A paper presented at a Shapiro Hankinson & Knutson and Revay & Associates joint seminar held in Vancouver, February 17th, 2004. Copyright, Bryan Shapiro, 2004.
Published here November 2004.
Introduction | Tailoring Your Contract to Your Project
Compatibility of Interests | Using Contracts to Achieve Dispute Prevention
Guiding Principles of Risk Allocation: 1, 2 & 3 | 4 | 5 & 6 | 7, 8 & 9 | 10, 11 & 12 
In Conclusion

Bryan Shapiro is a partner at the law firm of Shapiro Hankinson & Knutson, in Vancouver, BC, Canada. His preferred areas of practice are construction, insurance law, contracts, and arbitrator/mediator of complex construction disputes. He is a past chairman of the Canadian Bar Association, Construction Law Section. His most recent publications include The International Construction Law Review (Vol. 19, Part 4, October 2002): Design Professionals’ Liability for Field Services and Construction Law Reports (Vol. 19, Part 1, February 2003): Design Professionals’ liability for Field Services. See his web site at http://www.shk.ca. He can be reached at bshapiro@shk.bc.ca

Introduction

Claims on construction projects involve the major protagonists, owners, contractors and design professionals and it is important to prepare for the uncertainty of construction project risks. While each project risk may have uncertainty associated with it regarding the degree that a particular risk will manifest itself on a given project, the identification of major project risk factors is a relatively advanced science. However, the essence of the ability to reduce the frequency and severity of claims is the identification of these construction project risk factors and dealing with them and/or providing for them in the construction or design contracts.

The major project risks that we are all too familiar with include the following:

  • Cost escalations
  • Time for completion and construction delays
  • Changes in project scope
  • Geotechnical and site-related problems
  • Weather and force majeure conditions
  • Negligence in both design and construction

Contracts provide a rare opportunity between contracting parties to foresee problems and to draft contractual provisions to take care of those problems, or at least to diminish the effect of those problems on the project when and if they occur.

This brings us to the importance of contracts. Contracts are the basis of most of our liability in today’s construction industry. Contractual claims represent 90% of all claims that occur in the industry. Third party tort claims make up the remainder. Since contracts are so important, it is clear that more time should be spent discerning which contract (delivery system) is likely to provide the best option for the parties to a particular relationship.

The power of a contract for any legal purpose is enormous. Parties can limit their liability both in terms of time and quantum, and the parties can foresee problems and provide contractual formulae to deal with those problems.

This paper will deal with various contracting strategies, risk allocation and project delivery alternatives which can make a significant difference in mitigating the effect of the risk factors that exist on every construction project.

 
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