A Model for Sharing the Costs of Uncontrollable Risks among Contracting Parties

Abstract

The allocation of risks among the contracting parties in a contract is an important decision affecting the project success. Some risks in a project are uncontrollable; these are imposed to a project by external factors. Since contracting parties can neither control nor affect the occurrence of such risks, their allocation to a party would be inequitable. Therefore the cost overrun related to uncontrollable risks should be shared between contracting parties with a ratio which makes a win-win relationship between them in contract. This paper presents a mathematical model to achieve an equitable cost sharing ratio for uncontrollable risks between an owner and a contractor before contract conclusion using multi attribute utility theory.