Understanding relationship between risks and claims for assessing risks with project data

Abstract

PurposeIn construction management, risks and claims are treated separately, but several studies tacitly acknowledge a strong link between the two. In this context, this research intends to investigate whether risks and claims have a causal relationship? Based on this causal relationship, a claim-based risk assessment model (C-RAM) is developed to quantify occurrences and cost implications of risks using project data.Design/methodology/approachFirst, the causal relationship between risks and claims is established through a conceptual framework for content analysis of the literature on risk management (RM) and claim management (CM). Then, a C-RAM is developed based on the content analysis of 234 claims from 24 settled arbitration awards.FindingsRisks and claims are found to be two stages in the same chain of uncertain events that affect projects, subsequently revealing a causal relationship between risks and claims. Due to this causal relationship, claim documents become a potential source of risk information from past projects. Proposed C-RAM quantifies occurrences of risks with three parameters: number of projects in which a risk occurs, number of ways in which a risk occurs, and number of claims a risk causes if it occurs. Also, cost implications of risks are quantified as percentage of contract sums for interpretation as tangible values.Research limitations/implicationsThough C-RAM is applicable to all types of claims, the results in this paper are based on impacts of risks in past projects that caused claims and reached to arbitration stage.Practical implicationsThe causal relationship between risks and claims will encourage integration of knowledge on RM and CM which is currently treated separately. Practitioners can now visualize claims as cost implications of risks that occurred in projects. Further, C-RAM makes risk assessment (RA) more objective by quantifying the cost implications of risks as percentage of contract sums which can be readily used for contingency estimation.Originality/valueThe relationship between risks and claims, and the potential of claim documents as a source of project risk information, can initiate a new paradigm in RM research based on project data.

Dispute root causes and prevention in Iranian public-private partnership projects: a causal-predictive model

“…Kumar et al. (2021) highlighted the cost implications of a risk in a contract, mostly resulting in disputed claim.…”

“…Consequently, the present study's credibility can be improved by using these high-quality literature reviews. Kumar et al (2021) highlighted the cost implications of a risk in a contract, mostly resulting in disputed claim. Akcay (2021) pointed out that the legal, contractor and operator risksas the ECAM 31,1 Dispute prevention strategies in PPP Cheung (2014) thematically groups construction dispute research into: conceptualization, avoidance and resolution, and strongly opines that equitable risk allocation and trust are well-known alternatives for avoidance strategies.…”

Risk assessment and ranking in the developing countries’ construction industry: the case of Jordan

“…There are many sources of risks in construction projects, especially in developing countries (Banaitiene and Banaitis, 2012; Kumar et al , 2020). Therefore, several studies were reviewed in the following section to collect risk factors and potential problems to suitably categorize them in order to serve the purpose of this study.…”

Mitigation of contractual breaches in international construction joint ventures under conditions of absent legal recourse: case studies from Iran

“…However, Assaad and Abdul-Malak (2020) point out that the enforcement of penalty clauses as a legal remedy for contract breach, depends on the enforceability of lawswhether common, civil or Islamic lawunder which the contract is interpreted. Kumar et al (2020) have shown that if cost implications of a risk are not included in a contract, as a specific contractual clause, a claim will result. Thus, the risk category provisions (Khalef et al, 2021), extracted from previous studies, can be identified as follows: (1) change in work scope; (2) contractual documents' sufficiency; (3) liquidated damages (delay consequences); (4) consequential damages (indirect damages due to a breach);…”

“…However, Assaad and Abdul-Malak (2020) point out that the enforcement of penalty clauses as a legal remedy for contract breach, depends on the enforceability of laws – whether common, civil or Islamic law – under which the contract is interpreted. Kumar et al. (2020) have shown that if cost implications of a risk are not included in a contract, as a specific contractual clause, a claim will result.…”