REALWorld Law


Allocation of risk

What risks in a construction or engineering contract are normally borne by the contractor? To what extent is force majeure relevant in such contracts?



Generally, the risks in construction or engineering contracts to be borne by the contractor or engineer respectively are subject to negotiation during the pre-contractual phase.

The allocation of risk under the construction or engineering contract will generally reflect the strength of the relevant parties. This allocation of risk will also depend upon the availability or the obligations on the parties to insure certain risks. Most construction and engineering contracts will expressly provide for a detailed risk allocation covering, but not limited to, price variation, timing, security and material.

In relation to force majeure, a party that is unable to perform its obligations because of an unforeseeable event outside its control can avoid liability for non-performance of the agreement.

Construction contracts usually contain a force majeure clause allowing the contractor additional time to complete the works. Events such as bad weather, strikes or government action are usually specifically managed by considering them as legitimate grounds to postpone the completion date. It is legally possible to exclude force majeure as a ground for non-performance or late performance.