Developing and implementing balanced incentive and risk sharing contracts

An important aspect of stakeholder management in construction projects is the contractual approach to managing risk and uncertainty. Chapman and Ward (2002) develops a balanced incentive and risk sharing (BIARS) contract, drawing on earlier research on management contracts, which lead to publications on risk allocation and risk sharing generally. This paper develops the BIARS contract concept further. It addresses choice of contract decisions as risk efficient choices in a best practice project risk management process concerned with the whole project lifecycle. It sets this discussion in the context of a range of popular contract choices, like fixed price, design and build (D&B), and design, build, finance and operate (DBFO). It was stimulated by the need to explain these ideas to a client using target contracts with unbalanced risk sharing, a common practice. Best practice requires a balanced approach, and the difference is significant. Best practice also involves a number of other relevant features. This paper concludes that full integration of contract choice decisions and other aspects of a best practice approach to risk management is practical and advantageous.