At a time when “mega projects” dominate the U.S. highway design, construction, and maintenance landscape, it is imperative that an evaluation of such projects be undertaken to identify the risks involved and how best to manage and allocate those risks at the outset of a project. While risks exist at every stage of a project, a properly negotiated and drafted contract that correctly allocates risks can help entities manage their potential liability and limit their possible exposure.
The risk of events that would impact the construction price or schedule can be assigned in the contract to one party or the other, or shared between the parties. Express and clear allocation of risk is particularly important in alternative delivery projects, such as design-build (DB), where the DB contractor typically has greater control over risk factors than in the traditional design-bid-build project. Once the risks are allocated, strategies can be developed to manage those risks, such as through the use of performance and payment bonds, warranties, damages limitations, and a myriad of other ways.
In light of the ever-expanding magnitude of these highway construction projects—which can easily exceed $1 billion—research is needed to identify successful ways to manage and allocate the risk of these mega projects.
The objective of this research is to produce a digest that provides guidance on contractual provisions designed to reduce or avoid claims and disputes. The research will provide a summary of pertinent risk-allocation and risk-management provisions from mega project contracts, from which practices can be identified that support the evaluation of risks associated with similar-sized mega projects. The study should provide guidance on the development of contractual provisions to reduce or avoid claims and disputes on the back-end. The study will include an appendix that will identify source documents from which examples are provided.
The research should address at least (1) the legal considerations for allocating responsibilities most effectively between the contracting parties on mega-projects; and (2) the kind of provisions in the contract that would be most effective in meeting the legal needs of the public agency.
Data collected should be a cross-sampling or representative of various geographic regions.
Information from each mega project should include the following:
Date of contract;
Contracting governmental entities involved:
Delivery method (e.g., design-bid-build, DB, construction management at risk, public-private partnership);
Performance and payment bond limits;
Other surety provisions;
Limitation of damages provisions (e.g., caps on consequential or liquidated damages);
Warranties requirements; and
Contractual provisions allocating risks associated with:
o Hazardous materials management,
o Utilities, including delays in adjusting utilities,
o Environmental approval,
o Governmental approvals,
o Differing site conditions,
o Force majeure events,
o Agreements with third parties,
o Right-of-way acquisition,
o Archaeological, paleontological, or cultural resources,
o Threatened or endangered species,
o Change in law, and
o Toll revenue loss, as applicable.
Additional research considerations include:
Data points for at least 10 distinct highway projects in excess of $100 million, at least 10 in excess of $500 million, and at least 10 in excess of $1 billion;
Contracts from different states; and
Variation in delivery method.
Status: Research in Progress.