All construction projects carry some degree of risk – whether that be physical, legal or financial.
The goal in every contract and every professional relationship is to reduce the amount of risk in a project and facilitate its delivery on time and on budget.
To achieve this, it’s important that you know how risk levels are influenced and what factors do so most significantly.
Types of risk
There are different types of risk in a construction project which can have varying degrees of significance for project delivery and whether work can proceed. These include:
- Physical risk – Such as safety challenges on-site and reducing the risk of injury or use of hazardous substances
- Legal risk – The challenges associated with compliance, such as planning permission
- Financial risk – Bearing the cost of a project and the financial consequences of delays.
Construction work is rarely without any risk, although you can take steps through your contracts and working practices to minimise it.
Influencing factors
Cost and scale
Cost is perhaps the most significant indicator of risk within a construction project.
Due to their scale, construction projects (particularly commercial developments) can have major cost implications – with investors keeping an eye on any financial waste or inflating costs.
If the project becomes too expensive, it may need to be scaled back, postponed indefinitely or cancelled altogether – which carries a substantial amount of risk for all involved.
Timeframe
Timeframes and delays are another major source of disputes.
Developers and investors may wish to see the project delivered quickly, while suppliers and contractors may face delays outside of their control.
Delays often lead to disputes which need to be resolved, either through informal negotiation, adjudication, arbitration or litigation. Subsequent delays can worsen disputes and bring increased risk to all parties.
Supply chain
Construction projects may have long supply chains because of the need to keep costs down (and therefore using a number of suppliers), sustainability requirements and the need for specialist equipment and materials.
A delay at any point in the supply chain may call the work to a halt while any disputes are resolved.
Additionally, not all delays in the supply chain are due to controllable factors such as payment delays or disputes with contractors. If delays are due to global events, for example, delays can be even longer with no active recourse to resolve them.
Compliance and legal requirements
All construction work will carry some compliance requirements – including having the right contracts in place.
However, some will have additional requirements, such as reporting on sustainability, which can have a material impact on suppliers used and the overall cost of works completed.
You may also need planning permission ahead of starting the project, which can be delayed or challenged if there are concerns about the work impacting local people, the environment or enjoyment and use of the surrounding area.
For guidance on reducing risk in your construction work, please contact our specialist team to discuss your needs.