITERATURE REVIEW ........................................................................................................ 4
2.1 Risk Definition ................................................................................................................. 4
2.2 Construction ..................................................................................................................... 5
2.3 Construction Risk ............................................................................................................. 6
2.4 Insurance .......................................................................................................................... 8
2.4.1 Definition of Insurance ............................................................................................. 8
2.4.2 Principles of Insurance .............................................................................................. 9
2.4.3 The Insurability of Risks ......................................................................................... 11
2.4.4 The Uninsurablity of Risks ..................................................................................... 11
2.5 Construction Insurance ................................................................................................... 12
2.5.1 Type of Construction Insurances ............................................................................ 12
2.6 Risk management ........................................................................................................... 14
2.7 Contract and Risk Allocation ......................................................................................... 17
CHAPTER THREE ...................................................................................................................... 19
3 Risk In General ...................................................................................................................... 19
3.1 Risk Definition ............................................................................................................... 19
3.2 Scope of Risk in General ................................................................................................ 19
3.3 The Concept of Risk Management ................................................................................. 21
3.4 Process of Risk Management ......................................................................................... 21
3.4.1 Risk identification ................................................................................................... 21
3.4.2 Risk assessment ...................................................................................................... 22
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3.4.3 Risk allocation ........................................................................................................ 24

3.4.4 Risk mitigation ........................................................................................................ 24
CHAPTER FOUR ......................................................................................................................... 27
4 Construction Risk In various Projects Phases and its Management ...................................... 27
4.1 The Concept of Construction Risk in General ............................................................... 27
4.2 Type of construction risk................................................................................................ 28
4.3 Management of Construction Risk in General ............................................................... 29
4.4 Scope of construction Risk............................................................................................. 32
4.5 Risk at Different Stages of Construction........................................................................ 33
4.5.1 Risks with the feasibility stage: .............................................................................. 33
4.5.2 Risks with the planning and design stage: .............................................................. 34
4.5.3 Risks in tendering phase ......................................................................................... 37
4.5.4 Risks associated with the post-construction stage .................................................. 38
4.6 The effects of construction risk on the project & on the contracting parties ................. 40
4.6.1 Quality..................................................................................................................... 40
4.6.2 Cost ......................................................................................................................... 41
4.6.3 Time ........................................................................................................................ 41
4.6.4 Safety ...................................................................................................................... 42
4.6.5 Performance ............................................................................................................ 42
4.7 Management of Construction Risk under the Construction Contract ............................ 43
4.7.1 Natural Risks ........................................................................................................... 44
4.7.2 Political and Social Risks........................................................................................ 45
4.7.3 Economic and Legal Risks...................................................................................... 45
4.7.4 Behavioural Risks ................................................................................................... 46
4.7.5 The construction phase risks allocated for contracting party.................................. 47
4.7.6 Principles of risk allocate to the contracting party (through construction contracts)
50
CHAPTER FIVE .......................................................................................................................... 55
5 Risk management in Ethiopian building construction contracts ........................................... 55
5.1 Awareness of the concept of risk management .............................................................. 56
CHAPTER SIX ............................................................................................................................. 58
6 Construction insurance practice in Ethiopia .......................................................................... 58
6.1 Insurance Regulation and Companies in Ethiopia ......................................................... 58
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6.2 Major Types of Insurance Policy ................................................................................... 59

CHAPTER SEVEN ...................................................................................................................... 60
7 The role of professional engineers on Construction risks ..................................................... 60
7.1 General ........................................................................................................................... 60
7.2 Role of engineer in the design stage............................................................................... 63
7.3 Role of engineer in tendering ......................................................................................... 63
7.4 Role of engineer in the construction stage ..................................................................... 64
CHAPTER EIGHT ....................................................................................................................... 67
8 Case Study ............................................................................................................................. 67
8.1 General ........................................................................................................................... 67
8.2 Project description .......................................................................................................... 67
8.2.1 Basic Contract Data ................................................................................................ 67
8.2.2 Current condition of the project .............................................................................. 68
8.3 Description of the case ................................................................................................... 68
8.4 Conditions of contract related to the problem ................................................................ 70
8.5 Conclusion and recommendation on our case study ...................................................... 71
CHAPTER NINE .......................................................................................................................... 72
9 Comparative Table Analysis ................................................................................................. 72
CHAPTER TEN............................................................................................................................ 78
10 Conclusion and Recommendation ..................................................................................... 78
10.1 Conclusion...................................................................................................................... 78
10.2 Recommendation ............................................................................................................ 78
Reference ...................................................................................................................................... 80
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List of Tables
Table 1 Risk assessments for health and safety risks ................................................................... 25
Table 2 Basic Contract Data of Kibremengest-Shakiso Project ................................................... 67
Table 3 the remaining work of the project .................................................................................... 68
Table 4 Comparative analysis of MDB FIDIC 2006 and FPPA 2011 with respect to risk and ... 72
List of figures
Figure 1 Risk Management Framework (Source: PMI PMBoK, 2013). ...................................... 14
Figure 2 Risk Ranking Matrix ...................................................................................................... 23
Figure 3 Risk Categorization Framework ..................................................................................... 43
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CHAPTER ONE
1 INTRODUCTION
1.1 Background of the project
Among other things, it requires interpretation of and compliance with many laws, codes, and
regulations; gathering of considerable resources, including labor, equipment, and material; and
communications with and coordination among multiple parties, such as the owner, the design
professional, other contractors and subcontractors, and suppliers, all of whom may have differing
purposes and goals. In addition, many factors are unknown or unknowable at the start of any
project. Not surprisingly then, risks are an expected part of this process.
In theory, risk is usually defined as a positive or negative deviation of a variable from its
expected value. Risk arises when uncertainty has the potential to affect objectives. In order to
turn risks into chances, the business owner must first know his / her risk sufficiently well. Risk
management constitutes a strategy to avoid losses and use available chances or rather chances
potentially arising from risks. The strategy demands from the person taking action a precise
consideration and assessment of the situation and the scenarios probably occurring in the future.
On this basis, decisions are made in the hope of having eliminated all risks and used all chances.
This means recognizing potential risks and circumventing a threat by averting, evading or
reducing their negative effects.
There are many typical construction risks that might impact a contractor’s success on a project.
These risks could be attributed to a number of reasons, which include the nature of the
construction process, the complexity and time-consuming design and construction activities, and
the involvement of a multitude of people from different organizations with different skills and
interests. Hence, a great deal of effort is required to co-ordinate the wide range of activities that
are undertaken.
Risks might show up due to different factors during the execution of the construction project,
some of the factors are Payment delays, Funding problem for projects, Accidents/safety,
Defective design, Inaccurate schedule ,Poor performance of subcontractors ,Exchange rate
fluctuation and inflation, Improper scope of work definition in a contract, Poor quality of
materials and equipment Shortage/delay of material supply.
CONSTRUCTION CONTRACT AND LAW Page 1

1.2 Objective of the study
1.2.1 General objective

This paper covers the concepts of risk in General and risk in construction industry and its
management and various risk analysis techniques to be used for the one stop solution for all
types of hazards most likely to occur during any construction project lifecycle.
1.2.2 Specific objective

 To define the concept of risk in general and risk management
 To identify the main cause of risk on the project.
 To identify the effect of Risk in the construction project.
 To analyze risk and related activities in overall project performance.
 To provide a better suggestion about Risk management in construction industry

 To define the concept of construction Insurance
1.3 Significance of Study

There are different types of risk associated with construction industry this study outcome may
help the construction stakeholders who involved in a construction project to understand about the
meaning of risk, types and their management system which help in determining the actions to
avert the threats on any project. It is known all steps in the risk management process should be
included to deal with risks, in order to implement the process of the project. Due to the nature of
construction projects, risk management is a very important process which must be considered in
the planning, designing, and construction phase of the project. So this study helps the
construction stakeholders to prevent such challenges.
1.4 Scope of the research

The scope of the research is limited to the study of risk management involved in construction
projects, which only undertakes in Ethiopian construction Projects under MDB-FIDIC 2006,
PPA 2011 & of the applicable laws.
1.5 Organization of the research

This research contains nine chapters as described below;
 The first chapter is an introduction part containing discussions on background, objective
of the research, significance of the research, scope and limitation of the research and
organization of the research.

 The second chapter presents literature review with general descriptions of by different
scholars on concept of risk, risk management, risk in construction and insurance.
 The third chapter discusses about risk in general
 The fourth chapter discusses about construction risk in various projects phases and its
management
 The fifth chapter contains risk management in Ethiopian building construction contracts.
 The sixth chapter discuss about construction insurance practice in Ethiopia.
 The seventh chapter contains the role of professional engineers on Construction risks.
 The eighth chapter contains case study related to the research.
 The ninth chapter is Comparative Table & Analysis of risks of contractors and employers
based on MDB-FIDIC-2006 & PPA-2011; and the applicable laws.
 The tenth and last chapter is about conclusion and recommendation of the study.
1.6 Research methodology

This study started with providing deep understanding on the issues of risk. This was done by
reading and collecting data from research papers, textbooks and academic journals. Then
compare and contrast between the MDB FIDIC (2006), PPA (2011) and Civil Code about risk.
Finally we perform a case study discussion, analysis and provide conclusion and
recommendation

CHAPTER TWO
2 LITERATURE REVIEW
This chapter presents the findings from different reviewed literatures on the subjects of risk
management. This includes a generic definition of risk, risks management and their method.
The risk facing any project depends on the type and methods of construction, the stage of
construction, the type of contract and delivery system and project type and complexity etc.
similarly the risk management technique that should be applied also depends on the above
factors. Hence, the literature review tried to highlight these issues in relation to risk with the
main focus being on management of construction risk starting from the contractual stage.
2.1 Risk Definition
Before discussing about risk management it would be better to understand what the terminology
‘risk’ means. Etymologically, the origin of the English word ‘risk’; or ‘risque’ in French; and
‘rischio’ in Italian is uncertain. In Arabic, there is even confusion as to its real meaning—since
some say it simply means ‘danger’—(‘Khattar’ in Arabic), others refer to ‘Rizkk’, which
signifies what destiny bestows in the future for someone, positive or negative, good or bad;
whereas others use it wrongly to mean ‘Gharar’, a forbidden transaction under Islamic law. Of
course, the latter version cannot be right because if it were so, then a construction contract,
which is known to be exposed to a large number of risks, would not be permitted under Islamic
law. This simply does not make any sense nor can it be right. The Latin word ‘resecum’ meaning
‘danger’ or ‘rock’ may throw some light on the origin of the word ‘risk’, but the Chinese ‘wejji’
with the characters representing ‘opportunity’ and ‘danger’, is more illustrative of the concept of
risk as it applies to the construction industry( Nael G.Bunni. 2003).
Different literatures, professionals and standards define risk in their own way. But most of them
confirm that the view towards risk is most of the time negative. For Nael G.Bunni the risk can be
represented by the following mathematical expression:
Risk=Event × Probability of Occurrence, where the event is measured in terms of its intensity.
Bowen (2005) stated that despite the largely negative connotation of risk that prevails today, it
has to be conceded that one person's risk may be another's opportunity to profit. PMBOK
(Project Management Body of Knowledge) guide fifth edition also describes risk as an uncertain
event or condition that, if it occurs, has a positive or negative effect on a project’s objective. In
theory, risk is usually defined as a positive or negative deviation of a variable from its expected
value. In general parlance, risk is understood only as a loss. The definition of risk in the
meantime not least takes into account the chances.

Regardless of the continuing debate among risk management practitioners about the definition of
risk; there exist several attempts from different professional bodies and standard institutions to
propose a definition of risk that capture broad acceptance. However there is no one official
definition for risk. But it was discovered most standards use the word risk in its negative sense to
mean, chance of bad consequences, or exposure to mischance and some standards like the UK
define risk as an uncertain event or set of circumstances which, should it occur, will have an
effect on achievement of objectives.
Since the effect is not specified it could mean either negative or positive and taking this into
consideration risk has been defined by PMBoK, (2008), stated above.
2.2 Construction
A construction in simple words is a process of constructing something by human for one purpose
or another. It may be a road, bridge, a dam, a private residence, an airport, a commercial
building, etc. According to Wikipedia, construction is a process that consists of the building or
assembling of infrastructure. Construction is the recruitment and utilization of capital,
specialized personnel, materials, and equipment on a specific site in accordance with drawings,
specifications, and contract documents prepared to serve the purposes of a client. According to
Moavenzdadeh F. (1976), construction contributes to the economic development of any country
by satisfying some of the basic objectives of development including output generation,
employment creation and income generation and re distribution; it also plays a major role in
satisfying basic physical and social needs, including the production of shelter, infrastructure and
consumer goods.
A project is a temporary endeavor undertaken to create a unique product, service or result
(Project Management institute, 2008). According to Hillson D., (2009), all projects are risky and
there are three separate reasons for that. The first reason is that all projects share common
characteristics which inevitably introduce uncertainty. Some of this common characteristics are
projects are unique, complex, involve assumptions and constraints, performed by people and
involve change from a known present to an unknown future. The second reason is that all
projects are undertaken to achieve some specific objectives. The final reason is that all projects
are affected by the external environment they exist in.

2.3 Construction Risk

In the construction industry, risk is often referred to as the presence of potential or actual threats
or opportunities that influence the objectives of a project during construction, commissioning, or
at time of use. Risk is also defined as the exposure to the chance of occurrences of events
adversely or favorably affecting project objectives as a consequence of uncertainty. There are
two types of risk:
1) Pure risk in which there is the possibility of financial loss but no possibility of financial gain
2) Speculative risk that involves the possibility of both gains and losses.
It is necessary to identify all risks involved at all the stages of the project so as their assessment
and analysis can be done accordingly (Satish K. Kamane and Mr. Sandip A. Mahadik).
Risks associated with the construction industry can be broadly categorized into:
 Technical risks:
 Inadequate site investigation
 Incomplete design
 Appropriateness of specifications
 Uncertainty over the source and availability of materials
 Logistical risks:
 Availability of sufficient transportation facilities
 Availability of resources-particularly construction equipment spare parts, fuel and
labor
 Management related risks:
 Uncertain productivity of resources
 Industrial relations problems
 Environmental risks:
 Weather and seasonal implications
 Natural disasters
 Financial risks:
 Availability and fluctuation in foreign exchange
 Delays in Payment

 Inflation
 Local taxes
According to Martin Schieg (2006) in projects, in particular the following risks occur, which are
broken down according to risk types:
 Quality risks
o Defect in interim results
o Lacking application of project methods
o Too few controls / tests
 Personnel risks
o Lack of skills
o Disagreements in the team
 Cost risks
o Planning changes
o Complicated project conditions
o Customer fails to pay
 Set date / deadline risks
o No handover in good time
o The project end is delayed
 Risks of strategic decisions
o Failure to recognize chances
o Lack of ability to consistently use chances
 External risks
o Natural occurrences
o Political changes
o Changes in society
o A shift in the market / new markets
o Legal developments
o Shifts in sectorial trends
o Technological changes
IMCA risk guideline groups risks into the following main areas of risk in construction contracts
which are briefly discussed below;
 Contractual risk: is risk which result from not clearly defining the responsibilities and duties
of the contracting parties. The contract clauses should be clear and easily understood by
everyone involved
 Performance risk: is a risk due to clearly undefined scope and nature of work. The contractor
is expected to perform the work with some standard including safety. Different situations that

could hinder performance should be included in the contract. Incomplete information at the time
of bid can negatively affect the performance of the contractor.
 Financial/Economical risk: are risks that are a result of not understanding the terms of
payment, performance bond, bank guarantee etc. The payment terms should reflect the progress
of the work and the parties should have the required financial backing from a reliable source.
 Political risk: are risks that are especially significant when the construction is on a host
government’s site/country. The host country might interfere in the bidding and construction
process by changing laws and standards. The contractor needs a secure environment for
performing the construction and should be clearly stated in the bid as well as the contract
document.
 Technical risk: this risk arises from lack of understanding of the system and the technology
that would be utilized at the time of bid and during construction.
 Geographical risk: arise as a result of the location of the site. The location of the site is very
important and should be selected very carefully because it can lead to additional risks like
political risk. The stability, material supply interruptions, mobility and access should all be
considered during bid and contract agreement.
 Operator risk: are due to the operators influence on the bid, contract, supervision, and
approval etc…the operator should have the required insurance coverage which should be clearly
stated in the contract document, for example, so that claims would lead to payment instead of
dispute. Underperformance of the operator should not affect the work of the contractor; therefore
there should be clear statements in the contract specifying the operator’s obligations and the
consequences to the contractor.
2.4 Insurance
2.4.1 Definition of Insurance

Insurance is a social device, in which a group of individuals (called “insured”) transfer risk to
another party (called the “insurer”) in order to combine loss experience, which permits statistical
prediction of losses and provides for payment of losses from fund contributed (premiums) by all
members who transferred risk (Pritchett, 1996).
In construction contract perspective, construction insurance can be defined as a contract whereby
the insurance company seeks to provide coverage and indemnify the construction contractor or
the client against a potential peril, loss, damage, or liability that arises from the performance of
the construction work (Eschemuller, 2009).

2.4.2 Principles of Insurance

Due to the specific nature of insurance agreements and construction insurance is no exception;
certain legal rules apply, irrespective of the jurisdiction where the agreement is made (CACC,
(2004). These rules can be distinguished throughout the wording of the three documents
associated with such an agreement, namely: the proposal form, the policy and any endorsement
issued, either with the policy or subsequently.
Generally accepted insurance rules are summarized as follows:
A.Utmost good faith contract: Unlike the purchaser of ordinary goods, who is under no
obligation to give any information to the seller, the purchaser of insurance must furnish to the
insurance company any information it requires and volunteer any further facts relating to the
risks for which cover is being sought.
According to Gould (2003), the majority of the disputes in the area of good faith relate to
material facts which may affect the risk and may be classified as;
• Physical facts – concerning the likelihood of loss or the degree of loss; or
• Moral hazards – concerning whether the insured is a fit person to insure, because for example,
the insured has a criminal record for dishonesty.
Article 668 of the Commercial code of Ethiopia with regard to utmost good faith contract states
that the policy shall be of no effect where the beneficiary intentionally concealed facts or made
false statements and such concealment or false statements cause the insurer wrongly to
appreciate the risks to be insured so that, had he been aware of the truth, the insurer would not
have entered into the policy or would have imposed terms less favorable to the beneficiary. The
insurer shall retain all premiums paid.
B.No financial profit: As a contract of indemnity, an insurance policy is intended to place the
insured, after a loss event covered by it, in the same financial position as that which existed
immediately prior to the event.
Therefore, except in limited circumstances, profit is not allowed as a result of an insured event
and it is generally accepted that to allow profit would be against the interest of society (Bunni,
2003).
Under Article 665 and Article 678, the Commercial code of Ethiopia states that a contract for the
insurance of an object is a contract for compensation and the insurer's liability shall not exceed
the amount specified in the policy.
Hence, the compensation shall not exceed the value of' the object insured on the day of the
occurrence.

