Risk misallocation on highway transportation projects

Abstract

Unfortunately, on the most common ways to avoid risk in the highway construction industry today is by allocating it elsewhere. Risk is constantly passed around and usually to parties who are not in the best position to take on those risks. Unanticipated issues or perils are inherent in the construction industry and therefore, they will never be eliminated completely. This is why there is a need for further research into risk management and allocation to help parties bear risks in a more appropriate manner. The first part of this research is focused on identifying the risks that are most often misallocated in the highway construction industry today. A survey was taken of contractors and DOT employees to find out what they considered the most commonly misallocated risks. Once identified, the top risks were investigated further in order to determine how those issues are currently being treated. Using past court cases, state standard specifications, and DOT claims documents, legal consideration flow charts were created. These flow charts are designed to allow parties to a contract better understand how risks are treated in most situations. The goal is that the information in these charts will help to better allocate risk up front rather than trying to deal with difficult, time consuming, expensive conflict resolution or litigation. The state of risk allocation needs to change and this research is attempting to be a starting point for that change.