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Transactions on Engineering and Computing Sciences - Vol. 12, No. 1
Publication Date: February 25, 2024
DOI:10.14738/tecs.121.16260.
Abdelalim, A. M., Hassanen, M. A., & ElSamadony, A. (2024). Risk Allocation and Sharing in Mega Industrial Projects from the
Perspective of the New Yellow Book -FIDIC-2017 to Approach a Balanced Construction Contract. Transactions on Engineering and
Computing Sciences, 12(1). 54-102.
Services for Science and Education – United Kingdom
Risk Allocation and Sharing in Mega Industrial Projects from the
Perspective of the New YellowBook -FIDIC-2017 to Approach a
Balanced Construction Contract
Ahmed Mohammed Abdelalim
ORCID:(0000-0003-3359-715X)
Faculty of Engineering at Mataria,
Helwan University, Cairo, Egypt
Mona Abdelhamid Hassanen
Faculty of Engineering at Mataria, Helwan University
Adel ElSamadony
Faculty of Engineering at Mataria, Helwan University
ABSTRACT
Owners frequently allocate excessive risks to contractors and utilize (custom)
contracts to fit their project needs and specifications. The MENA region has seen a
boom in industrial projects in recent years, which has made it imperative to
examine the barriers to optimal risk allocation and throw light on the processes
currently in place for risk allocation. In order to approach a balanced construction
contract, the current article aims to investigate the existing risk distribution in
mega industrial projects. Properly identifying, evaluating, and assigning risks in
contracts can improve project performance. First, the study found 70 risk factors
that were categorized into nine groups based on a thorough literature review and
scientometric analysis. Estimates of the likelihood, impact, and method of control
for these risk factors were requested from the respondents. The findings showed
that the way risk is now allocated in construction projects is ineffective and has
resulted in a number of other issues, including aggressive contractual relationships,
claims, and conflicts. Strong organizations today work hard to maintain effective
partnerships by enforcing policies that promote cooperation and aid in risk
management. Contractual provisions used in mega industrial projects become less
flexible and less able to accommodate the needs and interests of the parties
involved in all potential situations as a result of standardization. One of the most
prominent standard forms of contracts for mega industrial projects, the Conditions
of Contract for Plant and Design Build (FIDIC form 2017 Yellow Book), was
researched and reviewed to identify risky provisions and offer solutions for
contractual issues. In order to reduce the project's major risk factors and partially
reform the contract requirements into risk-balanced conditions that may improve
the contract's utility as a project management tool, several modifications were
made. These amendments concentrated on the particular needs of mega industrial
projects and made a concerted effort to address a numberof issues, including the
Employer and Contractor's responsibility matrix, liability limitations, resolving
procurement-related issues, design errors and contradictions in documents, the
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Abdelalim, A. M., Hassanen, M. A., & ElSamadony, A. (2024). Risk Allocation and Sharing in Mega Industrial Projects from the Perspective of the New
Yellow Book -FIDIC-2017 to Approach a Balanced Construction Contract. Transactions on Engineering and Computing Sciences, 12(1). 54-102.
URL: http://dx.doi.org/10.14738/tecs.121.16260
necessity of coordination between contractors and subcontractors, the significance
of following the project schedule, and the relationship between delay damages and
project milestones. Contract parties will benefit from the study's findings in terms
of effective project management, risk reallocation, management, and reduction of
claims, as well as preventing disputes.
Keywords: Mega Industrial Projects, Risk allocation, Relative Importance Index,
Frequency-Adjusted Frequency Index, Risk identification,optimal risk, risk management,
FIDIC-2017 Yellow Book, Delay Damages.
INTRODUCTION
Project management units face more obstacles and hurdles as a result of the pressing need to
implement mega industrial projects in the MENA area. The complexity of mega industrial
projects is growing, which causes hazards that are typical in these projects to become more
severe and frequent (Youssef, A., et al., 2018; Abdelalim, A.M., et al., 2022, 2023). These
complexities necessitate clear definitions of the rights and obligations of contracting parties.
Since risk is a constant in industrial projects, effective management has the potential to boost
earnings and provide businesses a competitive edge.
In the construction sector, a number of researchers carried out risk assessment studies in a
variety of global locations, such as the US, Europe, and East Asia. Nevertheless, there is a dearth
of such research in the Middle Eastern construction sector (Eskander, et al, 2018). It is unjust
and irrational to transfer the unmitigated risks of construction project to one party; in the past,
this has led to adversarial relationships between contractual parties and increased claims and
disputes. Despite the fact that a large number of significant studies on construction risk in
industrial projects have been carried out, a number of research gaps remain unfilled (Hanna, et
al 2013). Every study that is now available offers a portion of the answer, but the construction
sector still requires a fully accepted multiparty, non-unilateral risk allocation sustainable
model. There is a broad consensus among academics and industry professionals in favor of an
owner-contractor collaborative partnership. Over the past few decades, many studies have
been conducted on the distribution of construction risks (Zhang, L., et al, 2017). Industry
players continue to express anxiety about the risk associated with mega projects, despite the
fact that the research that is currently available provides some helpful insights into the issue.
A number of working relationships, communications, and contractual duties are not being
carried out in good faith and in a transparent manner, which has led to a strain in contract
relationships in the industrial projects of the MENA region in recent years (Abdelalim, A.M., et
al., 2018, 2019, and 2020). M. Marzouk (2011 Researchers and practitioners are generally in
favor of a cooperative connection between the owner and the contractor (Zhang, S., et al, 2016).
