Risk is a set of variables on a project that usually costs someone money. One part of the variables is the contract type. Depending upon the contract type the risk may be borne by the owner/developer of the project or it can be by the contractors on the project.
Contract Types
The owner/developer bears the responsibility of risk should they elect to award contracts on a design build basis. Also, selecting a multiple prime contracting procedure rather than one prime contractor with subcontractors increases the risk on a project. In these two cases, it is quite common for the owner/developer to pay more than the initial bids for the project. Variations, for whatever reason to the initial basic work, can increase the contract value from as little as one or two percent to well in excess of 50 percent. Reductions are rare.
The contractors typically shoulder the responsibility of risk on a design, bid & build project. When a contractor bids a project, they are “betting” that they have assessed the risk properly, are providing a firm price to perform the work and will attain a profit at the end of the project. Successful contractors usually assess the risk very close to what they encounter on the project. Sometimes they lose a little profit from what was planned and sometimes they make more than the planned profit. Variation, again for whatever reason to the initial basic work, can increase the contract value from as little as one-half of one percent to approximately five percent. Reductions are rare.
Risk Comparisons & Responsibilities
| Contract Type | Owner / Developer | Contractor | Cost Responsibility | |||
| Traditional – Design, Bid, Build | Low Risk | Low Risk | Contractor Primary | |||
| Traditional W/ Multipule Primes | Low – Medium Risk | Low Risk | Owner Primary | |||
| Design Build | Medium – High Risk | Low – Medium Risk | Owner | |||
| Design Build W/ Multiple Primes | High Risk | Low – Medium Risk | Owner | |||
| Design Build W/ Fast Track | Very High Risk | Low – Medium Risk | Owner |