C.Insurable interests: A fundamental requirement of insurance law is that the insured must
have an insurable interest in the subject matter of the insurance. An insurable interest is an
interest which is recognized and enforceable at law and it may be legal or equitable, a proprietary
right or a contractual right. An insurable interest is not required under general contract law, but it
is necessary under insurance contracts (Gould, 2003).
D.Subrogation: Subrogation is the complimentary principle of indemnity. The principle of
subrogation provides the insurer with two benefits (Gould, 2003):
• To stand in the shoes of the insured and avail himself of all the rights and remedies available to
the insured against the third parties and the action by the insurer is brought in the insured’s name
and the third party can raise any defenses which would have been available against the insured;
and
• To recover from the insured any benefit received by the insured from third parties which
reduces the loss covered by the insurance.
Article 683(1) of the Commercial code of Ethiopia (Code C., 1960) indicates the right of
subrogation of the insurer as: the insurer who has paid the agreed compensation shall substitute
himself to the extent of the amount paid by him for the beneficiary for the purpose of claiming
against third parties who caused the damage.
E.Contribution: If an insured subject matter is covered against a peril for the benefit of an
insured party by more than one policy, and if that peril eventuates into a loss, the insured cannot
recover from more than one insurer.
In that event, an insurer, having paid a claim, can seek a contribution from other insurers liable
for the same loss to contribute towards the payment made (Bunni, 2003). The right of
contribution under the Ethiopian case is specified under Article 681of the Commercial code of
Ethiopia.
i. Proximate cause: The principle of proximate cause is implied into contracts of insurance and
requires the insured to show that the loss was caused by an insured peril. Proximate cause means
the effect of the common, dominant or real cause of the loss and will be a question of facts in
each case. The principle may of course be modified or even excluded by the contract (Gould,
2003).
ii. Warranties: A warranty is a term of the insurance policy which if broken entitles the insurer to
terminate the contract from the time of the breach regardless of whether the breach is material. In
the law of insurance the term “warranty” is therefore used in a similar sense to that more readily
associated in general contract law with the term “condition”. Breach of a warranty justifies the
injured party’s refusal to further performance (Gould, 2003).
iii. Fortuity: The principle of fortuity is fundamental to the basic concept of insurance and the grant
of coverage.

Insurance responds to risk, rather than losses that were planned, intended or anticipated by the
insured (Karen, 2011). The term “fortuitous” means accidental, unintentional or unexpected.
Article 663(3) of the Commercial code of Ethiopia confirms that intentional damages are not
covered in insurance policy as: Notwithstanding any provision to the contrary, risks arising out
of the intentional default of the beneficiary shall not be covered by the insurance.
2.4.3 The Insurability of Risks

Insurable risk means a risk, which can be covered by insurance. Not all risks are insurable and
while the principle of the equitable contribution of many for the benefit of an individual
suffering a loss is the cornerstone of insurance philosophy, certain limitations must be put on that
principle to make the insurance transaction viable (Bunni, 2003).
For a risk to be acceptable by an insurer it has to be a pure risk which means it has the down side
of the effect only opportunity for loss only; speculative risks are not covered by traditional
insurance. Moreover, it has to be sudden and accidental, with statistics available for insurers to
simulate past events and generate a creditable premium (Junying, 2006).
2.4.4 The Uninsurablity of Risks

The insurance industry as a whole is increasingly confronted with risks where for reasons of
principle and capacity doubts as to whether they can or should cover. This increase of risks at the
limit of insurability is due to social and accumulated problems, advancing technology and
concentration of values, increased complexity and exposure of numerous risks (Berliner, 1985).
It is important to note that the responsibility and liability for damage to property and/or personal
injury emanating from uninsurable risks must be clearly defined in any contract. Bunni (2003)
classified uninsurable risks with four categories as outlined hereunder:
1) Foreseeable risks: An insurer will argue that if a contractor stores cement in an uncovered
condition during a rainy season, then any damage caused is foreseen to be inevitable and, thus, is
not the liability of the insurer. On the other hand, if the cement was stored in a watertight shed
and the roof of the shed blows away under severe wind, then the contractor will argue that this is
unforeseen damage.
2) Unquantifiable risks: A consequential economic risk is unquantifiable, even in a certain
circumstance. It is, therefore, very rarely covered. However, the word ‘consequential’ must not
be confused with ‘consequence’ as in risks resulting as a consequence of defective design,
material and/or workmanship because these risks are quantifiable and their limit is the value of
the contract which is insured. Such damage resulting from, or occurring as a consequence of
these defects is insurable and the intention of a good insurer must always be clear in this respect.
Insurance policies must be written in clear and precise language at all times but more especially

so when dealing with this issue because, otherwise, it could result in a dispute if repair to a
resultant damage is costly.
3) Political risks and risks on an international scale: War is a good example of these risks that
are normally uninsurable. The reason is that the principle of the contribution of many for the
benefit of an individual suffering loss breaks down in such a situation, unless governmental
institutions carry out the insurance.
4) Causation: To prove the cause of any damage on a project is to establish the responsibility
and liability for it and to establish whether or not the damage is covered through the provisions
of the insurance contract. If such a cause cannot be proven for any particular risk, the risk
becomes uninsurable.
2.5 Construction Insurance

In construction contract perspective, construction insurance can be defined as a contract whereby
the insurance company seeks to provide coverage and indemnify the construction contractor or
the client against a potential peril, loss, damage, or liability that arises from the performance of
the construction work (Eschemuller, 2009).
Construction insurance encompasses all contracts of indemnity within the activities of the
construction industry where insurance is chosen as the medium through which liabilities are
shifted. It involves not only many branches of insurance but also many disciplines and
professions (Bunni, 2003). Table 1 shows insurance policies usually issued for each party in
connection with construction.
2.5.1 Type of Construction Insurances

2.5.1.1 Property Insurance
This insurance mainly provides protection to the works and any material, equipment and
machinery connected with it. It is generally transacted through what has become known as
Contractors’ All Risks Insurance Policy or Erection All Risks Insurance Policy. In general,
however, unless a risk is specifically excluded from the policy, it is considered to be included in
the cover provided (Code C., 1960).In the case of Ethiopia, property insurance is regulated in the
Commercial Code of Ethiopia [1960] under Article 654(2) to Article 675.
2.5.1.2 Liability Insurance

Liability insurance is intended to provide protection to the insured party against specific legal
liabilities to which he may become exposed as a result of activities culminating in bodily injury
and/or property damage. Liability insurance under the Commercial Code of Ethiopia (Code C.,
1960) is discussed under Article 654(2) to Article 685. To illustrate some of the Liability
insurances commonly issued are;

• Compulsory (Liability) Motor Insurance; (in case of car accident or collision on road);
• Employer’s Liability Insurance; (to compensate the employer in case of the worker’s
negligence who injures third party); see also Article 2130 of the Civil Code;
• Professional Liability Insurance/Professional Indemnity Insurance ;( in case of Engineer’s or
Architect’s liability towards its client); and
• Workmen’s Compensation Policy; (to cover the liability of the employer to the worker as per
the Labor Law.
2.5.1.3 Professional Indemnity Insurance

As its name suggests, this insurance indemnifies an insured for amounts which the insured
becomes legally liable to pay as a result of any actual or alleged negligent act, error or omission
in the conduct of its business or profession.
Professional indemnity insurance (PII) covers professionals, such as architects, engineers and
other consultants, and claims against them arising out of the professional services they provide
(CACC, (2004).
Typically the cover includes, and claims may arise from the services involved where they
include: a breach of professional duty; negligence; bodily injury and property damage arising
from service negligence; fraud/dishonesty other than a company director’s dishonesty;
infringement of intellectual property; breach of duty/confidentiality; defamation; and loss of
documents.
There are two methods of assessing the extent of professional indemnity insurance cover. The
first is a
Simplified Method that applies for conventional consultancies not related to construction. The
simple approach is to base the level of cover on the fee to be paid. The more comprehensive
approach is the Risk Assessment Based
Method which addresses the particular risks associated with the type and nature of the
professional service involved.
2.5.1.4 Decennial Insurance

Decennial insurance is generally transacted to cover the liability of those involved in
construction for latent defects in the stability of the structure and for major defects in the weather
shield for ten years. The ten-year cover matches the limitation period in respect of the stability
and major defects in the structure or of an important part thereof in certain jurisdictions (Code C.
, 1960). Article 3282 of the Civil Code of Ethiopia demands for the provision of such insurance
for public construction works like road works as per the concept of the Law of

Administrative Contract of the Civil Code as it states;

(1) Unless otherwise provided, the contractor shall be liable to the administrative authorities for
the defects of construction of the works during ten years from the day on which they have
entered into possession of works.
(2) The warranty shall not be due, however, in respect of the defects which were apparent at the
time of the final acceptance of the works.
(3) The warranty shall apply to such defects only as prevent the work from being used for the
purpose mentioned in the contract or as render such use more onerous or less profitable.
2.6 Risk management

Risk management is the process whereby decisions are made to accept a known or assessed risk
or the implementation of action to reduce the consequences or the probability of occurrence of an
adverse event. Risk management refers to strategies, methods and supporting tools to identify
and control risk to an acceptable level.
Risk management is defined in British Standard 4778, 1991, as the process whereby decisions
are made to accept a known or assessed risk and/or the implementation of actions to reduce the
consequences or probability of occurrence.
The PMI’s project management book of knowledge [2013] describes risk management as the
systematic process of identifying and analyzing and responding to project risk as depicted in
Figure 1.
Risk
identification
Risk
Risk
monitoring
classification
and control
Risk response Risk analysis
Figure 1 Risk Management Framework (Source: PMI PMBoK, 2013).

The International Organization for Standardization (ISO) in ISO 31000 identifies the following
principles of risk management:
Risk management should:
 Create value
 Be an integral part of organizational processes
 Be part of decision-making
 Explicitly address uncertainty
 Be systematic and structured
 Be based on the best available information
 Be tailored
 Take into account human factors
 Be transparent and inclusive
 Be dynamic, iterative and responsive to change
 Be capable of continual improvement and enhancement.
Nael G.Bunni defined risk management is therefore concerned with the mitigation of those risks
deriving from unavoidable hazards through the optimum specification of warning and safety
devices; and risk control procedures, such as contingency plans and emergency actions.
If a decision is made to accept a risk, a further decision must be made on whether the risk should
be retained or whether it should be shared and if so with whom. Before such decisions can be
made, it is necessary to go through a systematic process, which involves the analysis of the
possible hazards to which the project may be exposed and the evaluation of their intensity,
frequency and return period.
According to Partnership Victoria guidance material (2001), risk management is used to identify,
prevent, contain and mitigate risks in order to achieve project objectives. It further explains risk
management as ongoing process throughout the project containing the following five steps.
Risk identification- The process of identifying all the risks relevant to the project;
Risk assessment- Determining the likelihood of identified risks materializing and the
magnitude of their consequences if they do materialize;
Risk allocation- Allocating responsibility for dealing with the consequences of each risk to one
of the parties to the contract, or agreeing to deal with the risk through a specified mechanism
which may involve sharing the risk;

Risk mitigation- Attempting to reduce the likelihood of the risk occurring and the degree of its
consequences for the risk-taker; and
Monitoring and review- Monitoring and reviewing identified risks and assessing, allocating,
mitigating and monitoring new risks as the project develops and its environment changes. This
process continues during the life of the contract.
According to Kajsa Simu, (2006), much of what is practiced is based on intuition or personal
judgment. The action taken to control the risks that are analyzed earlier are called risk responses.
Responses is often graded in four levels, namely risk retention, risk reduction, risk transfer and
risk avoidance.
Risk retention concerns accepting the presence of risk and still conducting business as usual. The
reasons for retaining the risk could be that the estimated probability, consequence or the
combination of the two is low and at an acceptable level.
Risk reduction is about decreasing the probability, the consequences or a combination thereof for
a risk to breakout. This could be done in several ways, of which sharing with other parties or
taking some action where the probabilities or consequences become reduced is common. There
could also be involvement of a third party as an extra assurance and quality control of projects to
ensure that nothing is forgotten or overlooked. A common way to reduce risks at construction
sites is through work planning. The work plans consist of timetables and allocation of resources
such as staff and equipment.
Transferring the risk to another party is a fairly common way to deal with risks in the
construction sector. It is transferred from the client to the contractor through the agreements in
the contract, or from the contractor to the sub-contractor. Another way to transfer the risk is to
have insurance, which is a way to transfer the uncertain cost for a potential loss to a certain cost
of money for the premium.
Risk avoidance is about refusing to accept a risk. This is either done by simply refusing a
project that is too risky to begin with or by writing exceptional clauses in the tender.
(IMCA, 2006) defines Risk management as the process by which the likelihood of risk occurring
or its impact on a project is reduced. Similarly it explains that the risk management function
contains the following five steps.
i. Identify the potential sources of risk on the project.
ii. Determine their individual impact and select those with a significant impact for full
analysis.
iii. Assess the overall impact of significant risk.
iv. Determine how the likelihood or impact of risk can be reduced.

v. Develop and implement a plan for controlling the risks and achieving the reductions.
2.7 Contract and Risk Allocation

According to (Bryan) the construction contract expresses the intent of the parties and records in
writing their main risk allocation decisions. The contract typically is composed of an agreement,
drawings, specifications, general conditions, supplemental conditions, addenda, and contract
modifications made during contract performance. Within the general conditions of the contract
are usually found many of the provisions on construction project risks. The general conditions
typically address such matters as the following (Bryan):
 The responsibilities of the contractor and the owner
 The administration of the contract by the owner and/or design professional
 Terms relating to separate contractors and to the contractor’s subcontractors
 Procedures for initiating changes in the work of the contractor
 Procedures for resolving claims and disputes
 Provisions addressing delays and time for performance
 Procedures for payments
 Requirements for indemnity, insurance, and bonds
 Procedures for contract suspension and termination
 Procedures for project close-out
 Miscellaneous terms, such as assignment and governing law
Once the initial project review, risk identification and definition phase has been completed,
critical decisions require to be made regarding allocation of risks to one party or the other in the
construction contract. The successful construction project will benefit from workable,
commercially-viable and cost- effective risk sharing. Given the differing interests and objectives
of the parties involved, effective risk allocation will be an essential part of the drafting of the
project documents and an integral part of the project’s success.
Bryan states that it is often thought that risks should be transferred to the party best able to
manage them. By the same token, project risks should be managed in a reasonable manner, and
should be allocated in an equitable fashion, and not just based upon a hierarchy of power, with
the Owner and his design professional unilaterally apportioning all substantial project risks to the
Construction Contractor. Inequitable risk allocation will inevitably result in unnecessary
Increases in project cost.

According to (Bryan) several principles are often employed in the analysis of and management
of risk. A party to a contract should generally bear a risk where:
 the risk is within the party’s control;
 The party can transfer the risk (for example, by insurance), and it is most economically
Beneficial to deal with the risk in this fashion;
 The preponderant economic benefit of controlling the risk lies with the party in question;
 To place the risk upon the party in question is in the interests of efficiency, including
 Planning, incentive and innovative efficiency;
If the risk occurs, the loss falls on the party in the first instance, and it is not practical or there is
no reason under the above principles to cause expense and uncertainty by attempting to transfer
the loss to another. Risk tends to be allocated on the basis of commercial and negotiating
strength (Bryan). Although not always the best way to proceed, the stronger party will often
allocate risk that it does not want to bear to the weaker party. This scenario does not necessarily
provide the most effective and efficient risk management process. Improperly-allocated risks will
have an impact on the entire project and may affect the stronger party as well as the weaker.
Allocation of risk to the party best able to manage it efficiently, inexpensively and easily will
generally result in a more successful and profitable project and will benefit all of the parties
concerned.

CHAPTER THREE
3 Risk In General
3.1 Risk Definition
Risk is defined as a combination of the probability, or frequency, of occurrence of a defined
hazard and the magnitude of the consequences of the occurrence. Hazard is a situation that could
occur during the life time of a product, system or plant that has the potential for human injury,
damage to property, damage to the environment, or economic loss (Zewdu).
According to (Heinz) Risk is unavoidable and present in every human situation. It is present in
daily lives, public and private sector organizations. Depending on the context (insurance,
stakeholder, technical causes), there are many accepted definitions of risk in use. The common
concept in all definitions is uncertainty of outcomes. Where they differ is in how they
characterize outcomes. Some describe risk as having only adverse consequences, while others
are neutral. One description of risk is the following: risk refers to the uncertainty that surrounds
future events and outcomes. It is the expression of the likelihood and impact of an event with the
potential to influence the achievement of an organization's objectives. The phrase "the expression
of the likelihood and impact of an event" implies that, as a minimum, some form of quantitative
or qualitative analysis is required for making decisions concerning major risks or threats to the
achievement of an organization's objectives.
3.2 Scope of Risk in General

There are two broad categories of risks in construction contract. These are:
Risks that lead to death, bodily injury and/or physical loss or damage; and
Risks that lead to economic loss and/or time loss;
Risks that lead to death, bodily injury and/or physical loss or damage may arise due to defective
design, defective material, defective workmanship, Acts of God, fire, human error, and failure to
take adequate precaution. Such types of risks may or may not be insurable by the insurance
market. Risks that lead to economic loss and/or time loss involve the following;
 Late possession of the site;
 Delay in receipt of information necessary for timely construction;
 Changes in design; and
 Variations to the original contract;
According to (Patrick) the key areas of risk for employers are different to those applying to a
contractor and different again from those applying to a financier.
The employer is generally concerned that the project will be:
 Feasible, in the sense that the project will “stack up” financially;
 Able to proceed, in the sense of having obtained requisite site, planning and other
approvals;
 Able to be completed within budget (or allowed contingency) and on time having regard
to the timing of end-user requirements;
 Able to satisfy end-user requirements;

Fit for purpose, in the sense of it meeting design, construction and performance criteria.
But there are risks of contractor that limit to accomplish the above obligations; some of them
according to MDB FIDIC are;
Sub Clause 18.2 works under construction and contractor’s equipment;
Sub Clause 18.3, the property of the employer, employer’s personnel, and the property of
third parties.
Sub Clause 18.4 contractor’s personnel; On the other hand, the contractors’ key concerns are
generally:
To be paid in accordance with the terms of the contract including any additional amounts
owing because of variation, etc;
To achieve its aimed for margin;
To complete in accordance with its programmers;
To have had the contract fairly administered;
To have avoided liability to third parties or the principal, e.g. liquidated damages, etc.
According to MDB FIDIC some of employer’s risks that limit contractors to accomplish the
above obligations are;
Sub Clause 17.3: The risks referred to in Sub-Clause 17.4 [Consequences of Employers Risks]
below, insofar as they directly affect the execution of the Works in the Country, are:
(a) War, hostilities (whether war be declared or not), invasion, act of foreign enemies,
(b) Rebellion, terrorism, sabotage by persons other than the contractor’s personnel, revolution,
insurrection, military or usurped power, or civil war, within the country,
(c) Riot, commotion or disorder within the country by persons other than the contractor’s
personnel,
(d) Munitions of war, explosive materials, ionizing radiation or contamination by radioactivity,
within the country, except as may be attributable to the contractor’s use of such munitions,
explosives, radiation or radio-activity,
(e) Pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic
speeds,
(f) Use or occupation by the employer of any part of the permanent works, except as may be
specified in the contract,
(g) Design of any part of the works by the employer’s personnel or by others for whom the
employer is responsible, and
(h) Any operation of the forces of nature which is unforeseeable or against which an experienced
contractor could not reasonably have been expected to have taken adequate preventive
precautions.
A financier of the project will have other key areas of risk which differ again, although there may
be varying degrees of overlap. Completion risk, being the risk that the project will not be
completed or not completed on time or at the anticipated cost translates into the risk for the
financier that insufficient cash flow will be generated such that it may trigger default under the
particular or a broader funding facility.

