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AN ASSESSMENT OF CONTRACTOR’S RISKS EXPOSURE WITHIN SOME STANDARD FORMS OF BUILDING CONTRACT IN NIGERIA

ABSTRACT

Construction projects are subjected to several risks due to different activities involved. The activities are performed by several parties under different circumstances. Among the various stakeholders the Contractor has been identified to be the party that carries the highest number of risks. They are mostly exposed to contractual risks which occur as a function of contract provisions and clauses. This research work identified and assessed the risks which Contractors are exposed to within some Standard Forms of Contract in Nigeria. It further determined the likelihood of occurrence of the identified risks, impact on the risks on Contractors and the level of risks. Data were collected through questionnaires distributed to some Contractors around Abuja and analysed using qualitative risk analysis technique. The research identified 35 potential risk factors with 54% of the risks emanating from the Clients, 31% from the Architect, 6% from the Quantity Surveyor, 6% from the Project Managers and 3% from the government agents. It also found out that failures to write instructions regarding variations and documents which are not issued on time are the major potential risk factors with high likelihood of occurrence while the other risk factors have moderate likelihood of occurrence. Thirteen (13) potential risk factors were found to have high impact on Contractors and fifteen (15) are high degree of risk. It concluded that Contractors must understand the nature of risks, their source and the extent of exposure so as to pay attention to dealing with such risks in present and future projects. The study therefore recommended that Contractor should pay attention to risks with high likelihood of occurrence so as to reduce their impact, should protect themselves against risks by contingency, warn parties of potential delays and its implications, negotiate construction schedule with client and allow for buffer time, the contractor should ensure working with carefully prepared and coordinated drawings, establish clear line of communications for receiving and responding to instructions and collaborative effort from all the participants of the project.

BACKGROUND OF STUDY

The construction industry is a unique and dynamic industry of the economy; in Nigeria it accounts for over 1.4% of its Gross Domestic Product and also it is a large employer of labour (Oluwakiyesi, 2011). But over the years it has been criticized for its expensive and wasteful nature, low productivity, quality problem and project delay. The reasons for all these being are as varied, diverse and complex as the products of this industry itself. The process of developing a project from initial investment appraisal to completion and into use is complex (Flanagan and Norman, 2003). It is a generally recognized fact that those within the construction industry are continually faced with a variety of situations involving many unknown, unexpected, frequently undesirable and often unpredictable factors.

These uncertain situations according to Turner (1990) have made many projects to fall short of the desired objectives of cost, time, quality and satisfaction. Project Management Institute (2000) defines risk as uncertain event or condition that if it occurs has a positive or negative effect on the project objective. Bufaied (1987) also describes risk in relation to construction as a variance in the process of a construction project whose variation results in uncertainty as to the final cost, duration and quality of the project. There are many risks involved in construction projects, which could be attributed to a number of reasons; amongst them are the nature of the construction process, the complexity and time-consuming design and construction activities, the involvement of a multitude of people, from different organisations, with different skills and interests, all resulting in accumulative associated risks for the project. Hence, a great deal of effort is required to co-ordinate the wide range of activities that are undertaken (Chapman and Ward, 1997; Shen, 1999). As the size and complexity of the projects have increased, the ability to manage risks throughout the construction processes has become a central concern in the attempt to prevent unwanted consequences (Maytoren et al., 2007).