Assaad et al. (2020b) found thatcertain risks can be appropriately managed by sharing them
between the two contracting parties rather than allocating them to a single party. In this
instance, the general terms of a contract between project parties usually contain various
construction risk clauses. According to Hannaet al. (2013), there will always be risk involved in
industrial projects, even with improved knowledge of those hazards and a sound risk
distribution strategy. But by structuring construction contract language correctly, risk can be
distributed and many of the unclear and illegal arguments can be minimized. However, contract
standards are becoming more stringent with an increasing number of new contract types in an
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effort to mitigate risks during project implementation. The important risk considerations for
design-build projects in the constructionsector are discussed in this study. An ad hoc contract
based on the design-build contract type can be used by owners and contractors with greater
confidence if these risk elements are properly identified, allocated, and managed. Although
contracts are essential business assets, construction projects are vulnerable to future
uncertainties due to their inherent complexity, scope, and scale. According to Ramonu, JA, et
al.'s (2018) research on conflict types in the construction sector, contractual disagreements
rank as the most significant and common type of disputes in construction projects. The
economic and administrative issues, however, were dealt with last. Thus, categorizing disputes
has given rise to a basis for avoiding confrontations in construction projects. Contract
conditions typically serve a crucial regulatory role in all project interactions between the
various project parties, making them an important tool for managing construction risks.
Numerous researches indicate that if contract terms are not appropriately taken into account,
they could end up becoming one of the most significant sources of risks in construction projects.
Since risk is a constant in the construction sector, effective risk management can boost earnings
and strengthena company's competitive edge, Suprapto, M., Abdelalim, A.M. and others 2016
and 2017. It is crucial to concentrate on existing risk allocation practices and research the
barriers to ideal risk allocation in Mega industrial projects given the growth in construction
projects expected in the MENA area in the next years. In order to share the future loss of
opportunities or project advantages proportionately, contractdrafting is therefore crucial to
successful contract management, where balanced risk allocation specifies and distributes risk- related obligation. As a result, maintaining the balance of risk allocation has emerged as a
critical component of successful project management which helps to ensure the balance of
liabilities and gains among project parties.
The distribution of construction risk among the project's stakeholders (owner, designer,
contractor, etc.) greatly affects the project's overall objective (see Figs. 1, 2). As a result, risk
distribution has garnered a lot of attention in recent years as a crucial component of contractual
governance for building projects (see Tables 1, 2). The main project participants—owners,
engineers, contractors, and material suppliers are obligated by both direct and indirect
contractual agreements; yet, their interests in the project may differ, and they may assess the
risks and their allocations differently. According to some academics, this uneven distribution of
risks will force the contractor to use defensive tactics, such as lowering the quality of their work
or inflating their invoices (Nasirzadeh, F., et al., (2014). Inappropriate risk allocation has
resulted in violent interactions between contract participants since it can have a substantial
impact on the behavior of project participants. On the other hand, risk allocation in construction
projects is typically not evenly distributed. Strong businesses today make the effort to ensure
that they maintain fruitful partnerships by implementing policies that promote cooperation
and aid in risk management. Nevertheless, the advantages of sound contracting are often
overlooked because those who draft and negotiate them have a propensity to prioritize
avoidance over appropriate risk allocation. This highlights how crucial it is to assess
conventional contract terms, particularly those that address how incorrect risk distribution can
lead to antagonistic interactions between contractual parties, T. Mellewigt et al. (2012).
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Abdelalim, A. M., Hassanen, M. A., & ElSamadony, A. (2024). Risk Allocation and Sharing in Mega Industrial Projects from the Perspective of the New
Yellow Book -FIDIC-2017 to Approach a Balanced Construction Contract. Transactions on Engineering and Computing Sciences, 12(1). 54-102.
URL: http://dx.doi.org/10.14738/tecs.121.16260
Fig.1: Hierarchy of Risk Classification (STEEP Risks of Megaprojects), in the micro level,
Boateng (2015), Zayed, (2008).
Table.1: Risk Allocation on Different Parties.
Risk Allocation Risk Description
Owner site access/right of way
differing site condition
delayed payment on contract
permits and ordinances
unidentified utilities
changes in work
acts of God
govt. acts and regulations and tax rate change
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Shared between all Parties contract-delay resolution
indemnification and hold harmless
financial failure-any party
third- party delays
change-order-negotiations
Design-Build contractor defective materials
actual quantities of work
quality of work
safety and accidents
contractor competence
establishment of a project costs
labor disputes
defective design
defensive engineering
Undecided weather conditions
environmental risks
inflation
redesign if over-budgets
Table.2: Risk Categorization according to importance.
Level of Importance Risk Description
Most important defective design
changes in work
differing site condition
delayed payment on contract
unidentified utilities
defective materials
financial failure-any party
Medium important actual quantities of work
weather conditions
safety and accidents
site access/right of way
defensive engineering
establishment of a project costs
redesign if over-budgets
environmental risks
quality of work
change-order-negotiations
permits and ordinances
third- party delays
indemnification and hold harmless
contractor competence contract-delay resolution
Least important inflation
labor disputes
govt. acts and regulations and tax rate change
acts of God
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Abdelalim, A. M., Hassanen, M. A., & ElSamadony, A. (2024). Risk Allocation and Sharing in Mega Industrial Projects from the Perspective of the New
Yellow Book -FIDIC-2017 to Approach a Balanced Construction Contract. Transactions on Engineering and Computing Sciences, 12(1). 54-102.
URL: http://dx.doi.org/10.14738/tecs.121.16260
Fig.2: Hierarchical structure of criteria for the risk allocation
Although it's important to have different forms for construction contracts in order to
standardize contractual stipulations related to large-scaleindustrial projects, it can also be
helpful to offer revisions that improve the contract's risk-balance. Rather than winning a court
battle, thegoal of modifications to contracts is to make it easier for the parties to accomplish
project goals, respect contracting partners, and avoid disagreements. According to a number of
studies, contract terms can become major sources of risk in building projects if they are not
adequately taken into account Rameezdeen, R. et al.)2014(. Both the public and commercial
sectors in the MENA area have seen a notable increase in the use of design-build contracts as a
project delivery method. Nonetheless, unless the risks are sufficiently identified, evaluated, and
managed during the bidding and project execution stages, this project delivery method ends up
being risky for all contractual parties. The impact of the selected contract type and risk
management collaboration in construction projects was studied by Banik, G.C. (2008) and
Osipova, E. (2007). They discovered that the design-build project showed high project
performance and productive teamwork in risk management. From the contractor's point of
view, risk management works better in design-build projects since it allows the contractor to
have early project control.