3.3 The Concept of Risk Management

Risk management includes identifying, assessing, and responding to project risks in order to
minimize the likelihood and impact of the consequences of adverse events on the achievements
of the project objectives. Risk management in a project encompasses identifying influencing
factors that could potentially negatively impact a project’s cost schedule or quality baselines;
quantifying the associated potential impact of the identified risk; and implementing measures to
manage and mitigate the potential impact. The riskier the activity is, the costlier the
consequences if the wrong decision is made. Businesses would like to quantify risk for many
reasons. Knowing how much risk is involved will help decide if costly measures to reduce the
level of risk are justifiable. It can also help to decide if sharing the risk with an insurance
company is justified. Some risks, such as natural disasters, are virtually unavoidable and affect
many people. All choices in life involve risk. Risks cannot be totally avoided, but the choice can
be made so that risk is minimized.
3.4 Process of Risk Management
As can be observed from the literature review of risk management, different researchers include
various steps, that are generally similar, which they believe are helpful for managing risk. We
assume the most important steps of risk management include risk identification, risk assessment,
risk allocation and risk monitoring.
3.4.1 Risk identification

Risks need to be identified early enough to do something about them. Project risks should be
considered from the earliest conceptual stage. The earlier the risk is identified the better.
However, a complete coverage of the risks is impossible. The task of risk management is
therefore to cover the essential risks as completely as possible. Risk identification must therefore
be carried in a way that is both forward-looking and in line with the progress of the project, since
before the start of the project not all risks are completely recognizable and during the project
implementation further risks may emerge. In principle, creative and guided methods are
distinguished. The first type offers the possibility also to discover new kinds of risk. Guided
methods use such as checklists for identifying risks, with the aid of which the conceivable types
of risk are checked.
In the process of identifying risks in a project, it is necessary to consider the different sources of
risks present in the project and the different classifications of risks that could be of current
interest. It is also important that there is a clear distinction between the risk source (present
conditions that give rise to risk) and a risk effect (direct impact the risk would have if it
happens). A checklist of the risks which are expected in the typical kind of construction project
can be used to begin the identification process. But detailed consideration of the risks for the
typical project should be performed by experienced personnel. Every phase of the construction

3.4.2 Risk assessment

The risk identification process would have highlighted risks that may be considered by project
management to be more significant and selected for further analysis. The objective is to describe
the risk situation as completely and precisely as possible and to prioritize the risks. For this, the
identified risks are investigated with regard to the probability of their occurrence and the effect
on the project. In the first place, a portfolio and a risk costs assessment respectively serves for
classification purposes. Criteria must be found, on the basis of which individual risks can be
assessed and compared with one another. A risk must always be described as a damage or loss
entailing event to which a particular value can be allocated. From this, damage or loss assessed
in terms of costs and the probability of occurrence, a value for the risk can be calculated.
While for the banking or insurance industry mathematically and statistically exact methods for
risk assessment are useful, these cannot satisfy the typical risks in the construction industry. The
following methods of risk assessment and risk comparison can also be used in construction
projects:
Key performance indicators
Key performance indicators cover quantitatively measurable circumstances and thus create a
basis for comparison. They are preferably consulted for risk assessment if a large number of data
and figures must be compared. For the key performance indicators, threshold values from which
a risk warning exists are determined. Typical key performance indicators in the real estate sector
are average operating costs, average rent, and vacancy rate or average interest on outside capital.
Qualitative assessment
If no objective data is available, risks must still be quantifiable and made estimable. One method
is qualitative estimation and weighting; in this, risks are assessed subjectively according to
probability of their occurrence and the amount of damage or loss.
Probable maximum loss
The procedure of quantitative risk determination primarily aims at estimating the probabilities of
dangerous occurrences within a risk scenario. In the evaluation of the risk of major damage or
loss for example the maximum damage or loss possible or probable is determined.
ABC analysis
The ABC analysis is based on the recognition that frequently a relatively small number of factors
make up the largest share of a whole. The goal of the analysis is therefore to find out what
factors make up the largest part of the project value and in which therefore a greater planning
and control expenditure is justified.
Risk map

The risk map illustrates the risk profile of an enterprise. It is referred to as risk landscape, risk
map or risk matrix. In a risk map it can be read with what priority the risks should be
approached. In this, the risks that cannot be borne, which could endanger the continued existence
of the enterprise, are prioritized. The risk classification in a risk matrix thus enables a
differentiated consideration of two classification criteria: probability of occurrence and expected
value.
A risk ranking matrix, as shown in the figure below, can be used for categorizing the risk as
minor, moderate or major and decide on the action to be taken. Minor risks can be accepted,
moderate risks need some management measures and for major risks with high probability of
occurrence and high impact a serious risk action schedule needs to be devised to manage the risk.
If the risk is too big, the party might decide to walk away from the project instead of assuming it.
The relative significance of each risk should then be characterized and prioritized, and placed in
one of the following two risk categories:
1. Insignificant risks: risks that are broadly regarded as not posing a significant danger to
human health or environment;
2. Significant risks, risks that must be reduced to insignificant through implementation of
risk reducing measures in order to gain project approval, or to meet anticipated conditions for
site closure.
Figure 2 Risk Ranking Matrix

3.4.3 Risk allocation

After the risks are identified, it is critical to see which parties retain this risk in practice and
through the contract clauses. Optimal risk allocation minimizes both project costs and risks to the
project by allocating particular risks to the party in the best position to control them. This is
because the party in the greatest position of control with respect to a particular risk has the best
opportunity to reduce the likelihood of the risk eventuating and to control the consequences of
the risk if it materializes. Allocating the risk in line with those opportunities creates an incentive
for the controlling party to use its influence to prevent or mitigate the risk and to use its capacity
to do so in the overall interests of the project (Partnership Victoria, 2001).
Allocating a risk that is predominantly within the control of one party to another party is unwise,
because it is only accepted by a non-controlling party at a costly premium, thereby diminishing
the value for money. If a risk is within clients control and can be managed and mitigated, it does
not make sense to pay a high premium for its allocation to the contractor. Similarly, if a risk is
within the contractor's control and can be appropriately managed and mitigated, it should not
attract a high risk premium.
The allocation of risk to the different parties involved should be clearly discussed in the
construction contract to avoid any type of misunderstanding in the future. For example, for
international projects, a discussion on risk sharing is included in the FIDIC Red Book that
includes a series of flow diagrams of the risks in construction, and their consequent
responsibilities, liabilities and how these are dealt with.
3.4.4 Risk mitigation

Risk mitigation is any action that can be taken to reduce the likelihood of a risk materializing or
to reduce the consequences to the contracting party taking the risk, if it does materialize.
Mitigation practices vary depending on the risks being considered and whether the party
concerned is a private or public one.
The most commonly used and readily available risk mitigation option for private parties is to
pass the risk on to other parties who are able to control it at a lower risk premium. According to
partnership Victoria, (2001), this risk allocation creates a chain of risk bearers, each best placed
to control the particular risk, and each insulated from the collective risks which the private party
would otherwise have to bear. In this situation, however, it is important to point out that,
notwithstanding the chain of risk bearers, the private party (as the contracting party) still retains
the primary liability for the risk under the contract.
The party should always bear different mitigation options in mind; according to Partnership
Victoria guide the most obvious of these is to pass the risk to an insurer which transfers the duty
of dealing with the consequences to the insurance company at the level of the insurance
premium. Insurance is a specialized form of passing through risk to a third party. The private

sector has different alternative to a wide range of insurance products covering project risks such
as owner's liability, some force majeure events, owner's risks (to the asset), business interruption,
some legislative and government policy risks relating to the convertibility of local currency, and
change of law events etc.
Risk assessments for health and safety risks might follow these steps:
Table 1 Risk assessments for health and safety risks
Risk assessment step Sample risk
1.Identify the hazard Deep drainage excavation in bad ground
2.Identify who or what might be harmed Pipe layers in trench
3.Evaluate the risks arising from the hazard High risk of collapse
4.Determine the control measures or Risk Use steel trench drag box
Mitigation required
5.Evaluate the remaining risks & any risks caused Risk of crushing/injury from excavator
by the control measures bucket. Risk of falling materials.
6.Record the findings of the risk assessment Fill in risk assessment sheet
7.Make contingency plans for the residual risks Prepare safety method statement based on
risk assessment.
Supervisor to give task talk. Permit to work
required.
Banks man working with excavator.
8.Review and revision Monitor site operations and modify risk

assessment where necessary.
Hold further task talk if method statement is
changed


CHAPTER FOUR
4 Construction Risk In various Projects Phases and its

Management
4.1 The Concept of Construction Risk in General
Risk management in construction projects is of great importance, although at the start of a
project, through the introduction of risk management, an increased expense is incurred; this is
compensated for, in particular through the advantages of risk management. In the planning phase
possible risks for the subsequent project success can be identified and reduced through their
incorporation into the planning. This has in particular effects on the observance of set dates and
deadlines and thus also on the maintenance of the project costs.
In the context of construction industry, Risk could be the likelihood of the occurrence of a
definite event/factor or combination of events/factors which occur during the whole process of
construction to the detriment of the project a lack of predictability about structure outcome or
consequences in a decision or planning situation, the uncertainty associated with estimates of
outcomes - there is a chance that results could be better than expected as well as worse than
expected etc.
Due to the nature of the construction sector, Risk management is a very important process here.
It is most widely used in those projects which include high level of uncertainty. These types of
risk investments are characterized by more formal planning, monitor and control processes. The
easiest way to identify risk is to analyze and draw a conclusion from projects which failed in the
past. To make sure that the project objectives are met, the portfolio of risks associated with all
actors across the project life cycle should be considered (Cleland and Gareis, 2006). In the early
stages of the project where planning and contracting of work, together with the preliminary
capital budget are being drawn, risk management procedures should be initiated. In later stages,
Risk Management applied systemically, helps to control those critical elements which can
negatively impact project performance. In other words, to keep track of previously identified
threats, will result in early warnings to the project manager if any of the objectives, time, cost or
quality, are not being met (Tummala and Burchett, 1999).
There are a number of risks which can be identified in the construction industry and which can
be faced in each construction project regardless of its size and scope. Changes in design and
scope along with time frames for project completion are the most common risks for the
construction sector. The further in the process, changes in scope or design are implemented, the
more additional resources, time and cost, those changes require. Project completion ahead of
time may be as troublesome as delays in a schedule. Too quick completion may be a result of
insufficient planning or design problems which in fact shorten the completion time but on the

other hand lead to a low quality of final product and increased overall cost. Being behind
schedule generates greater costs for both investors and contractors due to non-compliance with
contracted works (Gould and Joyce, 2002). And thus it is important to keep a balance in the
concept of time-cost-quality tradeoff, which more widely is becoming an important issue for the
construction sector (Zhang and Xing, 2010).
4.2 Type of construction risk

1) Design risks
 Design errors and omissions
 Design process takes longer than anticipated
 Stakeholders request late changes
 Failure to carry out the works in accordance with the contract
2) External risks
 New stakeholders emerge and request changes
 Public objections
 Laws and local standards change
 Tax change
3) Environmental risks
 Environmental analysis incomplete
 New alternatives required to avoid, mitigate or minimize environmental impact
4) Organizational risks
 Inexperienced workforce and staff turnover
 Delayed deliveries
 Lack of protection on a construction site
5) Project management risks

 Failure to comply with contractual quality requirements
 Scheduling errors, contractor delays
 Project team conflicts
6) Right of way risks

 Expired temporary construction permits

 Contradictions in the construction documents
7) Construction risks
 Building cost overruns
 Technology changes
4.3 Management of Construction Risk in General

The successful construction project will benefit from workable, commercially-viable and cost-
effective risk sharing. Given the differing interests and objectives of the parties involved,
effective risk allocation will be an essential part of the drafting of the project documents and an
integral part of the project’s success.
Risk is the probability of an event occurring and the consequences of its occurrence. The risk
events which require consideration in the context of a project will generally have a negative
effect on projects, either increasing cost, delaying completion, reducing performance or possibly
rendering the project itself impractical. Risks cannot be ignored, and should be managed as
efficiently as possible at the time of structuring the contract.
Various methods and theories for transferring risk are often employed on construction projects. It
is often thought that risks should be transferred to the party best able to manage them. By the
same token, project risks should be managed in a reasonable manner, and should be allocated in
an equitable fashion, and not just based upon a hierarchy of power, with the Owner and his
design professional unilaterally apportioning all substantial project risks to the construction
Contractor. Inequitable risk allocation will inevitably result in unnecessary increases in project
cost.
Several principles are often employed in the analysis of and management of risk. A party to a
contract should generally bear a risk where:
(a) the risk is within the party’s control;
(b) the party can transfer the risk (for example, by insurance), and it is most economically
beneficial to deal with the risk in this fashion;
(c) the preponderant economic benefit of controlling the risk lies with the party in question;
(d) to place the risk upon the party in question is in the interests of efficiency, including
planning, incentive and innovative efficiency;
(e) if the risk occurs, the loss falls on the party in the first instance, and it is not practical or there is
no reason under the above principles to cause expense and uncertainty by attempting to transfer the
loss to another.

The above view of risk assessment and allocation can be broken down into three questions:
1. Who can manage the risk most cheaply, efficiently and easily?
2. Who benefits most from its management?
3. Who has the greatest incentive to manage it? (Bryan S. Shapiro, QC)
Anita F. Baker puts six key risk allocation and management concepts that should be considered
at the project contract formation stage. Let see through this
1) Allocate risk to the party best situated to control the risk. At the outset of each project, an
owner and a contractor should anticipate and evaluate potential risks to project success and,
where applicable, assign responsibility for those risks to the party or parties best situated to
control them. For example, a contractor should assign the owner responsibility for design
errors because the owner typically holds the design services contracts and is in a better
position to work with the project designed to minimize the risk of those errors. From the
owner’s perspective, the contractor should undertake primary responsibility for bodily
injuries or property damage arising out of the contractor’s operations, since the contractor is
in the better position to minimize those risks by maintaining a safe jobsite.
2) Allocate risk through indemnity provisions. Contract indemnity provisions generally
require one party to pay for losses incurred by the other party as a result of claims made by
third parties. A construction contract indemnity provision typically requires the contractor to
indemnify the owner against claims for bodily injury or property damage arising out of the
negligent performance of work by the contractor or its subcontractors. Conversely, the owner
typically is called on to indemnify the contractor against claims or losses arising from the
existence of hazardous substances at the project site, at least to the extent that the contractor
does not have any control over those substances.
3) Use insurance to support indemnity provisions. Contract provisions requiring insurance
coverage provide assurance that each party can satisfy its indemnity obligations. Drafting
effective insurance coverage requirements in contracts first requires properly identifying the
risk obligations assumed by each project participant, and then ensuring each party has the
right insurance to cover those obligations.
For example, owners must require their contractors to secure commercial general liability,
automobile liability and worker's compensation/employers liability coverage. These obligations
should flow down to subcontractors. Commercial general liability insurance generally covers
bodily injury and property damage resulting from contractor or subcontractor negligence.
However, owners and contractors should bear in mind that liability policies typically do not
cover the contractor for defective work, which is instead subject to the contractor’s warranty.
Similarly, liability policies typically do not cover project improvements or construction materials
for damage due to unknown site conditions, natural disasters and similar risks. Those damages
are covered by a “builder’s risk” policy, which is usually required to be obtained by the owner.
Contracts with design professionals, such as architects, engineers, and contractors performing
design-build functions, must also require professional liability insurance to cover errors and
omissions in providing design or other professional services. Because professional liability
policies typically cover claims made on all of a particular design professional’s projects during a
given policy period, the aggregate limit of coverage must be sufficiently high to protect the
owner with respect to the owner’s specific project. An owner can accomplish this by requiring
project-specific coverage or excess limits applicable to professional liability. For larger projects,
the owner may also consider obtaining owner’s protective professional liability coverage to
indemnify the owner directly for losses arising from the design professional’s negligence.
4) Require additional insured status and evidence of insurance. Owners and contractors
should always require lower tier contractors or subcontractors to add the owner and
contractor as additional insured. A central reason for additional insured status is the insurer’s
primary duty to defend claims made against the additional insured. Additional insured status
is obtained by endorsement; thus, the applicable endorsement should be broad enough to
cover ongoing and completed operations on a primary and non-contributory basis.
Project participants must confirm that contractual insurance requirements, including proper
coverage, policy limits, and additional insured status, have been obtained and properly
documented. Project participants should never rely solely upon certificates of insurance to
confirm insurance requirements. Most certificates of insurance are issued by the broker, rather
than by the insurer, and are not contractually binding. Accordingly, the insurance provisions of a
project contract should mandate delivery of copies of policy declarations pages and all applicable
endorsements.
5) Include waivers of subrogation. Where applicable, contracts should include waivers of
subrogation to ensure that project risks are transferred in the manner intended by the project
participants. Subrogation allows an insurer to stand in the position of its insured to recover
amounts paid on behalf of the insured for damages for which another party may be liable.
Project participants intentionally shift risk through a variety of contract provisions. Allowing
an insurer to recover amounts paid on behalf of a contract participant to whom that risk was
shifted through indemnification or other means may undermine the parties’ intentions. A
waiver of subrogation precludes the insurer from seeking reimbursement for amounts paid on
claims, and thus prevents an insurer from passing assigned risk back to the other project
participants. In other words, a waiver of subrogation ensures that transferred project risk
stays with the insurers as contemplated by the project participants.
6) Review documents with appropriate consultants. Construction projects typically require
multiple contracts, which need to be consistent and complementary. For example, project
lender and owner requirements for payment timing and conditions should flow down through
all project contracts. Dispute resolution provisions should be consistent throughout the
project contracts to assure that all parties to a dispute are involved in the same proceeding at
the same time and are subject to the same dispute resolution rules. In addition, many standard
construction contracts utilize insurance terms that are inconsistent with current insurance
industry offerings, usages and customs. To minimize issues arising out of conflicting,
inconsistent or antiquated terms in the various project contracts, the project participants
should rely on experienced counsel and trusted insurance consultants familiar with current
industry forms and practices. In short, careful contract preparation and review are essential to
proper risk management for a construction project, and the ultimate goal of project success.
4.4 Scope of construction Risk

