Risk allocation in construction contracts – Irish public works

Abstract

A properly executed contract is generally understood to be enforceable, regardless of the balance of risk contained in the contract. Allocating risk appropriately between employer and contractor in construction projects is therefore of prime importance, since, once agreed, there are very limited opportunities to reapportion that balance. Standard forms of contract differ primarily in how they allocate the balance of risk between employer and contractor, and some are considered more contractor-onerous than others. This article looks at optimal risk allocation, and compares the Irish government's recent approach to risk allocation in public works with the contractor-onerous FIDIC Silver Book form of contract. It is observed that the Irish government's approach attempts to place more risk onto the contractor than does the FIDIC Silver Book, does so without scope for amendments to the contract clauses, and this has occurred simultaneously with a significant drop in tender prices and an environment in which data is not yet readily available on the critical test of out-turn contract performance.