Problem Statement
The investigation of the literature reveals that in significant industrial projects in the MENA
region, contractors and owners do not share sufficiently of the risks. The present study aims to
examine the risk variables associated with industrial projects in the Middle East and North
Africa (MENA) region, as indicated by Table 3. Additionally, the research will identify, evaluate,
and categorize the issues and roadblocks that impede the optimal allocation of risk in industrial
projects. Next, the important risk considerations for design-build projects in the construction
sector will be discussed in this article. Owners and contractors hoping to use the design- build contract will benefit fromeffective risk management of these aspects. Not only does the
research help identify and assess risk factors in mega industrial projects but also to better
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Abdelalim, A. M., Hassanen, M. A., & ElSamadony, A. (2024). Risk Allocation and Sharing in Mega Industrial Projects from the Perspective of the New
Yellow Book -FIDIC-2017 to Approach a Balanced Construction Contract. Transactions on Engineering and Computing Sciences, 12(1). 54-102.
URL: http://dx.doi.org/10.14738/tecs.121.16260
X26
X27
Engineer's satisfaction clauses
Perceived risks of dealing with a particular
engineer
X61 Miscommunication between the client & the
contractor
8
th Category: Risks related to Finance and Commercial
X62
X63
Interest rate changes
Limiting overdraft facilities
4
th Category: Risks related to the Project
X28 Defective materials
X29 New constructive methods that are
unfamiliar
X64 possible cash flow risks
X30 Availability of key inputs; labor, materials,
equipment
X65 Lack of full knowledge of taxes and duties
X31 Compliance risks (H&SE) X66 Client financial credentials
X32
X33
Force majeure
Using an unstudied design and methods
for the first time
X67 General market conditions
9
th Category: Legislations Risks
X68 Change in legislations/lows
X34 Design errors, omissions and
contradiction in documents
X69 Late issuance of licenses
X35 False progress reports X70 Delay due to statutory bodies
Research Objectives
Finding and analyzing important risk variables for large industrial projects in the MENA region
is the primary goal of this research. Secondly, creating a balanced construction contract that
aids in redistributing these risks to strengthen the bonds amongst the many project
participants. To do this, the risk factors affecting the project life cycle will be identified, and the
contract provisions pertaining to each risk will be examined and amended, or new clauses that
can reduce or remove risk factors will be added.
Creating and validating modifications to conventional contracts that the construction project
parties can utilize to more effectively allocate project risks is another important objective of
this research, which aims to improve the current risk allocation procedures in mega industrial
projects This study attempts to identify the risky contract clauses, as well as whether these
clauses expressly state the risks or if the risks are implicit in the clause itself, based on the risk
factors that were determined in the first section of a thorough investigation (see Table.3,
Hassanen, M., and Abdelalim, 2023). An inductive approach is used in the research, and general
contractual issues as well as the new standard FIDIC contract forms from 1999 and 2017
(Yellow Book) were studied.
A comparison is shown in Table 4. We then looked into therationale behind the changes and
recommendations made to this sample contract. Information is gathered for this using a
questionnaire survey and semi-structured interviews. The experts' response was a great asset
to the study because most of their risk-related solutions have already been developed and
applied to the creation of balanced construction contracts, which aim to solve the issues
preventing the best possible risk allocation within the specific construction sector. The findings
will suggest a few modifications to the sections of mega industrial projects' clauses including
the major risk elements.
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Abdelalim, A. M., Hassanen, M. A., & ElSamadony, A. (2024). Risk Allocation and Sharing in Mega Industrial Projects from the Perspective of the New
Yellow Book -FIDIC-2017 to Approach a Balanced Construction Contract. Transactions on Engineering and Computing Sciences, 12(1). 54-102.
URL: http://dx.doi.org/10.14738/tecs.121.16260
Scientometric Analysis of Risk Allocation and Sharing in Mega Industrial Projects
Research
The list of publications was extracted from the Web of Science Database (WoS). WoS was
chosen as the primary data source for the current study due to its widespread availability and
endorsement in extant literature, Zou, X., & Vu, H. L. (2019). The search strategy focused on
"risk allocation," examining titles, abstracts, and author-generated keywords. Data collection
concluded in 2023, covering the period from 2000 to mid-2023. After filtering non-English and
irrelevant publications, the authors retrieved 1355 documents regarding “Risk Allocation”,
4743 documents related to “Risk Identification”, 1376 documents related to “Optimal Risks”,
91 for “delay damages”. Despite that, the rarely found researches in contractual risks of Mega
Industrial Projects were emphasized by finding ONLY 3 papers discussed Mega Industrial projects
in light of FIDIC 2017, and Only 2 papers conducted in 2022 for claims and disputes according to
FIDIC 2017. The authors utilized keyword co-occurrence analysis to track the development of
"Risk allocation" studies. This method effectively visualizes evolving scientific trends and
subjects through graphical maps. Fig.3 visually represents these keywords, categorized into six
clusters. These clusters are color-coded as follows: purple indicates “Risk Allocation”, red
represents “PPP- Risks”, green corresponds to “Risk Identification”, and blue signifies for “other
mergers and acquisition processes that include risks”, yellow denotes “Risk Management” and
sky-blue stands. "Risk Allocation" serves as the central node, as shown in Fig. 3, with 507 links,
and total link strength of 2221. The second rank was for Risk Identification and Assessment,
with 271 links, and total link strength of 1582. “Risk management” was ranked the third of
investigated researches with 202 links, and total link strength of 1232.
Production of Publications per year
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Abdelalim, A. M., Hassanen, M. A., & ElSamadony, A. (2024). Risk Allocation and Sharing in Mega Industrial Projects from the Perspective of the New
Yellow Book -FIDIC-2017 to Approach a Balanced Construction Contract. Transactions on Engineering and Computing Sciences, 12(1). 54-102.