 Inaccurate contract time estimates
 Permit work window time is insufficient
 Change requests due to differing site conditions
 Temporary excavation and shoring system design is not adequate
 False work design is not adequate
 Unidentified utilities
 Buried man-made objects/unidentified hazardous waste
 Dewatering is required due to change in water table
 Temporary construction easements expire
 Electrical power lines not seen and in conflict with construction
 Street or ramp closures not coordinated with local community
 Insufficient or limited construction or staging areas
 Changes during construction require additional coordination with resource
agencies
 Late discovery of aerially deposited lead
 Experimental or research features incorporated
 Unexpected paleontology findings
 Delay in demolition due to sensitive habitat requirements or other reasons
 Long lead time for utilities caused by design and manufacture of special
components (steel towers or special pipe)

4.5 Risk at Different Stages of Construction

The life cycle of a construction project can generally be divided into five stages: feasibility,
design, tendering, construction and handling and maintenance. Different types of risk arise at
different stages in construction.
We have tried to see as Bunni (2003) classified risks in chronological manner that affect the
owner, professional team and contractor and, in certain circumstances, the community with the
lifecycle of the project as listed below.
4.5.1 Risks with the feasibility stage:

4.5.1.1 Employer’s choice of professional team and advisers;
This case serves to show the importance of selecting the right consultant for the particular project
or even for the particular discipline. It important to select consultant that have the required
expertise knowledge for a given construction projects. This can includes knowledge of site
investigation, soil condition, ground water level etc. Lack of enough information regarding the
above factors can lead to design problem which further affects the structural stability. So
selection of consultants who don’t have special expertise knowledge for the given situation can
leads to design error and structural failure. This can also directly affects construction phases of
the projects.
According to MDB FIDIC 2006 sub clause 3.1 The Employer shall appoint the Engineer who
shall carry out the duties assigned to him in the Contract. The Engineer’s staff shall include
suitably qualified engineers and other professionals who are competent to carry out these duties.
Sub clause 3.1 (c ) also states that any approval, check, certificate, consent, examination,
inspection, instruction, notice, proposal, request, test, or similar act by the Engineer (including
absence of disapproval) shall not relieve the Contractor from any responsibility he has under the
Contract, including responsibility for errors, omissions, discrepancies and non-compliances.
4.5.1.2 Choice of site

Risk related to accessibility to the site, ground water condition and topography of the area should
be carefully assessed during site selection. Unless otherwise this can leads to cost and time
overrun and significantly affects the construction phases of the projects.
4.5.1.3 Adequacy of soil investigations
It is clear from several international sources that ground engineering risk is one of the largest
elements of technical and financial risk in civil engineering and building projects (Institution of
Civil Engineers, 1991; Littlejohn et al., 1994; Whyte, 1995). This is due to the fact that the
engineering properties of soil and rock often exhibit significant variability from one location to
another (i.e. spatial variability). (MDB FIDIC 2006 sub clause 4.10)

4.5.1.4 Adequacy of surveys and inspections

There is no substitute for actually visiting the site and physically walking between its extremities and
even beyond, keeping one’s eyes open for any sign which might require special attention. Inadequate
site inspection and survey can leads to design defects.
MDB FIDIC 2006 sub clause 7.3 (b) states during production, manufacture and construction (at
the Site and elsewhere), be entitled to examine, inspect, measure and test the materials and
workmanship, and to check the progress of manufacture of Plant and production and
manufacture of Materials.
4.5.1.5 Adequacy of finance and related calculations
Getting paid for work done without any strings attached is a real risk. The construction industry
cannot function if there is no adequate for running the work.
However, in some cases, the calculations made of what is reasonable to pay to complete project
may be erroneous and the finance allocated may prove to be insufficient. In other cases,
unforeseen events may result in the owner becoming incapable of honoring his commitments.
Thus it is always wise to consider this risk and the consequences which may flow from its
occurrence.
According to MDB FIDIC (2006) sub clause 14.7 the employer shall pay to the contractor. And
also PPA (2011) clause 32.1 states that In consideration of the Works performed by the
Contractor under this Contract, the Public Body shall make to the Contractor such payments and
in such manner as is provided by GCC Paragraph E of this Contract.
4.5.1.6 War, nuclear reaction, etc.
The consequences of hazards such as war, nuclear reaction and such similar events are so
devastating, if a project is exposed to them, that the owner must consider them on their own. The risk
in such a hazard materializing must be assessed by experts in the relative field or ignored completely.
The decision to proceed with a project must be taken by the owner once the balance of probability is
considered by him. (MDB FIDIC (2006) Sub Clause 17.3)
4.5.2 Risks with the planning and design stage:

4.5.2.1 Inappropriate choice of design with respect to others and to society
If the design carries a risk of it being injurious to the environment or to others living in the
vicinity, or, in some circumstances, even in faraway places, the risk must be assessed carefully
before it can be passed as acceptable. If not acceptable, the design should be altered or changed
completely.

4.5.2.2 Negligence and lack of care

Negligence of a professional person has been defined in common law jurisdictions through
various legal decisions. In most legal systems, the law of negligence has developed to such an
extent that the risk is of major importance, and one may be liable not only in contract but also in
tort. The construction trinity may, therefore, be liable to each other and also to third parties who
have no interest in the construction project.
According Civil Code Art 2031:- Professional fault.
1) A person practicing a profession or a specific activity shall, in the practice of such profession
or activity, observe the rules governing that practice.
2) He shall be liable where, due regard being had to scientific fact or the accepted rules of the
practice of his profession; he is guilty of imprudence or of negligence constituting definite
ignorance of his duties.
MDB FIDIC (2006) Sub Clause 3.1 states about Engineer’s Duties and Authority.
4.5.2.3 State of the art, codes and technical knowledge:

Innovation and technological advancement in all facets of construction must continue in order to
improve standards and reach beyond present achievements. The results, if successful, can be
expressed in terms of either cost benefit or the production of something new for the benefit of
human existence or luxury. If the results prove to be unsuccessful and cause loss or damage, then
as the risk of such an event occurring is high, it is only just that it should be borne by those
benefiting, providing they were given the opportunity to decide for themselves whether or not
the innovation was to be pursued.
4.5.2.4 Lack of knowledge, inadequate checking and work carried out in haste
Although a professional may be qualified and experienced to carry out the design of a certain
project, he may still lack knowledge of a particular aspect of the design. The problem is that if he
does not realize his limitation, he may proceed without executing his duties properly. This
occurred in the case of a firm of consulting engineers commissioned to design a steam power
station for which the various pieces of equipment were ordered directly from the manufacturers
who supplied, independently of each other, in accordance with the specification. Due to
economic restraints or shortage of time, this type of risk increases, reaching unacceptable levels
and situations, this may produce problems later during construction. The level of this type of risk
also increases if economic restraints or shortage of time exist (MDB FIDIC 2006 clause 3.1).
Civil Code Art. 2636 states that:
2636 Required care and responsibility.

(1) Whosever hires out his work shall undertake to carry it out in the best interest of his client,
conscientiously and in conformity with the practiced rules of his profession.
(2)He shall not be liable to his client, unless he commits an error, having regard to the rules of
his profession.
(3) The error may consist in an omission or an act detrimental to his client.
4.5.2.5 Lack of communication

Communication has been identified as the most important requisite of success, and lack of it is
perhaps the most significant factor in human failure.
MDB FIDIC (2006) Sub Clause 3.1:
Wherever these Conditions provide for the giving or issuing of approvals, certificates, consents,
determinations, notices, requests and discharges, these communications shall be:
(a) in writing and delivered by hand (against receipt), sent by mail or courier, or transmitted
using any of the agreed systems of electronic transmission as stated in the Contract Data; and
(b) delivered, sent or transmitted to the address for the recipient’s communications as stated in
the Contract Data. However:
(i) if the recipient gives notice of another address, communications shall thereafter be
delivered accordingly; and
(ii) if the recipient has not stated otherwise when requesting an approval or consent, it
may be sent to the address from which the request was issued.
Approvals, certificates, consents and determinations shall not be unreasonably withheld or
delayed. When a certificate is issued to a Party, the certifier shall send a copy to the other Party.
When a notice is issued to a Party, by the other Party or the Engineer, a copy shall be sent to the
Engineer or the other Party, as the case may be.
4.5.2.6 Failure to take account of foreseeable problems

It is impossible to take accounts all the factors to design a given structure since it is difficult to
account all of them. But the designer includes some safety factors to minimize the effects. If the
structures fail due to non-consideration foreseeable factors by the designer, the designer is
responsible for this failure. So it important to consider all foreseeable factors to avoid risks
attached to it.
4.5.2.7 Use of untested and unproven techniques

They wanted to use the material; they should have carried out their own tests and examinations.

Accordingly, they were held liable. The techniques and materials are used for the design phase is
must be proved.
MDB FIDIC (2006) Sub Clause 7.1 states that;
The Contractor shall carry out the manufacture of Plant, the production and manufacture of
Materials, and all other execution of the Works:
(a) in the manner (if any) specified in the Contract,
(b) in a proper workmanlike and careful manner, in accordance with recognized good
practice, and
(c) with properly equipped facilities and non-hazardous Materials, except as otherwise
specified in the Contract.
PPA (2011) Sub Clause 8.2 also states
The Engineer shall be entitled, either by himself or his agent, to inspect, examine, measure and
test the components, materials and workmanship, and check the progress of preparation,
fabrication or manufacture of anything being prepared, fabricated or manufactured for delivery
under the contract in order to establish whether the components, materials and workmanship are
of the requisite quality and quantity. This shall take place at the place of manufacture,
fabrication, preparation or on the site or at such other places as may be specified in the contract.
4.5.2.8 Inadequate performance of mechanical and electronic equipment

More and more designers are using the electronic equipment readily available in today’s design
offices for analysis, design and drafting. In doing so, they are using hardware equipment
designed and manufactured by others and software written and checked by yet another party. In
order to guard against unauthorized use of copying, the software is secured in such a way that the
user cannot check or disassemble the steps used in the design of the software. He is, therefore,
unaware of the assumptions made and the methods utilized in the solution of the problems. The
risk of incorporating incorrect computer results in construction is a very real one and can only be
mitigated by meticulous and critical checking using common sense and experience.
4.5.3 Risks in tendering phase

4.5.3.1 Choice of contractor and nominated subcontractor
There is an implied warranty in a construction contract that good material and workmanship will
be used. The risk that defective material and workmanship are used in a construction contract can
only be mitigated through careful selection of the contractor and any subcontractors to be named
in the contract. MDB FIDIC (2006) Sub Clause 5.2 states about that The Contractor shall not be
under any obligation to employ a nominated Subcontractor against whom the Contractor raises

reasonable objection by notice to the Engineer as soon as practicable, with supporting

particulars.
4.5.3.2 Fraud and Corruption

PPA (2011) Sub Clause 5.1
It is the Government of the Federal Democratic Republic of Ethiopia’s policy to require that
Public Body, as well as bidders/suppliers, to observe the highest standards of ethics during the
procurement and the execution of contracts. In pursuance of this policy, the Government of the Federal
Democratic Republic of Ethiopia represented by the Public Procurement and Property Administration
Agency (herein referred to as the Agency) requires that Public Bodies shall include in bidding documents,
provisions against corrupt practices.
4.5.4 Risks associated with the post-construction stage

After the contractor is selected, a number of activities must be completed before installation
work can begin at the project site. Various bonds, licenses and insurances must be secured. A
detailed program for the construction activities must be prepared. The cost estimate must be
converted to a project budget and the system for tracking actual project costs must be
established.
4.5.4.1 Risks associated with safety

The combined quality and performance of the design of the project, the material used and the
workmanship employed in its construction makeup the level of its safety. If one considers each
in a scale where white represents perfection and black represents fault, then there are as many
combinations as there are shades of grey. Lack of safety in construction projects continue to
cause concern all over the world, but naturally more in some parts than in others.
According to MDB FIDIC 2006 sub clause 4.8 Safety Procedures
The Contractor shall:
 Comply with all applicable safety regulations,
 Take care for the safety of all persons entitled to be on the Site,
 Use reasonable efforts to keep the Site and Works clear of unnecessary obstruction so as to
avoid danger to these persons,
 Provide fencing, lighting, guarding and watching of the Works until completion and taking
over under Clause 10 [Employer’s Taking Over], and
 Provide any Temporary Works (including roadways, footways, guards and fences) which may
be necessary, because of the execution of the Works, for the use and protection of the public and
of owners and occupiers of adjacent land. And sub clause 4.9 The Contractor shall institute a
quality assurance system to demonstrate compliance with the requirements of the Contract

According to FPPA (2011) Sub Clause 45.2

The Contractor shall ensure the safety on sites during the whole period of execution and shall be
responsible for taking the necessary steps, in the interests of his employees, agents of the Public
Body and third parties, to prevent any loss or accident which may result from carrying out the
works.
4.5.4.2 Risks associated with safety

Serviceability is the second essential and basic performance requirement of any construction
project throughout its intended life span. The serviceability requirement can be very stringent in
that it restricts the acceptable and yet inevitable movement and deformation of the various
elements of a project to a maximum limit. Such limit is usually fixed so that any movement or
deformation is within a boundary beyond which the intended use of the project is rendered less
effective.
4.5.4.3 Risks associated with fire

A construction project should be capable of containing a fully developed fire within a restricted
and prescribed area and in such a way that it does not spread to adjacent compartments.
Furthermore, it is a requirement in many parts of the world that collapse should not occur as a
result of fire before a prescribed period of time has elapsed which depends on the type of the
project.
4.5.4.4 Risks associated with natural hazards

Natural hazards are many. By the very function they perform construction projects are exposed
to the effects of natural hazards such as wind, hurricane, typhoon, landslide, earthquake, rainfall
and flood. The degree of protection afforded by a particular design to a specific project depends
on the probability of occurrence beyond which the project is expected to be unaffected. Where
the hazard is of a probability of occurrence lower than that for which the project is designed,
damage would be expected to occur.
According to MDB FIDIC (2006) Sub Clause 19.1 (v) natural catastrophes such as earthquake,
hurricane, typhoon or volcanic activity and FPPA 2011 Sub Clause 18.1(b) A natural catastrophe
such as an earthquake, fire, explosion, storm, floods, or other adverse weather conditions are
included under Force Majeure.
4.5.4.5 When risks of natural hazards are added to human mistakes

Many buildings collapsed because of „soft story‟ failure after walls in the ground floor were
removed to accommodate shop fronts. This reduces the stiffness of the lower floors and weakens
the structural resistance to torsion leading to shear failure at the beam to column connection or at
the base of the column.

4.5.4.6 Risks associated with wear and tear during the project’s designed life span
The life span of materials and components incorporated in construction projects is limited and
inversely proportional to the deterioration, wear and tear which takes place usually for many
reasons; some are natural and others are artificial. To increase the life span, one must reduce the
deterioration, wear and tear and increase the durability of the various elements. Such a result
could only be achieved by a strict program of inspection and maintenance.
According to MDB FIDIC 2006 Sub Clause 7.3 (b) during production, manufacture and
construction (at the Site and elsewhere), be entitled to examine, inspect, measure and test the
materials and workmanship, and to check the progress of manufacture of Plant and production
and manufacture of Materials.
According to PPA (2011) Sub Clause 81.2 The Engineer shall be entitled, either by himself or
his agent, to inspect, examine, measure and test the components, materials and workmanship,
and check the progress of preparation, fabrication or manufacture of anything being prepared,
fabricated or manufactured for delivery under the contract in order to establish whether the
components, materials and workmanship are of the requisite quality and quantity. This shall take
place at the place of manufacture, fabrication, preparation or on the site or at such other places as
may be specified in the contract.
4.6 The effects of construction risk on the project & on the contracting
parties
An effect of the construction risk may include;
4.6.1 Quality
Risks, such as human mistakes, like wrong material selection by supervisors, workers’
misinterpretation of how to properly complete a specific task or lack of carefulness, can lead to
decrease quality levels. The casting of a concrete wall can be taken as an example, there is a need
to carefully, slowly and continuously vibrate the concrete mixture as it is poured. The lack of
seriousness or workers’ poor experience while performing this task can result in dramatic effects,
noticeable only after removing the frameworks. Because the mixture is not homogenous, there is
more gravel at the bottom of the wall and sand with water at the top, leading to an inappropriate
wall surface appearance and decreased mechanical properties, which means poor quality of the
work performed. Now, if the same level of carefulness is kept for all the exterior walls of the
building and the concrete needs to be visible for architectural purposes, the whole project quality
is going to suffer.
MDB FIDIC (2006) Sub Clause 4.9 states Quality Assurance as “The Contractor shall institute a
quality assurance system to demonstrate compliance with the requirements of the Contract. The

system shall be in accordance with the details stated in the Contract. The Engineer shall be
entitled to audit any aspect of the system.
Details of all procedures and compliance documents shall be submitted to the Engineer for
information before each design and execution stage is commenced. When any document of a
technical nature is issued to the Engineer, evidence of the prior approval by the Contractor
himself shall be apparent on the document itself.
Compliance with the quality assurance system shall not relieve the Contractor of any of his
duties, obligations or responsibilities under the Contract.”
4.6.2 Cost
Moreover, another very common issue is the budget overrun: there is a difference between the initial
cost of a project and the final one.
According to MDB FIDIC (2006) Sub Clause 11.2:- Cost of Remedying Defects
All work referred to in sub-paragraph (b) of Sub-Clause 11.1 [Completion of Outstanding Work
and Remedying Defects] shall be executed at the risk and cost of the Contractor, if and to the
extent that the work is attributable to:
(a) any design for which the Contractor is responsible,
(b) Plant, Materials or workmanship not being in accordance with the Contract, or
(c) failure by the Contractor to comply with any other obligation.
If and to the extent that such work is attributable to any other cause, the Contractor shall be
notified promptly by (or on behalf of) the Employer, and Sub-Clause 13.3 [Variation Procedure ]
shall apply.
4.6.3 Time
The most well-known risk, being a threat, in the construction field is related to planning overrun: the
agreed time of the contract is exceeded during the construction process. Time related problems on
construction projects seem to be very common in Ethiopia.
According to MDB FIDIC (2006) Sub Clause 8.7: Delay Damages
If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion], the Contractor
shall subject to notice under Sub-Clause 2.5 [Employer’s Claims] pay delay damages to the
Employer for this default. These delay damages shall be the sum stated in the Contract Data,
which shall be paid for every day which shall elapse between the relevant Time for Completion
and the date stated in the Taking-Over Certificate. However, the total amount due under this
Sub-Clause shall not exceed the maximum amount of delay damages (if any) stated in the
Contract Data.

