Allocating Risk: Principles and the Key Risks
Most construction disputes are decided long before they start: by the contract documents, the notices and the records. In Part 1 of this two-part series, we examine how risk is allocated in construction contracts and the risks that most often lead to claims.
Construction projects are inherently risky, and identifying and allocating the key risks is an integral part of any construction contract. Standard forms allocate those risks, but they are frequently amended, and every amendment shifts both the balance between the parties and the price. Risk allocation is a commercial decision written in legal language: it is priced whether or not the parties notice.
This series is based on our presentation, “Managing Construction Disputes and Risk”, at the CABE Built Environment Ireland Conference 2026 in Dublin on 22 October 2026. Part 1 sets out the principles of risk allocation and tests them against the key risks. Part 2 will examine notices, payment and adjudication, including the High Court’s rejection of “smash and grab” adjudication in Tenderbids, and practical dispute avoidance.
The Guiding Principle
The established principle is that each risk should be allocated to the party best able to manage it. Done properly, that should reduce the number of claims. Allocation also drives tender pricing and the negotiation of liability caps. For designers and specifiers, the tender documents are where the allocation is fixed.
Policy in Ireland and the UK points the same way. The UK Construction Playbook provides that risk should be owned by those best able to manage and bear it, and that allocation should be scrutinised before going to market. In Ireland, the Infrastructure Guidelines require that risks on public projects be identified, considered, and actively managed under a plan; that is, the framework within which the Public Works Contract (PWC) suite operates. Fair and realistic risk transfer is therefore a value-for-money requirement, not a concession to contractors.
Ground investigation illustrates the point. An employer may withhold site investigation reports and push the full ground risk onto the contractor, or share the reports, allow the contractor to test, and share the unforeseeable risk. Transferring all risk can drive up bid prices and increase claims; the second approach will usually produce a better price and fewer disputes.
Force Majeure
There is no legal doctrine or general definition of force majeure in Irish law; a force majeure clause is interpreted by reference to its own words. Most clauses require that performance is prevented, meaning it is legally or physically impossible, not merely more difficult or less profitable. The English courts have held that a party cannot rely on such a clause where its failure to perform results from its own commercial decision. Common remedies include relief, an extension of time and termination after a prolonged period. The remedy is only as wide as the wording of the clause.
Ground Conditions and Employer Information
The common law starting point is that the contractor bears the risk of ground conditions. The English courts have held that, absent any guarantee or representation from the employer, the risk lies with the contractor, and that where a re-measurement contract was silent on hard rock, the contractor’s claim failed because the parties could have dealt with the risk and did not.
Employers should deliberately decide who bears the risk of their information being incorrect. The PWC disclaims the employer’s liability for Background Information, but withholding information is not necessarily in the employer’s interest; on PPP projects, archaeological risk has been dealt with through a capped, shared approach. Silence in the contract usually means that the contractor carries the risk, so the parties should decide the point and write it down.
Other Common Risks
- Weather: A contractor risk absent express terms. Every standard form gives time, but the trigger wording differs: “exceptionally inclement weather” (RIAI), “weather event” (PWC) and “exceptionally adverse climatic conditions” (FIDIC). Different wording calls for different evidence.
- Trespassers and protestors: A contractor risk once access is granted; a known risk should be raised and priced at tender.
- Other contractors: An employer risk under the standard forms but frequently amended; access protocols matter on shared sites.
- Statutory consents: The split between Employer Consents and Contractor Consents should be stated clearly.
- Industrial action: Typically, time but not money.
Cost, Inflation and Change in Law
The contractor is usually best placed to manage material and labour costs, but duration matters: short contracts generally leave the risk with the contractor, while longer contracts may justify sharing it. Under the PWC, interim inflation measures applied from January 2022 to July 2023, and the current Clause 15 mechanism is similar to the former PV2 mechanism, so parties should check which version applies. Under the RIAI 2017 form, Clause 36 (Wage and Price Variation) is usually deleted, leaving that risk with the contractor. In PPPs of 25 years or more, change in law risk is typically shared, although foreseeable changes are arguably for the contractor. The longer the programme, the stronger the case for sharing cost risk through a price-variation mechanism rather than arguing about it afterwards.
Design, Specification and Fitness for Purpose
For public projects, project definition, the brief and the specification are governed by the Capital Works Management Framework guidance. An incomplete brief is the most common source of later variations. Reasonable skill and care and fitness for purpose are very different obligations, and only the first is normally covered by professional indemnity insurance. In 2017, the UK Supreme Court held that a requirement in the technical requirements that offshore wind turbine foundations “ensure a lifetime of 20 years” bound the contractor, even though it had designed them in accordance with the referenced international standard, which itself contained an error. The wording of a technical schedule can override the general standard of care. Climate and performance commitments, such as NEC secondary option X29 and the Chancery Lane Project clauses, are also becoming contractual obligations, and therefore potential claims.
Conclusion
When a risk materialises, the question is always whether the remedy is time, money or both. Under the PWC, these are Delay Events and Compensation Events. Under the RIAI forms, the same questions arise through the extension of time provisions (Clause 30 of the RIAI 2017 form) and the valuation of variations, which are to be “fairly valued” (Clause 13 of the 2017 form; Clause 6.4 of the RIAI 2025 form). Under the 2025 form, claims for time or money are also subject to the Clause 6.11 notice procedure.
Our key takeaways are:
- Allocate deliberately: employers and designers should decide and price every key risk at tender stage, and map each risk to its remedy before the contract is signed.
- Specify precisely: designers and specifiers should define scope, brief and design obligations carefully, and watch fitness-for-purpose wording.
- Price known risks: known risks should be raised and priced at tender stage, not disputed afterwards.
However, an entitlement to time or money only exists if the contractual notice machinery is followed. In Part 2, we will examine notices, payments, and adjudication after Tenderbids, as well as practical steps to avoid disputes.