URL: http://dx.doi.org/10.14738/tecs.121.16260
Moreover, there is disagreement among those involved in construction projects over the best
approach for allocating risks. According to some academics, this uneven distribution of risks
will force the contractor to use defensive tactics, such as lowering the caliber of their work or
inflating their invoices, The field of risk management has seen an increase in interest in recent
years. Actually, risk management is crucialsince it raises a company's profitability, and not
doing so could have unfavorable effects, El-Adaway, I., 2020. Project risk management is
actually a procedure that entails locating sources of uncertainty; (risk identification),
estimating the likelihood and effects of uncertainties (risk analysis), developing strategies to
react to the risks examined (risk response), and finally tracking such risks and repeating such
steps across the project's life.
All construction projects must have a contract agreement since it outlines the parties'
responsibilities and the manner in which project expenditures are allocated. R.K. Kumar, 2019.
Construction contracts contain stipulations that help to reduce the inherent complexity of
industrial projects by allocating rights, obligations, responsibilities, and risks among the
parties. However, because contractual parties often prioritize risk avoidance above appropriate
risk allocation, excellent contracting benefits are frequently lost. Despite having both direct and
indirect contractual obligations, these parties might not share the same interest in the project
and might see the related risks and their distribution differently Standard construction
contracts (SFCs) are widely available, and their demonstrated benefits are one reason why
utilizing them is beneficial. However, recent studies and present practice indicate that owners
continue to rely on ad hoc (bespoke) or significantly amended SFCs. Youssef, A., and colleagues
(2018). Strong firms today work hard to ensure long-lasting, successful relationships by
incorporating clauses into contracts that promote cooperation and improve risk management.
The field of construction research is not new to managing and allocating risks. Researchers
from a variety of construction industry sectors have looked into the allocation and distribution
of risk in specific contract forms (Abdelalim, A.M. et al., 2020, 2021People tend to think of terms
like liability limitations, compensation, and the like when asked about contract terms that deal
with or are essential in controlling risks. Another common response is to mention clauses that
specifically refer to the word "risk," such as those that deal with the risks of the owner or
contractor in construction contracts or the risks of loss or damage in sales contracts. The
majority appear to believe that these are the sole clauses in the contract that address hazards.
Such an outlook would be excessively limited. Risks associated with contracts can come in a
variety of shapes and sizes. Studying past disputes and accusation experiences can help you
comprehend problematic terminology and worries and reduce the likelihood that something
will go wrong, Arditi, D. 2017. Risks associated with contracts can come in a variety of shapes
and sizes. Studying past disputes and accusation experiences can help you comprehend
problematic terminology and worries and reduce the likelihood that something will go wrong.
In their study, Li, H., and Arditi, D. (2017) postulated that by making sure the design is as
comprehensive as feasible; the owner can minimize project uncertainty and achieve good
project efficiency by being ready to cope with complexity. Alongwith encouraging healthy
competition between the contractor and subcontractors and the bidder, the owner should also
make sure that these parties participate in the project as soon as possible.
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Problems with Current Practice of Risk Allocation
Numerous construction projects fall short of their planned goals. Such a failure could be
explained in terms of severe project delays, cost overruns, and inefficient work. A key
contributing factor to such a failure is the existence of risks and uncertainties inherent in the
planning and implementation of projects. PMI, 2017. A five-phase risk management approach,
comprising risk identification, risk management strategy, qualitative and quantitative risk
analysis, and risk response planning, can help lessen the negative effects of defined risks. This
section looks at and assesses earlier studies to identify issues with current risk allocation
procedures in the construction industry, based on the examined literature. Tension, disputes,
and ineffective risk management appear to be related, Abdelalim, A.M, et.al 2016.
Time and Cost Overruns
Undervalued risks frequently result in monetary losses (Peckiene, A., 2013). Defensive risk
measures lead to poor quality and time and expense overruns. Thus, it is essential to distribute
risks fairly in order to achieve effective project performance protective tactics against risk.In
many developed and developing countries, the construction industry frequently faces delays
and cost overruns. Abdullah et al. (2018) discovered that the most important causes of delays
are poor/insufficient planning and scheduling, lack of subcontractor ability, and delays in
subcontractor work when identifying factors that lead to cost overruns and delays during
refinery projects for palm oil. Studies by Pham, L.H. et al. (2014) indicated that some delays
are caused by contractors, project owners, authorities, and external sources, (i.e., weather).
Therefore, the contractors need to increase their project management abilities in order to
extend the project's duration. In addition, the contractor's technical and managerial skills must
be carefully considered by the project owner while selecting the contractors. The project owner
must also establish a clear project scope, uphold the project requirements, and refrain from
making design changes throughout the fundamental design, also known as front-end
engineering design (FEED). (Adam, A., et al., 2015) came to the conclusion that the factors
causing cost overruns and time delays frequently overlap based on the body of research on the
causes of client cost overruns and delays in building projects. Consequently, two projects that
have the same underlying cause for a schedule delay or cost overrun could be interpreted quite
differently. Every explanation is distinct and depends on the research endeavour being
conducted.
Claims
Construction contracts are essential for averting the legal and administrative hazards that give
rise to claims, since the frequency of litigation involving construction projects has grown.
According to Mohammadi, S. (2016), the study aims to increase construction professionals'
awareness of these likely risks by identifying legal risk factors that could give rise to claims in
sustainable construction and by evaluating the criticality of each risk factor based on the
opinions of industry professionals and analysis using the relative importance index method.
Common reasons for claims were altered owner needs, additional labour, delays or
acceleration, different site circumstances, and unclear contracts, R. Komurlu et.al, 2017.
According to Dastyar, B., et al. (2018), the most significant variables influencing claims include
contractors' financial difficulties, shortage of materials, and high pricing when they provide a
contractual price below the required tender price. In construction projects, risk management
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Abdelalim, A. M., Hassanen, M. A., & ElSamadony, A. (2024). Risk Allocation and Sharing in Mega Industrial Projects from the Perspective of the New
Yellow Book -FIDIC-2017 to Approach a Balanced Construction Contract. Transactions on Engineering and Computing Sciences, 12(1). 54-102.