These delay damages shall be the only damages due from the Contractor for such default, other
than in the event of termination under Sub-Clause 15.2 [Termination by Employer] prior to
completion of the Works. These damages shall not relieve the Contractor from his obligation to
complete the Works, or from any other duties, obligations or responsibilities which he may have
under the Contract.
PPA (2011) Sub Clause 27.1 also states:
Except as provided under GCC Clause 18, if the Contractor fails to carry out any or all of the
Works within the period specified in the Contract, the Public Body may without prejudice to all
its other remedies under the Contract, deduct from the Contract Price, as liquidated damages the
following:
(a) A penalty of 0.1% or 1/1000 of the value of undelivered Service for each day of delay until
actual delivery or performance,
(b) The cumulative penalty to be paid by the Contractor shall not exceed 10% of the contract
price.
4.6.4 Safety
This is or should be the main concern of all managers on a construction site. Due to the number
of equipment, tools, machines and engines use, an accident can easily and quickly happen and
could lead to injuries, absenteeism or even death.
4.6.5 Performance
According to MDB FIDIC (2006) Sub Clause 7.5: Rejection
If, as a result of an examination, inspection, measurement or testing, any Plant, Materials or
workmanship is found to be defective or otherwise not in accordance with the Contract, the
Engineer may reject the Plant, Materials or workmanship by giving notice to the Contractor, with
reasons. The Contractor shall then promptly make good the defect and ensure that the rejected
item complies with the Contract.
If the Engineer requires this Plant, Materials or workmanship to be retested, the tests shall be
repeated under the same terms and conditions. If the rejection and retesting cause the Employer
to incur additional costs, the Contractor shall subject to Sub Clause 2.5 [Employer’s Claims] pay
these costs to the Employer.
According to PPA Sub Clause 82.1:
Components and materials which are not of the specified quality shall be rejected. A special
mark may be applied to the rejected components or materials.

This shall not be such as to alter them or affect their commercial value. Rejected components and
materials shall be removed by the Contractor from the site within a period which the Engineer
shall specify, failing which they shall be removed by the Engineer as of right at the expense and
risk of the Contractor. Any work incorporating rejected components or materials shall be
rejected.
4.7 Management of Construction Risk under the Construction Contract

For the purpose of risk analysis, researchers have developed various risk categorization
framework. For the ease of comparison, a categorization framework is developed, as illustrated
in figure below. (ZHANG Shuibo, ZHANG Le)
Project Risks
Political & Social Economic &

Natural Behaviours
Legal
Climatic
War, Hostilities Inflation Employer's
Conditions
Shortage of
Geological Riot, Civil
Material, Contractor's
Conditions Disorder, etc
Equipment
Other Natural Labour Shortage of

Subcontractor's
Catastrophes Disputes/Strike Labour
Theft, Vandalism Changes in Law Third Party's
Figure 3 Risk Categorization Framework
To go with the above risk categorization framework, discussions of the risk allocations are made
in the same order as listed in the framework.

4.7.1 Natural Risks

There are several clauses in FIDIC Conditions of Contract (2006) that deal directly with the
natural risks. Sub-clause 8.4 (C) specifies in express terms, that risks concerning the climatic
conditions are shared between the Employer and the
Contractor, in that the Employer shall allow an extension of time (EOT) if “exceptionally
adverse climatic conditions” affect the Contractor's construction progress. This also implies that
the Contractor shall bear the relevant costs incurred by him due to such risks. It also implies that
under "normal" adverse climatic conditions, such rainy or cold days, the Contractor shall bear the
corresponding responsibility. However, according to Sub-clause 17.3- Employer's Risks, and
Sub-clause 17.4- Consequences of Employer's Risks, the Contractor shall be entitled to an EOT
and cost compensation in case of "unforeseeable natural forces", which may include some
climatic conditions, particularly when such forces turn out to be the catastrophes, such as
typhoon, hurricane, etc under Sub-clauses 19.1- Definitions of Force Majeure and 19.4-
Consequences of Force Majeure. Concerning geological conditions, Sub Clauses 4.12-
Unforeseeable Physical Conditions and 4.24- Fossils specify that the Contractor shall be allowed
an EOT and compensated for the costs incurred from such risk events. However, the term
"unforeseeable conditions", which are of an ambiguous nature, blurs the division of risks
between the Employer and the Contractor. Other natural catastrophes, which are extreme natural
events, such as earthquakes and volcanic activities, are also mostly allocated to the Employer
under Sub-clauses 19.1 and 19.2. It can be seen from the above analysis that the natural risks are
basically shared by the two parties under FIDIC Form. Regarding "extreme" natural
catastrophes, the
Employer takes most of the consequences, i.e., EOT and additional cost with the Contractor
taking the loss of profit; however, the Contractor takes most of the consequences,
i.e., additional cost uncompensated and loss of profit, with the Employer taking the risk of EOT,
relating to exceptionally adverse climatic conditions; as for "normally" adverse climatic and
geological conditions, the Contractor takes almost all the consequences except for the ones that
are justified to be "reasonably unforeseeable by the Contractor by the date for submission of the
Tender (Sub-clause 1.1.6.8)".
According to PPA (2011) Sub Clause 44.4; “Weather conditions shall not entitle the Contractor to
claims under GCC Clause 69.”
And also “Any period within which a Contractor shall, pursuant to this Contract, complete any
action or task, shall be extended for a period equal to the time during which such Party was
unable to perform such action as a result of Force Majeure. (in this case A natural catastrophe
such as an earthquake, fire, explosion, storm, floods, or other adverse weather conditions) PPA
(2011) Sub Clause 18.6

4.7.2 Political and Social Risks

Under Sub-clause- 17.3 Employer's Risks and Clause 19- Force Majeure, most of the political
and social risks are basically allocated to the Employer, such as war, civil commotions, disorders
and strikes. In case of occurrence of such risk events that impact the Contractor's project
execution, the Employer shall both allow an EOT and pay cost compensation (but no profit) to
the Contractor. Some social risks, such as theft and vandalism, are allocated to the Contractor
under the FIDIC Form. Although these are not expressly stated under FIDIC Form, it can be
inferred from Sub-clause 17.2 Contractor's Care of Works, in which it is stated that the
Contractor shall take the responsibility for the care of the Works and the Goods during the
construction period, and that the Contractor shall rectify the loss or damages at his own cost and
risk.
Concerning political and social risks, PPA (2011) Sub Clause 70.1 states:
The Contractor may request an extension of the Intended Completion Date if he is or will be
delayed in completing the contract by any of the causes of Force majeure(International or civil
war ).
4.7.3 Economic and Legal Risks

Economic risks occur frequently during construction period, particularly the fluctuation of prices
of materials, labour and equipment. Under Sub-clause 13.8, an adjustment formula is given to
deal with this issue:
Pn = a + b Ln + c En + d Mn + ......
Lo Eo Mo
where
“Pn” is the adjustment multiplier to be applied to the estimated contract value in the relevant
currency of the work carried out in period “n”, this period being a month unless otherwise stated
in the Contract Data;
“a” is a fixed coefficient, stated in the relevant table of adjustment data, representing the non-
adjustable portion in contractual payments;
“b”, “c”, “d”, … are coefficients representing the estimated proportion of each cost element
related to the execution of the Works, as stated in the relevant table of adjustment data; such
tabulated cost elements may be indicative of resources such as labour, equipment and materials;
“Ln”, “En”, “Mn”, … are the current cost indices or reference prices for period

“n”, expressed in the relevant currency of payment, each of which is applicable to the relevant
tabulated cost element on the date 49 days prior to the last day of the period (to which the
particular Payment Certificate relates); and
“Lo”, “Eo”, “Mo”, … are the base cost indices or reference prices, expressed in the relevant
currency of payment, each of which is applicable to the relevant tabulated cost element on the Base
Date.
Shortage of labour, materials and equipment is also dealt with under the FIDIC Form to some
extent; if such shortage is reasonably unforeseeable, the Contractor is entitled to an EOT under
Sub-clause 8.4. However, under Sub-clauses- 4.1 and 6.1, it is the Contractor's obligation to
"provide all Contractor's personnel, Goods..." and the Contractor shall "make arrangements for
the engagement of all staff and labour... and for their payment...". It can be inferred from such
provisions that the Contractor shall bear all the consequences of the risks of unavailability of the
required personnel, materials and equipment, except for allowed EOT in case of unforeseeable
shortage. Legal risks refer to the changes in legislation or introduction of new laws after the Base
Date of the contract. It is provided that in Sub Clause 13.7 Adjustments for Changes in
Legislation that the Contractor is entitled to an EOT and additional cost caused as a result of the
changes in the laws. Therefore, under FIDIC Form, such legal change risks are basically retained
by the Employer.
However, PPA-2011 form of contract does not embrace price adjustment provision for
fluctuation of prices and cost changes by the market unless such costs such as rates of wages,
other emoluments and expenses are increased or decreased by any Act, Statute, Decree,
Regulation and the like after the date of bid pricing. This means that the risk of inflation is not
shared by the parties where the contractor is to carry the risk and the contractor should forecast
and add a contingency for this work.
4.7.4 Behavioural Risks

Behavioural risks are defined in this paper as those caused by one party's action or inaction that
adversely impacts the project or other parties. Risks caused by the behaviours of the parties
under the FIDIC form are summarized as follows:
Employer's Behavioral Risks (including Engineer's)
• Late giving possession of Site (2.1)
• Non-notification of financial arrangements upon request (2.4)
• Delay in payment (14.8, 16.2)
• Unreasonably withholding permissions or certificates (1.3)
• Defects in design drawings (17.3)

• Occupation of the Works (17.3)

• Notifying incorrect setting-out data (4.7)
• Late issuance of design drawings or instructions (1.9)
• Late attendance to tests or inspections (9.2)
• Interference with tests on completion (10.3)
Contractor's Behavioral Risks
• Labour injuries and accidents (4.1)
• Improper interference with the convenience of the public (4.14)
• Damage caused by transportation of goods (4.16)
• Acts or defaults by subcontractors (4.4)
• Defects in Materials, Plant and Workmanship (7.1, 7.5)
Risks Caused by Third Party's Behaviours
• Unauthorized entry (4.22)
• Delay caused by Authorities (8.5)
Under the FIDIC Form, the Employer is responsible for his own behavioural risks, including the
risks of Engineer who acts on the Employer's behalf, and the Contractor is responsible for his
own risks, including those of the Sub- Contractor, as between the Employer and the Contractor,
except for Nominated Subcontractor.
In general, except for the risks of inflation and unforeseeable shortages of personnel and goods,
the risk allocation for both forms of contract is somehow similar. However, the provisions in
PPA form of contract are not clear and require cross referencing with other related provisions
and articles from civil code of Ethiopia i.e. PPA form of contract lacks clarity in allocating risks
which would promote reasonable pricing of works during tendering.
4.7.5 The construction phase risks allocated for contracting party
In order to identify and allocate the risks first we would understand the source of the risks. The
sources of the risks can be classified basically in to two;
1) Breaching behavioral risks
a. Contractors
b. Employers
c. Engineers
2) Event risk
a. Nature according to MDB FIDIC 2006 sub clause 4.12 and 8.4c

b. Market according to MDB FIDIC 2006 sub clause 13.8 ,cost risk
c. Government according to MDB FIDIC 2006 sub clause 13.7 cost and time
extension
d. Third party
4.7.5.1 Breaching behavioral risks (employer, contractors and engineers)

 According to MDB FIDIC 2006 sub clause 1.9 Delayed Drawings or Instructions
The Contractor shall give notice to the Engineer whenever the Works are likely to be delayed or
disrupted if any necessary drawing or instruction is not issued to the Contractor within a
particular time, which shall be reasonable. The notice shall include details of the necessary
drawing or instruction, details of why and by when it should be issued, and the nature and
amount of the delay or disruption likely to be suffered if it is late.
If the Contractor suffers delay and/or incurs Cost as a result of a failure of the Engineer to issue
the notified drawing or instruction within a time which is reasonable and is specified in the
notice with supporting details, the Contractor shall give a further notice to the Engineer and shall
be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:
(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-
Clause 8.4 [Extension of Time for Completion], and
(b) Payment of any such Cost plus profit, which shall be included in the Contract Price.
After receiving this further notice, the Engineer shall proceed in accordance with Sub Clause 3.5
[Determinations] to agree or determine these matters.
However, if and to the extent that the Engineer’s failure was caused by any error or delay by the
Contractor, including an error in, or delay in the submission of, any of the Contractor’s
Documents, the Contractor shall not be entitled to such extension of time, Cost or profit.
This clause shows that how risks identified and allocated to the contractors and the employer
representatives (engineers), if the drawing is delayed due to engineers the contractor will be
profitable sub clause 1.9b. if the contractors delayed due to submission of drawings or
contractors documents is not entitled to ask time and cost the risk is already in hand of himself.
FPPA 2011 sub clause 42.1 (d) The Contractor shall submit to the Engineer for approval: The
Contractor shall prepare, at its own expense, all design and construction drawings and other
documents and objects necessary for the proper execution of the Contract, and in particular
drawings and design calculations and the reinforcement drawings for reinforced concrete
structures. The Contractor shall submit, in triplicate, construction, design and reinforcement
drawings, design calculations and any other documents or objects it is to provide for the
Engineer’s approval at least one month before commencing construction of the works in question

 According to MDB FIDIC 2006 sub clause 2.1 Right of Access to the Site
The Employer shall give the Contractor right of access to and possession of, all parts of the Site
within the time (or times) stated in the Contract Data. The right and possession may not be
exclusive to the Contractor. If, under the Contract, the Employer is required to give (to the
Contractor) possession of any foundation, structure, plant or means of access, the Employer shall
do so in the time and manner stated in the Specification. However, the Employer may withhold
any such right or possession until the Performance Security has been received.
If no such time is stated in the Contract Data, the Employer shall give the Contractor right of
access to, and possession of, the Site within such times as required to enable the Contractor to
proceed without disruption in accordance with the programme submitted under Sub-Clause 8.3
[Programme].
If the Contractor suffers delay and/or incurs Cost as a result of a failure by the Employer to give
any such right or possession within such time, the Contractor shall give notice to the Engineer
and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:
(a) An extension of time for any such delay, if completion is or will be delayed, under Sub-
After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5
However, if and to the extent that the Employer’s failure was caused by any error or delay by the
In this clause we have seen how the risks identified and allocated due to the right of access to the
site and possession for the contractor by the employer. The employers delayed due to give right
of access to the site the contractors have the right to entitled cost or profit sub clause 1.9b. The
engineer determines this matter. The delay is happen by the contractors it is the risk for himself,
his does not asked any cost or profit. FPPA 2011 sub clause 31.1- 31.4 access to site.
 According to MDB FIDIC 2006 sub clause 4.7 setting out
The Contractor shall set out the Works in relation to original points, lines and levels of reference
specified in the Contract or notified by the Engineer. The Contractor shall be responsible for the
correct positioning of all parts of the Works, and shall rectify any error in the positions, levels,
dimensions or alignment of the Works.
The Employer shall be responsible for any errors in these specified or notified items of reference,
but the Contractor shall use reasonable efforts to verify their accuracy before they are used.
If the Contractor suffers delay and/or incurs Cost from executing work which was necessitated
by an error in these items of reference, and an experienced contractor could not reasonably have
discovered such error and avoided this delay and/or Cost, the Contractor shall give notice to the
Engineer and shall be entitled subject to Sub Clause 20.1 [Contractor’s Claims] to:

After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5
[Determinations] to agree or determine (i) whether and (if so) to what extent the error could not
reasonably have been discovered, and (ii) the matters described in sub-paragraphs (a) and (b)
above related to this extent.
This clause stated that how risk is identified and allocated based due to setting out, if the risk or
error is happened due to in the notified items of reference, it will be responsible for the employer
so the contractors have a right to ask any entitlement for the delayed project. If the risks happen
due to contractors in order to put the point on the appropriate position or alignment’s, it is the
responsibility of the contractors. According to FPPA 2011 sub clause 49.2 If, at any time during
the execution of the Works, any error appears in the position, levels, dimensions or alignment of
any part of the Works, the Contractor, shall, if the Engineer so requires, at the Contractor's cost,
rectify such error to the satisfaction of the Engineer, unless such error is based on incorrect data
supplied by the Engineer, in which case the Public Body shall be responsible for the cost of
rectification.
 According to MDB FIDIC 2006 sub clause 8.7
If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion], the Contractor
shall subject to notice under Sub-Clause 2.5 [Employer’s Claims] pay delay damages to the
Employer for this default. These delay damages shall be the sum stated in the Contract Data,
which shall be paid for every day which shall elapse between the relevant Time for Completion
and the date stated in the Taking-Over Certificate. However, the total amount due under this
Sub-Clause shall not exceed the maximum amount of delay damages (if any) stated in the
Contract Data.
These delay damages shall be the only damages due from the Contractor for such default, other
than in the event of termination under Sub-Clause 15.2 [Termination by Employer] prior to
completion of the Works. These damages shall not relieve the Contractor from his obligation to
complete the Works, or from any other duties, obligations or responsibilities which he may have
under the Contract.
4.7.6Principles of risk allocate to the contracting party (through

construction contracts)
I. Management principles and control
 According to MDB FIDIC sub clause 4.16 Transport of Goods unless otherwise stated in the
Particular Conditions:
The Contractor shall give the Engineer not less than 21 days‟ notice of the date on which any
Plant or a major item of other Goods will be delivered to the Site;
The Contractor shall be responsible for packing, loading, transporting, receiving, unloading,
storing and protecting all Goods and other things required for the Works; and
The Contractor shall indemnify and hold the Employer harmless against and from all damages,
losses and expenses (including legal fees and expenses) resulting from the transport of Goods,
and shall negotiate and pay all claims arising from their transport.
II. Fault principles
 According to MDB FIDIC 2006 sub clause 4.12 Unforeseeable Physical Conditions:

In this Sub-Clause, “physical conditions” means natural physical conditions and manmade and
other physical obstructions and pollutants, which the Contractor encounters at the Site when
executing the Works, including sub-surface and hydrological conditions but excluding climatic
conditions.
If the Contractor encounters adverse physical conditions which he considers to have been
Unforeseeable, the Contractor shall give notice to the Engineer as soon as practicable.
This notice shall describe the physical conditions, so that they can be inspected by the Engineer,
and shall set out the reasons why the Contractor considers them to be Unforeseeable. The
Contractor shall continue executing the Works, using such proper and reasonable measures as are
appropriate for the physical conditions, and shall comply with any instructions which the
Engineer may give. If an instruction constitutes a Variation, Clause 13 [Variations and
Adjustments] shall apply.
If and to the extent that the Contractor encounters physical conditions which are Unforeseeable,
gives such a notice, and suffers delay and/or incurs Cost due to these conditions, the Contractor
shall be entitled subject to notice under Sub-Clause 20.1 [Contractor’s Claims] to:
(b) Payment of any such Cost, which shall be included in the Contract Price.
 According to MDB FIDIC sub clause 4.10 site data:
The Employer shall have made available to the Contractor for his information, prior to the Base
Date, all relevant data in the Employer’s possession on sub-surface and hydrological conditions
at the Site, including environmental aspects. The Employer shall similarly make available to the
Contractor all such data which come into the Employer’s possession after the Base Date. The
Contractor shall be responsible for interpreting all such data.
To the extent which was practicable (taking account of cost and time), the Contractor shall be
deemed to have obtained all necessary information as to risks, contingencies and other
circumstances which may influence or affect the Tender or Works. To the same extent, the
Contractor shall be deemed to have inspected and examined the Site, its surroundings, the above
data and other available information, and to have been satisfied before submitting the Tender as
to all relevant matters, including (without limitation):
(a) The form and nature of the Site, including sub-surface conditions,
(b) The hydrological and climatic conditions,
(c) The extent and nature of the work and Goods necessary for the execution and completion of
the Works and the remedying of any defects,
(d) The Laws, procedures and labor practices of the Country, and
(e) The Contractor’s requirements for access, accommodation, facilities, personnel, power,
transport, water and other services.
 According to sub clause 8.4 Extension of Time for Completion:
The Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to an extension
of the Time for Completion if and to the extent that completion for the purposes of Sub-Clause
10.1 [Taking-Over of the Works and Sections] is or will be delayed by any of the following
causes:

(a) a Variation (unless an adjustment to the Time for Completion has been agreed under Sub-
Clause 13.3 [Variation Procedure]) or other substantial change in the quantity of an item of work
included in the Contract,
(b) a cause of delay giving an entitlement to extension of time under a Sub-Clause of these
Conditions,
(c) exceptionally adverse climatic conditions,
(d) Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or
governmental actions, or
(e) Any delay, impediment or prevention caused by or attributable to the Employer, the
Employer’s Personnel, or the Employer’s other contractors.
If the Contractor considers himself to be entitled to an extension of the Time for Completion, the
Contractor shall give notice to the Engineer in accordance with Sub Clause 20.1 [Contractor’s
Claims]. When determining each extension of time under Sub-Clause 20.1, the Engineer shall
review previous determinations and may increase, but shall not decrease, the total extension of
time.
III. Incentive principles
 According to MDB FIDIC 2006 sub clause 4.24 fossils;
All fossils, coins, articles of value or antiquity, and structures and other remains or items of
geological or archaeological interest found on the Site shall be placed under the care and
authority of the Employer. The Contractor shall take reasonable precautions to prevent
Contractor’s Personnel or other persons from removing or damaging any of these findings.
The Contractor shall, upon discovery of any such finding, promptly give notice to the Engineer,
who shall issue instructions for dealing with it. If the Contractor suffers delay and/or incurs Cost
from complying with the instructions, the Contractor shall give a further notice to the Engineer
and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:
(b) Payment of any such Cost, which shall be included in the Contract Price. Is not profit After
receiving this further notice, the Engineer shall proceed in accordance with Sub Clause 3.5
 According to MDB FIDIC 2006 sub clause 4.12 (b) payment of any such Cost, which shall
be included in the Contract Price, is not profit
 According to MDB FIDIC 2006 sub clause 4.7(b) 2.1(b) and 1.9(b); Payment of any such
Cost plus profit, which shall be included in the Contract Price, The contractors get profit
4.7.6.1 Construction phase risks allocated to the employer;

I. Inadequate site management:
The site during construction is having sufficient management system. In order to prevent the risk
during construction and also have good site layout plan. According to MDB FIDIC clause 4.13,
unless otherwise specified in the Contract the Employer shall provide effective access to and
possession of the Site including special and/or temporary rights-of-way which are necessary for
the Works. The Contractor shall obtain, at his risk and cost, any additional rights of way or
facilities outside the Site which he may require for the purposes of the Works
II. Defective design

According MDB FIDIC 2006 clauses 1.9 The Contractor shall give notice to the Engineer
whenever the Works are likely to be delayed or disrupted if any necessary drawing or instruction
is not issued to the Contractor within a particular time, which shall be reasonable. The notice
shall include details of the necessary drawing or instruction, details of why and by when it
should be issued, and the nature and amount of the delay or disruption likely to be suffered if it is
late.
III. Inadequate site supervision
IV. Lack of communication. According to MDB FIDIC 2006 sub clause 1.3
IV. Programming the work
4.7.6.2 Construction phase risks allocated to the contractor;
I. Mechanical and electrical breakdown
Site operations are becoming more dependent on plant and equipment, the breakdown of which
forms a major risk element. According to MDB FIDIC 2006 sub clause 4.1, The Contractor shall
provide the Plant and Contractor’s Documents specified in the Contract, and all Contractor’s
Personnel, Goods, consumables and other things and services, whether of a temporary or
permanent nature, required in and for this design, execution, completion and remedying of
defects.
II. Defective workmanship and material
According to MDB FIDIC 2006 7.4 Except as otherwise specified in the Contract, the Contractor
shall provide all apparatus, assistance, documents and other information, electricity, equipment,
fuel, consumables, instruments, labor, materials, and suitably qualified and experienced staff, as
are necessary to carry out the specified tests efficiently. The Contractor shall agree, with the
Engineer, the time and place for the specified testing of any Plant, Materials and other parts of
the Works to minimize defective workmanship and materials.
Technical complexity and innovation in design requiring new methods of construction and/or
erection.
When traditional materials or methods are used in construction, the familiarity of those involved
with the design or the work itself may permit an occasional ambiguity in the drawings or
specifications without them being misinterpreted. It may even provide correction of a mistake.
However, in a novel or relatively new design, material or construction method, what is needed is
precise and thorough communication between the designer, manufacturer or contractor, as the
case may be, and others involved in the construction process.
According to FPPA 2011 sub clause 42.1The Contractor shall prepare, at its own expense, all
design and construction drawings and other documents and objects necessary for the proper
execution of the Contract, and in particular drawings and design calculations and the
reinforcement drawings for reinforced concrete structures. The Contractor shall submit, in
triplicate, construction, design and reinforcement drawings, design calculations and any other
documents or objects it is to provide for the Engineer‟s approval at least one month before
commencing construction of the works in question.
 Human error .according to MDB FIDIC 2006 sub clause 4.12 and FPPA sub clause 44.1
 Negligence and lack of care According to [MDB FIDIC 2006] clause 3.1 and According
civil code art 2031

III. Inefficiency and delays

IV. Fraud and infidelity: - According to FPPA 2011 sub clause 5.1
V. Lack of communication: -according to MDB FIDIC 2006 sub clause 1.3

CHAPTER FIVE
5 Risk management in Ethiopian building construction contracts

Most standard construction contracts contain some clauses that deal with common risks like none
or under performance of the parties and war. But the specific risks that might hinder the project
from achieving its objectives are not thoroughly identified and managed using clearly placed
contractual clauses. The fact that most building construction projects are not completed on time,
within budget and to the required quality standards shows that these contracts need some
improvements and additional clauses that deal with managing risks. Unidentified and undefined
risks have big effects on project objectives; therefore, the contract should contain clearly
identified and defined risks and suggest ways of managing them to minimize their effect on
project objectives.
Some of the risks which are discussed in the civil code of Ethiopia and in the standard conditions
of contract are briefly discussed below.
According to the civil code of Ethiopia, (1960),
Article 1790 (1) states “Apart from or in addition to the enforcement or cancellation of the
contract, a party may require that the damage caused to him by the other party, failing to perform
his obligation be made good”. This means the party that failed to perform his task should face the
consequence of his actions and fix the damages. According to this article, any performance risks
can be managed by checking the contractual clauses that deal with obligation and the
consequences of not performing them. The contract, hence, should clearly contain the obligations
and rights of the parties as well as the penalties of non performance of the duties specified in the
contract.
Article 1791(1) further states that “the party who fails to perform his obligation shall be liable to
pay damages notwithstanding that he is not at fault”. This implies that a party that did not
perform his duties according to the contract should pay for any damages that are found to be his
fault i.e. the result of his non performance.
Article 1795 states “A party may not claim damages on the ground of non-performance of the
contract by the other party, unless he can show that the other party is in default”. This means if a
party cannot prove the non performance of another party, in relation to the contract, he cannot
claim the damages that resulted from the non performance. This statement shows the power of
the contract, if the obligation of the parties is clear and unambiguous in the contract then it can
easily be proven if there is any non performance.
Article 1924 (1) of the civil code states “a guarantee may not exceed the amount owned by the
debtor, nor be constructed on more burdensome terms”. This means the amount of the insurance

should cover the damage. As mentioned earlier insurance is one way of dealing with risk but the
amount of damage the risk may cause to the project should be assessed and the exact amount
known to have an equivalent insurance cover. In simple terms the insurance should cover every
cost that arises because of the manifestation of the risk and its consequences.
The general conditions of contract, 2006, prepared by the Public Procurement Agency (PPA) of
Ethiopia also have different clauses that deal with the general risks common to most projects.
Clause 20: states that “the consultant should have an insurance coverage against risks specified
in the special conditions of contract”. This implies that the risks which are believed to have an
effect on the execution of the project should be clearly identified and dealt with in the specific
conditions of the contract by providing enough insurance coverage. The article further discusses
that a consultant needs to have professional indemnity insurance before award of any contract.
This is one way of dealing with risk by making sure the consultant is covered for any fault that
might occur during the design and supervision of the project.
The general conditions of contract by the ministry of works and urban development (MoWUD),
identifies some special risks which the contractor is not liable for. Some of these special risks are
war hostilities, invasion, act of foreign enemies; contamination by radio-active components,
pressure wave caused by aircraft or other aerial devices; riot, commotion, or disorder, unless
solely restricted to employees of the contractor or his sub-contractor and arising from the
conduct of the works; rebellions, revolution, military or usurped power, or civil war. This general
condition of contract further states in the following statement that the contractor should be
provided with payment to rectify any damage or destruction caused by the special risk and to
replace any material or property needed to complete the project.
If the works or any materials on the site or any property of the contractor used or intended to be
used for the purpose of the works, sustain destruction or damage by reason of any of the said
special risks, the contractor shall be entitled to payments in accordance with the contract for any
permanent work duly executed and for materials so destroyed or damaged and, so far as may be
required by the Engineer or as may be necessary for the completion of the works.
As mentioned above, the standard contract documents used in Ethiopian building construction
industries deal with some risks which are common in all building construction projects. And in
most cases, only the risks which are included in these standard documents are included in the
contracts. But in addition to that, it is recommended that risks that are unique and specific to any
particular project be identified and included in the particular conditions of the contract so that
they can easily be managed if and when they occur.
5.1 Awareness of the concept of risk management

A research done by Addis Mesfin (2014) shows the responses of the respondents when they were
asked about the concept of risk management, among the 67 respondents 65 were aware of the

concept of risk management. This shows that most of the parties involved in Ethiopian building
construction projects, 97%, know about the concept of risk management, the next question tried
to assess how they became aware and if they are confident enough to implement their knowledge
into action. Most of the respondents who answered yes to the above question became aware of
the principle of risk management through study and training. Figure 4.1 shows 70.8% of the
parties became aware of the principles of risk management through study and 26.2 % became
aware through training. But when the respondents were asked to evaluate their knowledge of risk
management principles, most of them answered as medium or fair This result shows out of those
who claim to have knowledge of risk management, most of them are not fully confident enough
to rate their knowledge as high. This implies that a lot needs to be done in increasing awareness
and making the parties involved in the Ethiopian building construction projects confident enough
to implement their knowledge of risk management to increase the efficiency and effectiveness of
their projects. From the above result it can be observed that only a small number of parties
involved in the Ethiopian building projects evaluated their knowledge on principles of risk
management as high. And from this and other researches shows the parties knowledge about the
principle of risk management is not enough to implement its applications in their building
construction projects.

CHAPTER SIX
6 Construction insurance practice in Ethiopia

6.1 Insurance Regulation and Companies in Ethiopia
In Ethiopia, the modern insurance business has no deep-rooted history like in most countries of
the world. According to many historians and scholars, the emergence of the modern insurance
industry traces back to the pioneer, the former Bank of Abyssinia, established by Emperor
Menelik II in 1905. Thus, the business of insurance has a record of only 113 years in Ethiopia.
There was also no specific insurance legislation in Ethiopia until the 1970s. Before this
Proclamation, insurance companies had to comply with the Commercial, Maritime and Civil
Codes of 1960. To these codes, insurance businesses were commercial rather than financial
sector transactions.
Article 654(2) of the Commercial Code of Ethiopia [1960] (Code, 1960) provides a legal
definition of insurance as follows:
An insurance policy is a contract whereby a person, called the insurer, undertakes against
payment of one or more premiums to pay to a person, called the beneficiary, a sum of money
where a specified risk materializes.
The 1960s laws regulated insurance contracts as merely a mercantile activity where the will of
the parties prevailed. They were inadequate to regulate the business of insurance effectively. As
a result, the public safeguard and the nation’s economic interests were at stake. Cognizant of this,
the Imperial Government of Ethiopia decided to curb the situation by enacting the first insurance
regulation. The law, intended to control the establishment, works, and finances of insurance
companies, was enforced in 1971.
The Proclamation set forth conditions for insurers to carry out business such as; the insurer
should be a ‘domestic company’; it should have a share capital fully subscribed as outlined in the
Proclamation, and it should have to fulfill the licensing requirements prescribed therein. The
Proclamation also made it compulsory for insurance intermediaries (Agents and Brokers), and
auxiliaries (Actuaries and Insurance Assessors) to be licensed to work in the insurance business.
Moreover, the then Minister of Commerce, Industry, and Tourism (CIT), according to the
authority vested in him by the proclamation, issued the first Insurance regulation in 1971
prescribing the details for applications for licenses and the penalty for non-compliance by
insurers, intermediaries, auxiliaries and others. (EYOBED TIBEBU,2017)
Following the 1994 insurance proclamation, which brought to an end to the monopoly of the
insurance business by the state owned insurer for 19 years, the private sector once again got an

opportunity to engage in insurance business and a number of private insurance companies

established (Zeleke, 2007). Currently, the Ethiopian insurance industry consists of 17 insurance
companies (1 public and 16 private). In line with Proclamation No.746/2012(Insurance Business
Proclamation), the National Bank of Ethiopia has the powers and duties as stated in the
proclamation to regulate insurance companied including:
• Licensing insurance companies and insurance auxiliaries;
• Conducting continual on-site and off-site supervision and monitoring;
• Taking intervention measures, depending on the findings of supervision and monitoring;
• Ensuring the existence of sound and stable insurance industry; and
• Protection of the interests of policyholders.
6.2 Major Types of Insurance Policy

The normal types of insurance policy in Construction Industry include the following (Abebe,
2000):-
1.Professional Indemnity Insurance (PI):- It is taken out by the designers/Consultants as cover
against their liability for acting negligently. Thus in the event of a structure collapsing during
construction because of faulty design, the client would sue the designer for negligence. Provided
the client could prove negligence, and provided the PI insurance was valid and adequate then the
client would be reimbursed for the designers negligence and all the resulting costs of the damage
etc. A client is, therefore, advised to see evidence of the designer's PI insurance before
commissioning a job.
2.Contractor's All Risks Policy: This policy covers loss or damage from what so ever cause to
the contract works or materials whilst on the contract site(s) and in use in connection with the
contract during the performance of the contract and the period of maintenance. The FIDIC
(2011) conditions of contract require the Contractor to take out such a policy in the joint name of
the client and the contractor (Sub Clause 20 and 21). The policy is "All Risk" and is therefore all
inclusive, with the exception of what are called the "Excepted Risks" (meaning not accepted).
3.Contractors Third Party Liability Policy: This policy covers loss or damage to third party
persons or property arising out of the construction or maintenance of the works. As the name
indicates, third party means anyone who is not a part of the insurance contract. The FIDIC
(2011) conditions of contract require the contractor to take out such a policy (Sub Clause 22 and
23).
4.Contractors Employers Liability Policy: This policy covers damages in respect of injuries to
workmen in their employment, or employment of any sub-contractor. As this insurance cover is
required by Statute Law for any employer in the developed countries, it is not therefore specified
as required by the Conditions of Contract.