URL: http://dx.doi.org/10.14738/tecs.121.16260
is still largely ineffective. In their research, Haidar, A. (2011) provided a brief overview of this
issue. Their analysis indicates that undervaluation and imbalanced bidding are common causes
of claims. Many writers have researched the justifications for assertions. According to
Mohammadi, S. and Birgonul, M.T. (2016), contract-related problems are exacerbated by
irrational contract clauses as well as a lack of clarity in the contract agreements about payment,
modifications, and a performance time. As a result, as the project moves forward, additional
risks and unanticipated circumstances could surface, leading to potential disputes and a
breakdown of the relationship practices such as the use of performance bonds to shift the risk
of delays and cost overruns, dispute resolution processes to minimize litigation, and
negotiation tactics to prepare for litigation in the event of an unforeseen circumstance. Time
extensions, scope modifications, payment, administration, contractual duties, and other issues
are also included in disputes. They claim that one of the causes of disagreements is that the
party impacted did not acknowledge the risk as pertinent to the project. As a result, as the
project develops, additional dangers and unanticipated circumstances could surface, raising the
possibility of disagreements and a partnership breakdown. The most common sources of claims
and disputes were covered by the International Association for Contract and Commercial
Management (IACCM 2011) in its 10th Annual Survey, Top Terms in Negotiation. Table 5
summarizes the key findings. Generally speaking, the owner wishes to transfer as much risk as
feasible to the contractor and take on as little risk as possible. In this instance, the contractor is
only liable for any situations that may develop throughout the project; thus, he is free to raise
the project tender price, A. Peckiene. (2013).
Table 5: Most Sources of Claims and Disputes, IACCM 2011.
Issue % Reported Issue % Reported
Delivery/acceptance 41 Price/charge/price changes 38
Change management 32 Invoices/late payment 30
Performance/guarantees/undertakings 27 Service levels and warranties 27
Payment 25 Responsibilities of the parties 22
Liquidated damages 22 Scope and goals 21
Warranty 16 Limitation of liability 16
Indemnification 14 Service withdrawal or termination 14
Intellectual property 12 Audits/benchmarking 10
Assignment/transfer 8 Dispute resolution 8
Data protection/security 7 Communications and reporting 7
Disputes
Conflicts in industrial projects have become routine in the MENA region. Such a phenomenon
could impede the success of these projects inthe MENA area and slow down development if it
is not controlled well. One of the primary causes of projects failing to meet their goals is the
inherent risk and uncertainty associated with mega industrial undertakings. One of the most
frequent reasons for disagreements and claims in the construction sector is the project parties'
inability to understand their contractual duties. R. Khalef et al., 2021. In general, any country's
economy depends heavily on the building industry. In 2019, ARCADIS reported that the average
cost and duration to resolve construction disputes was $33.0 million, with 17 months being the
average. Claims and disagreements were prevalent in 2016 across most industry sectors, but
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they were particularly prevalent in public sector and social infrastructure projects. According
to the ARCADIS 2017 report, the number of claims and disputes on oil and gas projects is
increasing as the industry becomes more cautious in response to low oil prices. Particularly in
building projects, the MENA area has witnessed a rise in the complexity of contract structures
in recent years. Working relationships, correspondence, and contracts are still not being
fulfilled in a good faith manner. Usually, conflicts arise from the opposing priorities of multiple
parties. These disputes result in the need for more resources, which are wasted and used
needlessly, llankoon et al., 2019. More than 220 claims have been presented for arbitration
during the previous 20 years, according to the Cairo Regional Centre for International and
Commercial Arbitration. Marzouk, M. (2011) developed a survey questionnaire that outlined
forty-four reasons why disagreements arise in the construction industry. The most frequent
reasons for disagreements will guide the owners, contractors, and consultants involved in the
project in resolving these issues. According to Gandhi, M. et al. (2017), ambiguities in
contracts, restricted access, scope modifications, poor documentation, and unforeseen site
conditions are some of the things that lead to disagreements in their research, Hiyassat, M.A.,
et al., 2020 find 62 risk variables that fall into 14 categories in an effort to lower the overall cost
of claims and disputes. Delays in client payments, incorrect contract forms, competitiveness,
and permit approval delays were the top risk factors. Other risk factors were subcontractor
default, poor specifications, fluctuating material prices, disparate construction standards,
design changes, and inadequate implementation. The International Monetary Fund said that
the base case for global growth in 2016 was a moderate 3.2%, mostly consistent with 2015 but
down 0.2% from January 2016. It was anticipated that the recovery would strengthen in 2017
and beyond, mostly due to developing countries as those stressed markets' conditions
progressively return to normal Global Construction Disputes Report 2016 states that there are
significant risks associated with the forecasts, and some market volatility is anticipated. These
factors could have an impact on the volume of construction disputes. This research states that
inadequate contract management is the most frequent reason for disagreements, as shown in
Table 6. According to the research, there has been a global proportionate growth in the usage
of design and contract forms, and one new cause in the rankings is connected to incomplete
design information, which is typically thought to be associated with poor design information
quality. The use of EPC contract formats has caused issues in certain industries.
Table 6: The Most Common Causes of disputes, Global Construction Disputes Report
2016
2015
Rank
CAUSE 2014 Rank
1 Failure to properly administer the contract 1
2 Poorly drafted or incomplete and unsubstantiated claims 2
3 Errors and/or omissions in the contract document 3
4 Incomplete design information or employer requirements (for Design and Build) New
5 Employer/contractor/subcontractor failing to understand and/or comply with its
contractual obligations
4
Even with standard general conditions, contracts would require a significant amount of time to
negotiate and sign if the specific contractual clauses were poorly written or poorly calibrated.
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Fig. 6: Significant Risk Factors Related to Organization Type.
Fig. 6 displayed Important Risk Factors Associated with Organization Type. Figures 7, 8 showed
probability and impact Rating of Risks during Tender Stage. Figures 9, 10 and 11 illustrated
Impact Rating of Reason of Risks by the owner, the Engineer and subcontractors in sequent.
And Finally, Figures 12, 13 and 14 11 illustrated Impact Rating of Reason of Risks related to
resources, Management and Finance in sequent.
Fig.7: Impact Rating of Risks during Tender Stage.
54
52
50
48
46
44
42
40
38
36
34
Contractors Owners All
Respondents
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Fig. 14: Impact Rating of Reasons of Risks related to Finance.
Statistical Analysis of the Survey
For statistical analysis, both qualitative and quantitative data analysis techniques were applied.
The following statistical tools will be used bythe author in her statistical analysis of all the data
that has been gathered, which will be done using IBM's SPSS Ver.25 software (Statistical
Package for the Social Sciences): Questionnaire reliability; Questionnaire structural validity;
Factor ranking and Research-Based Validity ofSurvey.
Reliability of the Questionnaire:
The internal consistency of the factors that have been constructed is measured by reliability.
Utilizing the Cronbach's Alpha Coefficient test within the SPSS software, a reliability analysis
was performed in order to strengthen the validity of the study hypotheses. Any factor with a
corrected item-total correlation value of less than 0.3 would be deemed rejected; Cronbach's
alpha for adequate reliability is 0.8, Kien (2012).The research showed that the Cronbach's alpha
value for all factors was (0.956), which was more than 0.8. Thus, it may be concluded that the
survey was valid and reliable.
Structure Validity of Questionnaire:
The validity of the questionnaire structure, wherein the coefficient of correlation is generated
between the primary fields and all questionnaire fields, will be tested using the Pearson
correlation coefficient through the usage of the (SPSS) program. According to the data,there is
a substantial correlation (Pearson correlation coefficient r > 0.5) and all relationships between
the factors are positive. They are also statistically significant at α = 0.01.
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Abdelalim, A. M., Hassanen, M. A., & ElSamadony, A. (2024). Risk Allocation and Sharing in Mega Industrial Projects from the Perspective of the New
Yellow Book -FIDIC-2017 to Approach a Balanced Construction Contract. Transactions on Engineering and Computing Sciences, 12(1). 54-102.
URL: http://dx.doi.org/10.14738/tecs.121.16260
Delay due to statutory bodies X70 Share Share
Lack of knowledge of existing facilities X38 Share Share
Insufficient FEED documents X7 Mitigate Avoid
Insufficient site investigation X10 Mitigate Avoid
Strong competitors X9 Share Share
Design errors, omissions, and contradiction X34 Mitigate Mitigate
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-taile).
Significant Risk Factors and Related Contract Clause/Sub-Clause:
Several Sub-clauses listed in the FIDIC form 2017 Yellow Book should be included in each
balanced contract that is drafted. Suggestions forFIDIC forms are frequently made with the
intention of improving the contract's risk balance. In light of this, the writers will examine a few
driving selective sub-clauses using the data from the earlier research. This paragraph offers a
list of driving selective sub-clauses that the two contracting parties can change based on semi- structured interviews with several project management experts (the second round of
conducted survey) in order to attain risk-related sub-clauses. Any modifications will be
assessed in light of the FIDIC yellow book and the numerical sequence of pertinent sub-clauses.
The significant risk variables and their corresponding modified. Tables 11, 12 show the
important risk factors and the corresponding modified contract clauses. Moreover, table.13
Showed Spearman's Rank Correlation Factor for RII vs FAII Rankings for all Risk Factors within
their Groups. Table 14 also showed Person Correlation of Significant Factors in 2-dimensional
matrix.
Table.11: Significant Risk Factors and the Corresponding Contract Clauses in FIDIC
2017, the Yellow Book.
ID Risk Factor Clause/Sub-Clause
X51 Material delivery doesn't comply with project schedule Sub-Clause 8.3, Sub-Clause 8.8
X35 False progress reports Sub-Clause 8.7
X45 Subcontractor's failure to comply the schedule Sub-Clause 8.3, Sub-Clause 6.9
X55 Procurement problems Sub-Clause 8.8, Sub-Clause 7.7
X6 Unclear responsibility matrix Sub-Clause 4.1, Sub-Clause 1.15
X49 The ability of productivity of subcontractors Sub-Clause 8.3, Sub-Clause 6.9
X15 Indecisive management Sub-Clause 8.3
X5 Change scope of work Sub-Clause 14.1
X43 Lack of coordination between subcontractors Sub-Clause4.4, Sub-Clause 4.5
X16 Lack of procedure to correct errors between owner and
contractor
Sub-Clause 11.1, Sub-Clause 11.4
X2 Insufficient Technical Specifications Sub-Clause 4.1
X31 Compliance Risk (HSE) Sub-Clause 4.8
X69 Late issuance of licenses Sub-Clause 1.13, Sub-Clause 2.2
X28 Defective Materials Sub-Clause 11.5, Sub-Clause 11.9
X17 Frequent changes and/or variations by client. Sub-Clause 4.1
X70 Delay due to statutory bodies Sub-Clause 2.2, Sub-Clause 8.6
X38 Lack of knowledge of existing facilities Sub-Clause 4.1, Sub-Clause 4.6
X7 Insufficient FEED documents Sub-Clause 4.1
X10 Insufficient site investigation Sub-Clause 4.1, Sub-Clause 4.6
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X9 Strong competitors NA
X34 Design errors, omissions and contradiction in documents Sub-Clause 5.1, Sub-Clause 5.3, Sub-clause
5.4
X31 Compliance risks (H&SE) Sub-Clause 1.15 Limitation of Liability
Table 12: Important Risk Factors and Corresponding Modified Clauses as suggestions
for FIDIC 2017(the Yellow Book).