CHAPTER SEVEN
7 The role of professional engineers on Construction risks

7.1 General
MDB FIDIC (2006) Sub Clause 1.1.2.4 defines “Engineer” as the person appointed by the
Employer to act as the Engineer for the purposes of the Contract and named in the Contract Data,
or other person appointed from time to time by the Employer and notified to the Contractor
under Sub-Clause 3.4 [Replacement of the Engineer].
Professional engineers and engineering technicians have a significant role to play in limiting or
eliminating risk and there is a personal obligation on them to maintain and enhance their
competence in their area of practice.
Risk is present in all engineering projects as a result of uncertainty as well as inherent hazards.
Some elements of risk may be quantified all cases, there is a need for engineers to exercise
informed judgment and leadership in order to manage the risk.
UK ENGINEERING COUNCIL puts six principles to guide an engineer when identifying,
assessing, managing and communicating about risk, and help to ensure that risk issues are
recognized as important considerations in all engineering activity.
Apply professional and responsible judgment and take a leadership role
Engineers should demonstrate by example a commitment to safety, reliability and ethical
conduct through the professional management of risk, from the inception of any project.
Engineers at all levels should clearly demonstrate the standards by which they expect risks to be
managed, thus setting an example to others. In doing so, engineers should:
• be prepared to challenge assumptions and proposals
• ensure that safety receives appropriate consideration
• assess the balance of risk and reward
• strive for all those involved to be able to identify potential problems and opportunities
• ensure that any engineer reporting to them has the opportunity to maintain competence in the
area of risk
• lead others in improving practice
Adopt a systematic and holistic approach to risk identification, assessment and
management

The factors that give rise to risk are interdependent and cannot be examined in isolation. It is
vital in managing risk to be aware of this interdependency, and rather than dealing with risks
one-by-one as they arise, use approaches that deal with whole systems. This requires engineers
to:
• look beyond purely technical considerations, to address non-technical factors and include
human, organizational and cultural perspectives
• make risk assessment and management an integral part of all engineering activity and decision
making
• adopt a conservative decision making approach that is proportionate to the risk especially
where a novel process is employed
• aim to quantify the risks with as much precision as is relevant, sufficient and can be supported
by the evidence
• be responsive to changes in the operating environment
• look for connections, patterns and relationships between risks and opportunities
• consider the role that ergonomics can play in mitigating the risk of human error
• bear in mind that risk assessment should be used as an aid to professional judgment and not as a
substitute for it
• be aware that developing over-elaborate procedures can lead to poor compliance and
undermine the wider safety culture
Comply with legislation and codes, but be prepared to seek further improvements
Regulations and codes are generic. They can only deal with anticipated events, and cannot
predict every possible situation.
Engineers should take a measured, yet challenging approach to potential risks, whether or not
regulations apply. Engineers should:
• act in accordance with codes of conduct
• know about and comply with the law in countries where they are operating or where their
products will be used
• recognize and understand the intent behind standards and codes, and understand when their
limits are being approached
• comply with current relevant legal requirements governing engineering risk issues
• seek advice where necessary

• where it is reasonably practicable, seek further improvements, thus embedding a culture of

seeking continuous improvement
• be open-minded and avoid hiding behind regulations
Ensure good communication with the others involved
Shortcomings in communication are present in nearly all failures in the management of risk.
Communicating effectively with customers, clients, suppliers, subcontractors and colleagues is
important to ensure that risks and their implications are understood properly. Within an
organization, risk management should be communicated as a core value. Engineers should:
• establish strong, honest and effective two-way communication within and beyond their
organization
• establish a consultation and feedback process about risks with all stakeholders, including the
public and local community
• express clearly the balance of risk and benefit
• encourage an ‘open reporting’ approach, and a spirit of questioning and learning from others
• avoid a ‘good news only’ or closed culture
Ensure that lasting systems for oversight and study are in place
Effective oversight and scrutiny processes are important safeguards in controlling risks. They
should be challenging, and carried out with independence from those creating the risk or
attempting to control it. Engineers should:
• ensure that effective oversight and scrutiny procedures are in place
• ensure that roles and responsibilities are understood, especially where functions are outsourced
• include scrutiny of culture and response to the management system, and ensure that audits are
not limited to paper systems
Contribute to public awareness of risk
The perception of risk amongst the public is influenced by a range of factors, including
emotional ones. Engineers have an important role in raising awareness and understanding about
the real levels of risk and benefit, and helping to prevent mis-conceptions. Engineers should:
• be prepared to engage in public debate on the perceived risks and benefits
• ensure that discussion with the public includes risk and its management, and the
interdependence of risk factors under consideration
• ensure that the concepts of ‘risk and reward’ are communicated

• recognize the social, political and economic implications in the risk assessment and
acknowledge them publicly
• explain the quantitative aspects of risk with clarity and supporting evidence
• be honest and clear about uncertainties, and be prepared to challenge mis-representations
7.2 Role of engineer in the design stage

The engineer performs the following activities during the design stage of the project;
 Make investigation, analysis and other design studies
 Complete user studies and interviews
 Prepare scheme design
 Undertakes comparative cost studies
 Carry out detail design and prepare production information drawings,
specifications and schedules
 Prepare bill of quantities and estimate of project cost
If so the engineer shall prepare all the above documents and he is responsible for early
completion of drawings and instructions to submit the contractor on the specified time.
According to MDB FIDIC 2006 sub clause 1.9 The Contractor shall give notice to the Engineer
whenever the Works are likely to be delayed or disrupted if any necessary drawing or instruction
is not issued to the Contractor within a particular time, which shall be reasonable. The notice
shall include details of the necessary drawing or instruction, details of why and by when it
should be issued, and the nature and amount of the delay or disruption likely to be suffered if it is
late.
If the Contractor suffers delay and/or incurs Cost as a result of a failure of the Engineer to issue
the notified drawing or instruction within a time which is reasonable and is specified in the
notice with supporting details, the Contractor shall give a further notice to the Engineer and shall
be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:
Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost plus profit,
which shall be included in the Contract Price.
After receiving this further notice, the Engineer shall proceed in accordance with Sub- Clause 3.5
However, if and to the extent that the Engineer’s failure was caused by any error or delay by the
7.3 Role of engineer in tendering

The purpose of tendering is to appoint a suitable contractor, or a number of contractors, who will
undertake the construction work.
Engineer as contract administrator is responsible for;
 Preparing
 Examining
 Analyzing

 Negotiating, and
 Revising contracts.
Most risks are arising from contract documents due to different cases such as the interpretation
and/ or application of any part of the contract documents and at any time during the execution of
the contract. If the contract documents are ambiguous, unplanned and conflicting this will most
certainly lead to disputes. Contract clauses, which unrealistically and unfairly shift project risk to
parties who are not prepared or not able to assume such risk.
Therefore the engineer should work hard during contract administration stage to avoid the above
risk causes.
Art. 1678 of Civil Code says that No valid contract shall exist unless:
(a) The parties are capable of contracting and give their consent sustainable at law;
(b) The object of the contract is sufficiently defined and is possible and lawful;
(c) The contract is made in the form prescribed by law, if any.
The engineer should also understand the law of contract and administer contracts by considering
every rules and regulations that are present in the general and special conditions of contract and
also clarify for the parties that are engaged in the contract.
He/she shall check the contract document;
 All the clauses are clear and understand by the parties;
 Allocation of risks equally for the parties;
 Making elaborations of statements of contract document to parties;
 And finally interpretation of contract agreements during the execution of project.
7.4 Role of engineer in the construction stage

The role of the engineer in the construction stage of the project is;
 Provide necessary detailed production information and review contractor’s
programme;
According to MDB FIDIC sub clause 3.3 “The Engineer may issue to the Contractor (at any
time) instructions and additional or modified Drawings which may be necessary for the
execution of the Works and the remedying of any defects, all in accordance with the Contract.
The Contractor shall only take instructions from the Engineer, or from an assistant to whom the
appropriate authority has been delegated under this Clause. If an instruction constitutes a
Variation, Clause 13 [Variations and Adjustments] shall apply.
The Contractor shall comply with the instructions given by the Engineer or delegated assistant,
on any matter related to the Contract. Whenever practicable, their instructions shall be given in
writing. If the Engineer or a delegated assistant:
(a) Gives an oral instruction,
(b) Receives a written confirmation of the instruction, from (or on behalf of) the Contractor,
within two working days after giving the instruction, and
(c) Does not reply by issuing a written rejection and/or instruction within two working days after
receiving the confirmation, then the confirmation shall constitute the written instruction of the
Engineer or delegated assistant (as the case may be).
 Make regular inspections and prepare periodic site meetings and reports.
The role of the Engineer’s representative shall be to supervise and inspect works and to test and
examine the materials employed and the quality of workmanship. Under no circumstances will

the Engineer's representative be empowered to relieve the Contractor of his obligations under the
contract or – except where express instructions to that effect are given in the SCC – order works
resulting in an extension of the period of performance or additional costs to be paid by the Public
Body or introduce variants in the nature or scale of the works (FPPA 2011
Sub clause 12.4).
The quality of site supervision has a major influence on the overall performance and efficiency
of construction projects. Inadequate supervision is believed to be one of the major causes of
rework. Therefore, experienced and well-trained supervisors have an important role in
minimizing the amount of risk due to construction defects.
Poor supervision results in defective construction which not only contributes to the final cost of
the product but also to the cost of maintenance, which can be substantial. Defective construction
may lead to the complete failure of a structure.
 Authenticate daily work records of materials, labour and plant.
MDB FIDIC sub-clause 3.1. Except as otherwise stated in these Conditions:
(c) Any approval, check, certificate, consent, examination, inspection, instruction, notice,
proposal, request, test, or similar act by the Engineer (including absence of disapproval) shall not
relieve the Contractor from any responsibility he has under the Contract, including responsibility
for errors, omissions, discrepancies and non-compliances.
 Examine and adjust priced bill of quantities.
All prices shall be firm unless the Contractor has provided claim for price adjustment. The
Contractor may invoke this provision at any time during the Contract by notice in writing to
the Engineer (FPPA 2011 Sub clause 62.3).
 Prepare valuations: - FPPA 2011 Sub clause 63.1
iii) The Engineer shall determine by measurement the actual quantities of the works executed by
the Contractor, and these shall be paid for in accordance with GCC Clause 64 [Interim Payment].
Unless otherwise provided in the SCC no additions shall be made to the items in the bill of
quantities except as a result of a modification in accordance with GCC Clause 15 [Modifications
by Change Orders] or another provision of the Contract entitling the Contractor to additional
payment;
iv) The Engineer shall, when he requires any parts of the works to be measured, give reasonable
notice to the Contractor to attend, or to send a qualified agent to represent him. The Contractor or
his agent shall assist the Engineer in making such measurements and shall furnish all particulars
required by the Engineer. Should the Contractor not attend, or omit to send such agent, the
measurement made by the Engineer or approved by him shall be binding on the Contractor;
 Issue interim certificates and variation orders and expedite payments.
According to MDB FIDIC 2006 Sub clause 14.6 No amount will be certified or paid until the
Employer has received and approved the Performance Security. Thereafter, the Engineer shall,
within 28 days after receiving a Statement and supporting documents, deliver to the Employer
and to the Contractor an Interim Payment Certificate which shall state the amount which the
Engineer fairly determines to be due, with all supporting particulars for any reduction or
withholding made by the Engineer on the Statement if any.
However, prior to issuing the Taking-Over Certificate for the Works, the Engineer shall not be
bound to issue an Interim Payment Certificate in an amount which would (after retention and
other deductions) be less than the minimum amount of Interim Payment Certificates (if any)

stated in the Contract Data. In this event, the Engineer shall give notice to the Contractor
accordingly.
An Interim Payment Certificate shall not be withheld for any other reason, although:
(a) If anything supplied or work done by the Contractor is not in accordance with the Contract,
the cost of rectification or replacement may be withheld until rectification or replacement has
been completed; and/or
(b) If the Contractor was or is failing to perform any work or obligation in accordance with the
Contract, and had been so notified by the Engineer, the value of this work or obligation may be
withheld until the work or obligation has been performed.
The Engineer may in any Payment Certificate make any correction or modification that should
properly be made to any previous Payment Certificate. A Payment Certificate shall not be
deemed to indicate the Engineer’s acceptance, approval, consent or satisfaction.
In case of variations; MDB FIDIC Sub clause 13.1
Variations may be initiated by the Engineer at any time prior to issuing the Taking-Over
Certificate for the Works, either by an instruction or by a request for the Contractor to submit a
proposal.
Each Variation may include:
a. Changes to the quantities of any item of work included in the Contract (however, such changes
do not necessarily constitute a Variation),
b. Changes to the quality and other characteristics of any item of work,
c. Changes to the levels, positions and/or dimensions of any part of the Works,
d. Omission of any work unless it is to be carried out by others,
e. any additional work, Plant, Materials or services necessary for the Permanent Works,
including any associated Tests on Completion, boreholes and other testing and exploratory work,
or
f. Changes to the sequence or timing of the execution of the Works.
Therefore the key roles of the engineer in construction risk management are
 Give a detailed written instruction to the contractor about the methods and procedures of
construction processes
 Carefully inspect the project weather it is constructed with in the standards and
specifications written in the contract document.
 By prepare a risk management plan during the design phase of the project.
 By accurately measuring executed works in order to prepare payment certificates.
 Preparing clear contract document.
 By preparing price adjustments during variations of work

CHAPTER EIGHT
8 Case Study
8.1 General
These portions of the paper cover a case study of the construction works of Kibermingest shakiso
road project. The agreement made between Ethiopia construction Work Corporation and
Ethiopian road authority on June 2016.
The employer, Ethiopian Road Authority, covenant to pay the contractor, Ethiopia construction
Work Corporation, in consideration of the execution and completion of the works and remedying
of defect there in ETB 149,525,402.49.
8.2 Project description

Kibemingest shakiso Road project is located at Oromia Zone Adola woreda. Which has a road
type of double surface Treatment (DBST) and it gives a serves moderates level of traffic volume.
About eight years ago a contractor named Flint Stone Construction was starting build the said
project. After executing some percent of the work his contract has terminated. And then after, the
Employer made another agreement with ECWC for 8 month contract period. This case study
focused only the ECWC and ERA contract agreement.
8.2.1 Basic Contract Data

Table 2 Basic Contract Data of Kibremengest-Shakiso Project
Project construction works of Kibermingest shakiso

road project
Type of project Road
Employer Ethiopian Road Authority
Engineer YIDIDIYA Engineering Consultants Plc.
Contractor Ethiopian Construction Work Corporation
Date of contract signature 30/06/2016
Commencement date 02/08/16
Completion date Eight month including mobilization period
Project length 19.03 Km
Performance security 10% of contract price
Release of performance security Within 14 day after the issuance of defect
liability certificate.
Program to be submitted Within 28 day after commencement

Amount withheld for late submission of ETB 10,000 per calendar date of delay
program
Cash of flow estimate Within 42 day of receipt of the letter of
acceptance
Amount of liquidated damages 0.1% of the value of remaining per day
Limit of liquidated damage 10%of final contract price
Defect of liability period 365 days from the issue of taking over
certificate
Minimum amount of interim payment ETB 2,500,000
certificate
%of retention 5%of interim payment certificate, up to a
maximum of 5% of final contract price.
Maximum amount of advance payment 20% of contract amount less day work,
provisional sums and contingency.
Start repayment of advance payment After certification of 30% contract price, less
provisional sums, day work contingency and
VAT
Monthly recovery of advance payment 40%of amount of monthly interim payment
certificate
8.2.2 Current condition of the project

The remaining work of the project at this time (Dec, 2018)
Table 3 the remaining work of the project
Sub base 1.18 km

Base course 3.47 km
Prime coat 3.88 km
Asphalt first seal 3.89 km
Asphalt second seal 5.26 km
Fog spray 19.03 km
8.3 Description of the case

Construction delays are occurring in every phase of a construction project and are common
problems in construction projects in Ethiopia. Moreover, it is well known that the delays in
construction projects are the major causes of project failure. If the delay is not identified and
the corrective project management decision is not taken in time a project may incur extra cost

and extension of project time, which gives rise to dissatisfaction to all the parties involved and
nowadays it’s becoming a major obstruction for their development for developing countries
like Ethiopia. The major problem of the said project is also time overrun beyond the date th at
the parties have agreed upon for the delivery of the project.
When we analyze the causes of this case are;
1. Climatic factor (uneven and heavy rainfall distribution)
Heavy rainfall often leads to complete suspension of highway construction due to saturated and
unworkable soil conditions. Therefore, quantifying the impact of rainfall on the productivity of
highway construction is essential in preparing realistic schedules and cost estimates for the
preconstruction stage and in analyzing weather-related claims for the post construction stage.
Since K/mengist-Shakiso has uneven and heavy rainfall through all season, it affects the progress
of the work.
2. Delay in manufacturing and delivering materials
The main reason the contractor fall to risk is material that is fog spray not found in the market of
Ethiopia and cannot be easily import because of shortage of supply from abroad and the
contractor need minimum amount of material that is only enough to this project which is
174,098.84 lit. This material expired with in short period of time with maximum 6 month of life
time so the importer not interested to deliver.
Due to the fact that, contractor wrote letter and asked willingness of the Engineer to finish DBST
with out of fog spray or with another type of fog spray which is 30% anionic spray grade
bitumen, found from local private contractor called Gemshu Beyene PLC.
Unfortunately, the Engineer did not accept the idea and tell to do based on the contract
document, which is a 30% cationic spray grade, and obeying contract agreement.
In another case, the contractor has produced a surface aggregate at Gidabo( around Dilla) and
when he tries to haul the material the society and the regional administration form a controversy
with contractor and prohibit him due to regional natural resource case. Even though, the
contractor has paid for the right of way for that site.
3. Other factors
Other factors like Infective project planning, scheduling or resource management low
productivity of labour/inadequate experienced labour, insufficient data collection and survey
before design, bureaucracy (Excessively complicated administrative procedure), regular
interference, poor communication and coordinate on with other parties, slowness in decision

making, inflexibility (rigidity) of consultant, in accurate site inspection and conflicts puts their
own marks on the delay of the project.
8.4 Conditions of contract related to the problem

1. Climatic factor (uneven and heavy rainfall distribution)
PPA(2011) Sub Clause 44.4
Weather conditions shall not entitle the Contractor to claims under GCC Clause 69.
FIDIC(2006) Sub Clause 8.4
The Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to an extension
of the Time for Completion if and to the extent that completion for the purposes of Sub-Clause
10.1 [Taking-Over of the Works and Sections] is or will be delayed by any of the following
causes:
(c) exceptionally adverse climatic conditions,
1. Delay due to regional administration
The following shall be Compensation Events allowing for time extension:
(g) Other Contractors, public authorities, utilities, or the Public Body do not work within the
dates and other constraints stated in the Contract, and they cause delay;
The Contractor may request an extension of the Intended Completion Date if he is or will be delayed in
completing the contract by any of the following causes:
(d) Administrative orders affecting the date of completion other than those arising from the Contractor's
default;
(f) Any suspension of the works which is not due to the Contractor's default;
FIDIC(2006) Sub Clause 8.4:- Delays Caused by Authorities
If the following conditions apply, namely:
(a) the Contractor has diligently followed the procedures laid down by the relevant legally
constituted public authorities in the Country,
(b) these authorities delay or disrupt the Contractor’s work, and
(c) the delay or disruption was Unforeseeable, then this delay or disruption will be considered as
a cause of delay under subparagraph
(b) of Sub-Clause 8.4 [Extension of Time for Completion].