No. Clause/Sub-Clause Risk Factor
1 Standard Sub-Clause 1.13: Compliance with
Laws
• Late issuance of licenses
• Delay due to statutory bodies
2 Standard Sub-Clause 1.15: Limitation of
Liability
• Unclear responsibility matrix
3 Standard Sub-Clause 4.1: Contractor’s
General Obligations
• Unclear responsibility matrix
• Insufficient site investigation
• Insufficient FEED documents
• Insufficient technical specifications
4 Sub-Clause4.4: Subcontractors • Lack of coordination between subcontractors
5 Standard Sub-Clauses 5.1: General Design
Obligations
• Design errors, and contradiction in documents
6 Sub-Clause 8.3: Programme • Indecisive management
• Subcontractor's failure to comply the schedule
• Material delivery doesn't comply with the program
7 Standard Sub-Clause 8.7: Rate of Progress • False progress reports
8 Standard Sub-Clause 8.8: Delay Damage • Material delivery doesn't comply with the program
Procurement problems
9 Standard Sub-Clause 11.3 • Lack of procedure to correct errors between the
employer and the Contractor
10 Extension of Defects Notification Period
Standard Sub-Clause 11.4: Failure to
Remedy Defects
• Defective Materials
11 Standard Sub-Clause 11.10: Unfulfilled
Obligations
• Lack of procedure to correct errors between owner
and contractor Defective Materials
12 Standard Sub-Clause 14.1: The Contract
Price
• Change scope of work
13 Standard Sub-Clause 1.13: Compliance with
Laws
• Late issuance of licenses
• Delay due to statutory bodies
14 Standard Sub-Clause 1.15: Limitation of
Liability
• Unclear responsibility matrix
15 Standard Sub-Clause 4.1: Contractor’s
General Obligations
• Unclear responsibility matrix
• Insufficient site investigation
• Insufficient FEED documents
• Insufficient technical specifications
16 Sub-Clause4.4: Subcontractors • Lack of coordination between subcontractors
17 Standard Sub-Clauses 5.1: General Design
Obligations
• Design errors, and contradiction in documents
18 Sub-Clause 8.3: Programme • Indecisive management
• Subcontractor's failure to comply the schedule
19 Standard Sub-Clause 8.7: Rate of Progress • Material delivery doesn't comply with the program
False progress reports
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Risks related to Finance and Commercial
X62 Interest rate
changes
52.78
49.72
55.28
48.33
50.83
56.11
35
45
24
48
42
22
3
5
2
6
4
1
35.33
32.04
37.31
33.56
32.34
38.19
35
49
27
41
47
25
3
6
2
4
5
1
35.33
32.04
37.31
33.56
32.34
38.19
35
49
27
41
47
25
3
6
X63 Limiting overdraft
facilities
X64 possible cash flow
risks
2
4
X65 Lack of full
knowledge of
taxes/duties
X66 Client financial
credentials
5
X67 General market
conditions
1
Legislations Risks
X68 Change in
legislations/lows
0.70
0.73
0.76
24
9
4
3
2
1
47.78
57.50
54.17
53
17
31
3
1
2
33.58
42.01
41.08
40
13
16
3
X69 Late issuance of
licenses
1
X70 Delay due to
statutory bodies
2
Spearman's correlation
(SPSS)
Correlation Coefficient (FI &FAII)
Sig. (2-tailed)
Correlation Coefficient (RII
&FAII) Sig. (2-tailed)
0.887**
0.000
0.448**
0.000
Table.14: Person Correlation of Significant Factors
Risk
ID
X51 X35 X45 X55 X6 X49 X15 X5 X43 X16 X2 X69 X28 X17 X70 X38 X7 X10 X34
X51 1
X35 0.38 1
X45 0.53 0.40 1
X55 0.50 0.35 1
X6 0.43 0.37 1
X49 0.53 0.81 1
X15 0.31 1 0.61
X5 0.45 0.35 0.33 0.71 0.32 0.31 1
X43 0.57 0.41 0.41 0.47 0.41 0.40 0.30 1
X16 0.37 0.30 0.35 0.30 1
X2 0.33 0.35 0.31 1
X69 0.33 0.34 0.40 1
X28 0.34 0.38 0.38 0.60 0.43 0.39 0.34 0.35 1
X17 0.49 0.50 0.51 0.39 0.31 0.38 0.38 0.38 0.31 1
X70 0.39 0.31 0.36 0.39 0.30 0.35 0.44 1
X38 0.37 0.41 1
X7 0.42 0.34 0.45 0.41 0.32 0.33 0.36 0.48 1
X10 0.41 0.47 0.57 0.45 0.31 0.38 0.47 1
X34 0.32 0.17 0.22 0.23 0.47 0.25 0.24 0.34 0.24 0.10 0.10 0.22 0.27 0.12 0.08 0.18 0.37 0.58 1
**Correlation is highly significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
Standard Sub-Clause 1.13: Compliance with Laws:
In multi-partner projects, governments and regulatory bodies are the secondary partners; they
have complex contractual relationships with one another both directly and indirectly. Their
goals and approaches are varied, and they are involved in the project at different phases and
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• The Contractor shall in relation to all persons affected or likely to be affected by the
performance of the Work take such steps as are reasonably practicable to ensure their
health, safety and security. The Contractor shall take adequate and effective precautions
in order toprotect the Work, the Contractor’s Personnel, the general public, all other
persons, the environment, the property of the Company and the property of third parties
and to avoid or reduce to a minimum any inconvenience to the public.
Standard Sub-Clause 4.1: Contractor’s General Obligations:
The main reason for the modifications is to make the term "fit for purpose" clearer. This is
because there are risks associated with the contractor's design, implementation strategies, and
supply of materials that meet project specifications. As a result, the purpose of the modification
needs to be made clear in the Employer's Requirements rather than anywhere in the Contract.
The addendum includes affirmation that the design is the contractor's responsibility, that it
conforms to the criteria and guidelines that have been accepted, and that it is free from flaws
that are inherent. The modification also covers the contractor's adherence to environmental,
occupational health, and safetyregulations and safeguards the employer against any hazards
related to the project's operational designs. The modification also serves to protect the
employer from any mistakes or unclear design elements that could compromise the project's
outcome. An additional issue with this subsection is that, in the absence of a set period for
document approval, the employer's delay could impact the schedule for material supply. The
author suggests that the modifications will be written in Italic as follow:
1. The Contractor shall execute and complete the Works in accordance with the
requirements of Contract and with all due skill, care, and safety measures as should be
exercised by a fully qualified, competent and first-class Contractor, fully skilled and
experienced in the design and carrying out of work similar in nature and extent to the
Work. When completed, the Works (or Section or Part or major item of Plant, if any)
shall be fit for the purpose(s) for which they are intended, as defined and described in
the Employer’s Requirements and the standards set out in the Contract (or, where no
purpose(s) are so defined and described, fit for their ordinary purpose(s)).
2. The Contractor shall at its own cost provide
• the Plant all Contractor Provided Items and Equipment (and spare parts, if any)
• the Contractor’s Documents specified in the Employer’s Requirements,
• All Contractor’s Personnel, Goods, consumables and other things and services,
whether of a temporary or permanent nature, required to fulfil the Contractor’s
obligations under the Contract.
3. The Works shall include any work which is necessary to satisfy the Employer’s
Requirements, Contractor’s Proposal and Schedules, oris implied by the Contract, and
all works which (although not mentioned in the Contract) are necessary for stability or
for the completion,or safe and proper operation, of the Works.
4. The Contractor shall be responsible for:
• the adequacy; stability and safety of all the Contractor’s operations and activities, of
all methods of construction and of all the Works;
• the engagement and management of Sub-Contractors in connection with the Work;
• the timely provision of all items referred to in the Contract including the timely
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Abdelalim, A. M., Hassanen, M. A., & ElSamadony, A. (2024). Risk Allocation and Sharing in Mega Industrial Projects from the Perspective of the New
Yellow Book -FIDIC-2017 to Approach a Balanced Construction Contract. Transactions on Engineering and Computing Sciences, 12(1). 54-102.
URL: http://dx.doi.org/10.14738/tecs.121.16260
provide the name, address, full details, and pertinent expertise of each prospective
designer or design subcontractor to the Engineer for approval.
• The Contractor warrants that the Contractor, the Contractor’s designers and design
Subcontractors are adequately financed, competent, qualified and fully experienced
in the design, procurement, fabrication, construction, testing, pre-commissioning and
commissioning of projects of a similar scope, complexity, size and technical
sophistication as the Work and that it possesses the high level of skill and expertise
commensurate with that experience.
• The Contractor covenants that the Work shall be free from inherent or Latent Defects
whether in design, engineering, workmanshipor materials and shall be free of errors
and omissions in design and engineering.
• The Employer is relying upon the skill, judgement and expertise of the Contractor in
the performance of the Work and the co- ordination and planning thereof including
without limitation the preparation and execution of the Programme.
• The Contractor undertakes that the designers and design Subcontractors shall be
available to attend discussions with the Engineer and/or the Employer at all
reasonable times (on or off the Site), until the issue of the Performance Certificate.
• Promptly after receiving a Notice under Sub-Clause 8.1 [Commencement of Works],
the Contractor shall scrutinise the Employer’s Requirements (including design
criteria and calculations, if any). If the Contractor discovers any error, fault or other
defect in the Employer’s Requirements, Sub-Clause 1.9 [Errors in the Employer’s
Requirements] shall apply (unless it is an error in the items of reference specified in
the Employer’s Requirements, in which case Sub-Clause 4.7 [Setting Out] shall apply).
Regretfully, it frequently happens that the intended objectives are unclear or may never be
determined. While most Contractors will find this unsettling, some Employers and consulting
engineers are unable to fully benefit from Sub-clause 5.1. One of the most significant problems
that both the employer and the contractor are likely to face at the same time is risk
management. As a result, it's critical to take a proactive approach to reducing these risks by
establishing stringent guidelines that require the contractor to exercise extreme caution when
choosing the team responsible for design preparation, being aware of the project's primary goal
and the nature of the work, and examining the underlying principles that will guide the creation
of the designs. These terms could shield the contractor directly by establishing.
CONCLUSION
This study finds that a cooperative connection between the two parties to the contract can
ensure more satisfied project results by keeping aneye out for key risk factors and putting risk
mitigation measures into place through the provisions of the contract. The literature analysis
andrecommendations from experts were used to identify the main risk factors for industrial
projects. To ascertain the most important risk factors influencing the project objectives, a
questionnaire was created and sent to a number of project management specialists. The
findings demonstrated that there is an issue with how risks in large-scale industrial
undertakings are divided up among different stakeholders. According to the study, risk during
tender accounted for 29% of important risk variables. This suggests that these risks may be
prevented bysuitably modifying the contract clauses to ensure that the risks are allocated in a
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transparent manner. Although design flaws, faulty material, and compliance risks (H&SE)
accounted for 25% of significant risk factors, these risks can be reduced by making the
necessary changes to contract terms for procurement, design review, and quality control, which
permit the sharing of these kinds of risks. The remaining risk factors were caused by
subcontractor issues and indecisive management; these threats can be reduced by including
provisions for the owner to monitor the project's implementation progress in order to develop
solutions for any obstacles that arise on the fly. FIDIC forms undoubtedly offer a comprehensive
starting point for the writing of industrial project contracts, but they also include a number of
clauses that employers and contractors should carefully review for the significant
consequences that may develop later. In summary, the parties should work to reach a
compromise that meets their needs for both reasonable flexibility on the part of the employers
and a balance of risks for the contractors. This will allow the contractors to adjust their
compensation to the level of presumed risk, and the employers to modify their contractual
obligations to reflect changes in project conditions over time. This equilibrium will most likely
benefit the project asa whole, positively affecting both the parties' contractual relationship and
the project's completion.
Data Availability Statement
All data, models, and code generated or used during the study appear in the submitted article.
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