8.5 Conclusion and recommendation on our case study

From our case study we have seen project delayed with different reason and cause contractor
risk. As we learnt contract document is risk transform instrument and risk management tool. Due
to this reason contractor before make an agreement must be gather detail information about
project site from pervious contractor or other work doing in that area.
We conclude that contractor not considered
• How Easley delivering material to the site and the material availability in the market not well
checked.
• Uneven whether condition not considering during work schedule.
• Source of material location not well study that is enough to the project raw material production
and is it qualified?
The most predominant origin of delay are shortage of material, lack of proper planning,
contractor performance, additional work by interest of employer, poor estimation of work,
climate factor and client site position (right of way).generally we recommended to reduce of
delay and contractor risk this qualification must be consider
• Clients should provide a clear brief of the scope of works
• Proper planning and estimation of work
• Good communication between the three parties
• Well known of contract document
• Experienced client and contractor participated
• All parties must be understand the program especially contractor if they understand the program
considered as understand the project
• Risk break down and frame work must be prepared as work break down to control risk.

CHAPTER NINE
9 Comparative Table Analysis
Table 4 Comparative analysis of MDB FIDIC 2006 and FPPA 2011 with respect to risk and
CL. MDB FIDIC 2006 CL. FPPA 2011

Delayed Drawings or Instructions Contractors drawing
1.9 42
The Contractor shall give notice to the Engineer The Contractor shall submit to the Engineer for
whenever the Works are likely to be delayed or disrupted 42.1 approval:
if any necessary drawing or instruction is not issued to Such drawings, documents, samples and/or
the Contractor within a particular time, which shall be models as may be specified in the contract
reasonable. within the time limits laid down therein or in
the program of implementation of tasks;
Right of Access to the Site Access to the site
2.1 31
The Employer shall give the Contractor right of access to The Public Body shall, in due time and
and possession of, all parts of the Site within the time (or 31.1 inconformity with the progress of the works,
times) stated in the Contract Data. The right and place the site and access thereto at the disposal
possession may not be exclusive to the Contractor. If, of the Contractor in accordance with the
under the Contract, the Employer is required to give (to program of implementation of tasks referred to
the Contractor) possession of any foundation, structure, in these GCC. If possession of a part is not
plant or means of access, the Employer shall do so in the given by the date stated in the approved work
time and manner stated in the Specification. However, program, the Public Body will be deemed to
the Employer may withhold any such right or possession have delayed the start of the relevant activities,
until the Performance Security has been received. and this will be a Compensation Event.
Contractor’s General Obligations Contractors General Obligation
4.1 34.1
The Contractor shall design (to the extent specified in the Contractor shall, with due care and diligence,
Contract), execute and complete the Works in and in accordance with the provisions of the
accordance with the Contract and with the Engineer’s Contract, design the works to the extent stated
instructions, and shall remedy any defects in the Works. in the Contract, and execute, complete and
All equipment, material, and services to be remedy any defects in the works. The
incorporated in or required for the Works shall have their Contractor shall provide all control and
origin in any eligible source country as supervision of the works, personnel, materials,
defined by the Bank plant, equipment and all other items, whether
of a temporary or permanent nature required in
and for such design, execution, completion and

remedying of any defects, insofar as specified

in, or can be reasonably inferred from, the
Contract.
The Contractor shall respect and abide by all

34.3
laws and regulations in force in the Federal
Democratic Republic of Ethiopia.
Setting Out Setting out of the works
4.7 49
The Contractor shall set out the Works in relation The Contractor shall be responsible for: The
to original points, lines and levels of reference specified 49.1 accurate setting-out of the Works in relation to
in the Contract or notified by the Engineer. The original marks, lines and levels of reference
Contractor shall be responsible for the correct positioning given by the Engineer; The correctness, of the
of all parts of the Works, and shall rectify any error in the position, levels, dimensions and alignment of
positions, levels, dimensions or alignment of the Works. all parts of the Works; and The provision of all
The Employer shall be responsible for any errors in these necessary instruments, appliances and labor in
specified or notified items of reference, but the connection with the foregoing responsibilities.
Contractor shall use reasonable efforts to verify their
accuracy before they are used.
Site data
4.10
The Contractor shall be deemed to have obtained all
necessary information as to risks, contingencies and
other circumstances which may influence or affect the
Tender or Works. To the same extent, the Contractor
shall be deemed to have inspected and examined the Site,
its surroundings, other available information, and to have
been satisfied before submitting the Tender as to all
relevant matters
Unforeseeable Physical Condition Exceptional risks
4.12 44
In this Sub-Clause, “physical conditions” means natural If during the execution of the works the
physical conditions and manmade and other physical 44.1 Contractor encounters artificial obstructions or
obstructions and pollutants, which the Contractor physical conditions which could not reasonably
encounters at the Site when executing the Works, have been foreseen by an experienced
including sub-surface and hydrological conditions but Contractor, and if the Contractor is of the
excluding climatic conditions. If the Contractor opinion that additional costs will be incurred

encounters adverse physical conditions which he and/or an extension of the period of

considers to have been Unforeseeable, the Contractor implementation of the tasks will be necessary
shall give notice to the Engineer as soon as practicable. as a result of this, he shall give notice to the
An extension of time for any such delay payment of any Engineer.
such Cost, which shall be included in the Contract Price.
Transport of Goods
4.16
Unless otherwise stated in the Particular
Conditions:
The Contractor shall give the Engineer not less than 21
days‟ notice of the date on which any Plant or a major
item of other Goods will be delivered to the
Site;
The Contractor shall be responsible for packing, loading,
transporting, receiving, unloading, storing and protecting
all Goods and other things required for the Works; and
Fossils
4.24
All fossils, coins, articles of value or antiquity, and
structures and other remains or items of geological
or archaeological interest found on the Site shall be
placed under the care and authority of the Employer.
Extension of Time for Completion Extension of Intended Completion Date
8.4 73.1
The Contractor shall be entitled subject to entitlement for The Contractor may request an extension of the
time extension due to; Variation, exceptionally adverse Intended Completion Date if he is or will be
climatic conditions, Unforeseeable conditions, due to un delayed in completing the contract by any of
fulfillment of employer duties. the following causes: Exceptional weather
conditions in the Federal Democratic Republic
of Ethiopia, Artificial obstructions or physical
conditions, change order for modification,
Administrative orders, Failure of the Public
Body to fulfill his obligations, Any suspension
of the, Force majeure;
Delay Damages Liquidated damage
8.7 27
If the Contractor fails to comply with Sub-Clause 8.2 Except as provided under GCC Clause 18, if
[Time for Completion], the Contractor shall subject to 27.1 the Contractor fails to carry out any or all of
notice under Sub-Clause 2.5 [Employer’s the Works within the period specified in the
Claims] pay delay damages to the Employer for this Contract, the Public Body may without
default. These delay damages shall be the sum stated in prejudice to all its other remedies under the
the Contract Data, which shall be paid for every day Contract, deduct from the Contract Price, as
which shall elapse between the relevant Time for liquidated damages the following:
Completion and the date stated in the Taking-Over (a) A penalty of 0.1% or 1/1000 of the value of
Certificate. However, the total amount due under this undelivered Service for each day of delay until
Sub-Clause shall not exceed the maximum amount of actual delivery or performance,

delay damages (if any) stated (b) The cumulative penalty to be paid by the
in the Contract Data Contractor shall not exceed 10% of the
contract price.
Adjustments for Changes in Legislation Change in Laws and Regulations
13.7 16
The Contract Price shall be adjusted to take account of Unless otherwise expressly agreed in the SCC,
any increase or decrease in Cost resulting from a change 16.1 price and completion date are not adjusted after
in the Laws of the Country (including the introduction of the deadline of submission.
new Laws and the repeal or modification of existing
Laws) or in the judicial or official governmental
interpretation of such Laws, made after the Base Date,
which affect the Contractor in the performance of
obligations under the Contract.
Adjustments for Changes in Cost Price adjustment
13.8 62
In this Sub-Clause, “table of adjustment data” means the Adjustments of contract prices shall be allowed
completed table of adjustment data for local and foreign 62.1 after twelve (12) months from the effective
currencies included in the Schedules. If there is no such date of the Contract where it is verified that the
table of adjustment data, this Sub-Clause shall not apply. performance of the contract requires more than
18 months.
Indemnities Indemnification and Limitation of
17.1 39
The Contractor and employer shall indemnify from all Liability
claims, damages, losses and expenses (including legal 39.1 At its own expense, the Contractor shall
fees and expenses bodily injury, sickness, disease or indemnify, protect and defend, the Public
death, of any person whatsoever arising Body, its agents and employees, from and
out of damage to or loss of any property, real or personal. against all actions, claims, losses or damage
arising from any act or omission by the
Contractor.
Contractor’s Care of the Work General obligations
17.2 34
The Contractor shall take full responsibility for the care The Contractor shall take full responsibility for
of the Works and Goods from the Commencement Date 34.2 the adequacy, stability and safety of all
until the Taking-Over Certificate is issued operations and methods of construction under
the Contract.
Insurance for Works and Contractor’s Insurance to be Taken Out by the
18.2 40
Equipment Contractor
The insuring Party shall insure the Works, Plant, 40.1 The Contractor shall provide, in the joint
Materials and Contractor’s Documents for not less than names of the Public Body and the Contractor,
the full reinstatement cost including the costs of insurance cover against loss or damage for
demolition, removal of debris and professional fees and which he is liable under the contract in the
profit. amounts and deductibles stated in the SCC.
Insurance against Injury to Persons and Such insurance shall, unless the SCC provide
18.3
Damage to Property otherwise, cover:
The insuring Party shall insure against each Party’s a. Any damage or loss of Works, together with
liability for any loss, damage, death or bodily injury Materials and Plant.

which may occur to any physical property. b. An additional sum of 15% of such
Insurance for Contractor’s Personnel replacement cost.
18.4
The Contractor shall effect and maintain insurance c. The Contractor's Equipment and other things
against liability for claims, damages, losses and expenses brought onto the Site by the Contractor, for a
(including legal fees and expenses) arising from injury, sum sufficient to provide their replacement at
sickness, disease or death of any person employed by the the Site.
Contractor or any other of the Contractor’s Personnel
Force Majeure Force Majeure
19.1 18
may include, but is not limited to, exceptional events or For the purposes of the Contract, “Force
circumstances of the kind listed below; war, hostilities, Majeure “shall mean an event or events which
invasion, act of foreign enemies, rebellion, terrorism, are beyond the reasonable control of a
sabotage, revolution, insurrection, military power, or Contractor, and which makes a Contractor’s
civil war, riot, commotion, disorder, strike, munitions of performance of its obligations hereunder
war, explosive materials, ionizing, except as may be impossible in the circumstances, and includes:
attributable to the Contractor’s use of such munitions, An official prohibition preventing the
explosives, radiation or radio-activity, and Natural performance of a contract, A natural
catastrophes. catastrophe, International or civil war, or Other
instances of Force Majeure.
Employer’s Risks
17.3
The risks they directly affect the execution of the Works
in the Country, are:
 war, hostilities
 rebellion, terrorism,
 riot,
 munitions of war,
 pressure waves,
 use or occupation by the Employer of any part of the
Permanent Works, except as may be specified in the
Contract,
 Design of any part of the Works by the Employer’s
Personnel or by others for whom the Employer is
responsible and
Consequences of Employer’s Risks
17.4
If and to the extent that any of the risks listed in Sub-
Clause 17.3 above results in loss or damage to the
Works, Goods or Contractor’s Documents, the
Contractor shall promptly give notice to the Engineer and
shall rectify this loss or damage to the extent required by
the Engineer.
Use of Employer’s Accommodation/Facilities Fraud and Corruption
17.7 5
The Contractor shall take full responsibility for the care It is the Government of the Federal Democratic
of the Employer-provided accommodation and facilities, 5.1 Republic of Ethiopia’s policy to require that

if any, as detailed in the Specification, If any loss or Public Body, as well as bidders/suppliers, to
damage happens to any of the above items while the observe the highest standards of ethics during
Contractor is responsible for their care arising from any the procurement and the execution of contracts.
cause whatsoever other than those for which the That Public Bodies shall include in bidding
Employer is liable, the Contractor shall, at his own cost, documents, provisions against corrupt practices
rectify the loss or damage to the satisfaction of the
Engineer.
Rejection Rejection
7.5 82
If, as a result of an examination, inspection, measurement Components and materials which are not of the
or testing, any Plant, Materials or workmanship is found 82.1 specified quality shall be rejected. A special
to be defective or otherwise not in accordance with the mark may be applied to the rejected
Contract, the Engineer may reject the Plant, Materials or components or materials. This shall not be such
workmanship by giving notice to the Contractor, with as to alter them or affect their commercial
reasons. The Contractor shall then promptly make good value. Rejected components and materials shall
the defect and ensure that the rejected item complies with be removed by the Contractor from the site
the Contract. within a period which the Engineer shall
specify, failing which they shall be removed by
the Engineer as of right at the expense and risk
of the Contractor. Any work incorporating
rejected components or materials shall be
rejected.

CHAPTER TEN
10 Conclusion and Recommendation

10.1 Conclusion
This study describes about general concept of risk, risk management and way respondents
perceive different types of risk particular to construction projects. Risk can have a positive or
negative effect our project therefore before accepting any risk it is necessary to go through a
systematic process, which involves the analysis of the possible hazards to which the project may
be exposed and the evaluation of their intensity, frequency and return period this will help to
decide whether the risk should be retained or whether it should be shared.
Risk management should be adopted in different stage of construction because there is different
type of risk throughout the process of construction from Feasibility up to construction of the
project. Risk can have effect on quality, cost, safety, and performance of construction project by
increasing cost, delaying completion, reducing performance or possibly rendering the project
itself impractical. Risks cannot be ignored, and should be managed as efficiently as possible at
the time of structuring the contract.
Most standard construction contracts contain some clauses that deal with common risks like none
or under performance of the parties and war. But the specific risks that might hinder the project
from achieving its objectives are not thoroughly identified and managed using clearly placed
contractual clauses. The fact that most building construction projects are not completed on time,
within budget and to the required quality standards shows that these contracts need some
improvements and additional clauses that deal with managing risks. Unidentified and undefined
risks have big effects on project objectives; therefore, the contract should contain clearly
identified and defined risks and suggest ways of managing them to minimize their effect on
project objectives.
10.2 Recommendation
The most effective key risk factors which have a significant effect on construction projects scope
are identified and classified through a comprehensive literature survey. Our case study have
shown poor identification of risk can leads to delay of construction work which is result of
improper risk management plan and process.
Risk is perceived as a negative term, even though in theory it can have two dimensions.
Professionals in the construction industries are using techniques described in the literature
concerning RM, but are not aware of it. Risks are being managed every day in the industry, As
also other researchers confirmed, the knowledge of risk and risk management is close to zero,
even though the concept of risk management is becoming more popular in the construction sector

technique that should be applied within an industry to achieve the goals of the industry are not
effectively applied. Hence, it is necessary to spread awareness and create interest amongst people
to use risk management techniques in the industries.

Reference
1. Abebe Dinku, Insurance Requirements and Practices of Ethiopia’s Construction
Sector, Journal of EAEA, VoL 17, Department of Civil Engineering Addis Ababa
University, 2000
2. Addis Mesfin, A Study on Construction Contract Risk Management Practice in
Ethiopian Building Construction Projects, MSc. thesis, Faculty of Technology, Addis
Ababa University,2014
3. An IMCA Discussion Document, Identifying and Assessing Risk in Construction
Contracts, July, 2006
4. Bryan S. Shapiro, Transferring Risks in Construction Contracts, Shapiro Hankison &
Knutson Law Corporation
5. Civil Code of Ethiopia, 1960
6. Commercial Code of Ethiopia,1960
7. Getachew Yilma Debela, Construction Risk Management through Insurance in the
Ethiopian Federal Road Projects, Civil and Environmental Research, Vol.10, No.1,
2018
8. Guidance on Risk for the Engineering Profession, Engineering Council,2011
9. Nadeem Ehsan et al, Risk Management in construction industry,2010
10. Nael G.Bunni, Risk and Insurance In Construction, Second Edition, New York, 2003.
11. Martin Schieg, Risk management in construction project management, Journal of
Business Economics and Management, October 2011.
12. Partnership Victoria guidance material, Risk Allocation and Contractual Issues, a guide,
2001.
13. Project Management Institute. 2008, A guide to the project management body of
knowledge (PMBoK ), fourth edition, USA.
14. Public Procurement Agency (PPA), standard conditions of contract, Ethiopia, 2006.
15. The ministry of works and urban development, General conditions of contract for
construction of civil work projects, Ethiopia, December 1994.
16. Thomas PIALLES, Study of the Coherences and Dependencies between Quality and
Risk Management, within the Construction Industry, A thesis submitted in partial
fulfilment of the requirements for the degree of Master in Construction Research,
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17. ZHANG Shuibo, ZHANG Le, GAO Risk Allocations in Construction Contracts, A
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Submitted to: - Mr. Zewdu Tefera Worke

CONSTRUCTION CONTRACT AND LAW Page i

Keywords: Risk, Risk Management, Insurance and Role.

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3.4.3 Risk allocation ........................................................................................................ 24

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6.2 Major Types of Insurance Policy ................................................................................... 59

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1.2 Objective of the study

1.2.1 General objective

1.2.2 Specific objective

 To identify the main cause of risk on the project.

 To identify the effect of Risk in the construction project.

 To analyze risk and related activities in overall project performance.

 To provide a better suggestion about Risk management in construction industry

1.3 Significance of Study

1.4 Scope of the research

1.5 Organization of the research

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1.6 Research methodology

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2.3 Construction Risk

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2.4.1 Definition of Insurance

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2.4.2 Principles of Insurance

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2.4.3 The Insurability of Risks

2.4.4 The Uninsurablity of Risks

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2.5 Construction Insurance

2.5.1 Type of Construction Insurances

2.5.1.2 Liability Insurance

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2.5.1.3 Professional Indemnity Insurance

2.5.1.4 Decennial Insurance

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Administrative Contract of the Civil Code as it states;

2.6 Risk management

Risk response Risk analysis

Figure 1 Risk Management Framework (Source: PMI PMBoK, 2013).

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2.7 Contract and Risk Allocation

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3.2 Scope of Risk in General

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3.3 The Concept of Risk Management

3.4.1 Risk identification

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