Perceptions of Risk Allocation in Southeast Queensland Construction Projects PDF

Bond University Research Repository Perceptions of risk allocation methods and equitable risk distribution: a study of medium to large Southeast Queensland commercial construction projects Perez, David; Gray, Jason; Skitmore, Martin Published in: International Journal of Construction Management...

Bond University Research Repository Perceptions of risk allocation methods and equitable risk distribution: a study of medium to large Southeast Queensland commercial construction projects Perez, David; Gray, Jason; Skitmore, Martin Published in: International Journal of Construction Management DOI: 10.1080/15623599.2016.1233087 Licence: Other Link to output in Bond University research repository. Recommended citation(APA): Perez, D., Gray, J., & Skitmore, M. (2017). Perceptions of risk allocation methods and equitable risk distribution: a study of medium to large Southeast Queensland commercial construction projects. 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Download date: 27 Jan 2025 Perceptions of risk allocation methods and equitable risk distribution: A study of medium to large Southeast Queensland commercial construction projects David Perez, Jason Gray and Martin Skitmore School of Civil Engineering and Built Environment Queensland University of Technology (QUT) Brisbane Q4001 Australia ABSTRACT Economic upheaval and project complexity often lead to unequal risk allocation between contractual parties. A review of the literature identifies major problems in relation to the fairness and equality of the risk allocation process. However, most existing studies have been conducted from the client’s perspective rather than that of contractors or consultants and do not focus specifically on risk misallocation. This paper aims at determining the factors involved by a questionnaire survey of the perceptions of contractors and consultants of the main issues in relation to medium to large commercial construction projects in the South East Queensland, Australia. The findings are generally consistent with existing research results in that approximately half the respondents feel that their contractual risk allocation is unfair. In addition, there is a lack of use of formal risk management methods and the arbitrary passing down of risks from the client has increased in recent years. A better understanding is provided of the issues contributing to unequal risk allocation, decision-making and management that will help promote fairness and equality between the contractual parties in the current process of risk management. Keywords: risk allocation; unequal; fairness; contractor. INTRODUCTION Construction work involves many kinds of risks, including natural risks with weather systems (hurricane, typhoon, flood, etc.) and geological systems (earthquake, volcanic eruption, geotechnical issues) and human risks of a political, economic, financial, legal, health, managerial, technical, social and cultural nature (Ling & Hoi, 2006). Construction projects are very prone to risk because of high expenditure, complex interfaces, variety of stakeholders, integration of materials and technologies and strict timeframes (e.g., Guo et al. 2014). These issues are becoming increasingly complex in the modern construction industry and interrelated with other variables including financial, technical and contractual demands (e.g., Shiferaw et al., 2012). If the risks are not properly identified and managed during the early stages of a project, they can lead to disastrous consequences for the project and parties involved (e.g. Mead, 2007). In recent years, medium to large construction projects are often undertaken within a multidisciplinary framework. In these projects, formal risk management needs to be This is an Accepted Manuscript of an article published on 3 Apr 2017 by Taylor & Francis in International Journal of Construction Management, available online: https://doi.org/10.1080/15623599.2016.1233087 approached in a holistic manner and involves people from a number of fields (Mead, 2007). The main stakeholders involved in risk analysis include clients, financial institutions, construction consultants, contractors and facilities managers. They have different views on risk management strategies, so risk management decisions are sometimes made on a perception of risk that is based on a value system resulting from personal experiences or organisational demands (e.g., Lam et al., 2007). This situation lends itself to an informal, but prevalent, approach to risk allocation (Akintoye and Chinyio, 2005). Risks are supposedly the responsibility of those best able to control and manage them (Cooper et al., 2005). They need to be shared by all project parties equitably and realistically as this has a significant impact on construction costs (e.g., Yates & Sashegyi, 2001). However, risk is often arbitrarily allocated to stakeholders who do not have the best control capabilities (Waldron, 2011; Sharkey et al., 2014). Contractors perform the most tasks in completing projects, involving: technical, financial, legal, environmental and organisational responsibilities (Akintoye et al., 2003). They are also allocated the majority of risks (Waldron, 2011; Sharkey et al., 2014). This forces them to add higher contingency amounts to their bid price in order to minimise their risk liability (Andi, 2006). Unfair or unbalanced risk allocation has also been identified as a determining cause for disputes, faults and delays (Love et al., 2008). The extent to which this occurs with Australian construction projects and the contributory factors involved is uncertain. This paper, therefore, aims to clarify the situation by soliciting the views and perceptions of contractors and consultants on the factors contributing to an unequal risk allocation process in medium to large commercial construction projects in Southeast Queensland, Australia. The findings are generally consistent with existing research results, in that approximately half the respondents perceive risk allocation to be unfair. It is also found that industry practitioners lack formal risk management skills and methods and that the arbitrary passing down of risks has increased in recent years. In the following sections of the paper, existing research is reviewed concerning potential determining issues relating to unequal risk allocation problems. This is followed by a description of the research method and presentation and discussion of the findings. LITERATURE REVIEW The literature is mainly concerned with on four factors of lack of knowledge and/or use of formal methods for risk analysis; increased project costs; reactive contractual practices; and arbitrary passing down of risk. In terms of lack of knowledge, the interactions between different risks can increase the significance of the impacts of risk issues on construction projects (Ackermann et al., 2007). A comprehensive appreciation and management of risks need to be developed by engaging various stakeholders in a group support system (Ackermann et al., 2014). A balance of stakeholder objectives through appropriate risk allocation is desirable as it is a strategic issue with significant impact on long-term project performance (Abednego and Ogunlana, 2006). To allocate risk equitably among project stakeholders, it is necessary to consider the principles of critical risk allocation and factors that are relevant to every stakeholder (Xu et al., 2010). Most construction practitioners agree that risk is unavoidable (Loosemore and McCarthy, 2008). A balance between technical, business and interpersonal skills is needed for effective risk evaluation and management (Lucas, 2007). Due to the complexities of the task, it is not an individual but a team effort (Osipova and Eriksson, 2013). The risks need to be identified, analysed and quantified, and then matched with the appropriate party (e.g., Waldron, 2011). This is an Accepted Manuscript of an article published on 3 Apr 2017 by Taylor & Francis in International Journal of Construction Management, available online: https://doi.org/10.1080/15623599.2016.1233087  The proposed methods of risk management generally fall into either qualitative and quantitative approaches (Mojtahedi et al., 2010). Most qualitative techniques are based on checklists, ranking options, assumption analysis, probabilistic impact description, cause and effect diagrams, flowcharts and influence diagrams, etc. Most of these techniques require personal expertise and judgments from past experience or historical data (Yildiz et al., 2014). Typical quantitative approaches include Monte Carlo simulation, fuzzy logic, expected value tables and sensitivity analysis (e.g., Khedr, 2006). According to Mead’s (2007) study of major construction contracts, formal risk assessment methods are not frequently undertaken and that, when they are used, qualitative methods are usually preferred. Risk management is a social and political progression that can be greatly impacted upon by the public perception of risk (e.g., Roumboutsos and Anagnostopoulos, 2008). Each contractual party has a different view of the risk and their view is frequently shaped by how the risk affects its interests and obligations towards the project (Al-Sobiei, 2001). Therefore all parties need to reach a mutually acceptable risk-allocation solution (Bing et al., 2005). Good project planning and effective communication channels are the success factors for risk management and failure to follow these factors invariably results in inappropriate risk allocation (Abednego and Ogunlana, 2006). Increased project cost can also pose more risks to contractors (Ghosh and Jintanapakanont, 2004). In the current economic environment, the bidding and tendering process for construction projects is not only influenced by economic and financial stiffness but also by fierce competition, increased customer demands, environmental practices and socio-political pressures. Improper risk-allocation is said to be usually adopted in these situations by adjustments to standard forms of contract in an attempt to minimize client costs by shifting the risk to the contractors with the expectation that they will be able to manage the risk – a particular problem in the Australian construction industry (e.g., Yates & Sashegyi, 2001; Waldron, 2011; Sharkey et al., 2014). This creates a climate where contractors approach the tendering process in a reactive mode and include contingency costs in the bid price. When contractors are unable to control the risks involved, there will be a number of managerial, financial and technical conflicts, disputes and claims. Cost overruns and delays are inevitable in these situations (Yates & Sashegyi, 2001). Perera et al. (2009) suggest that cost reduction could be achieved by a proper allocation of risks, which in turn will reduce the number of disputes, conflicts and claims. Reactive contractual practice is contrary to Murdoch and Hughes’ (2008) assertion, for instance, that risk management should be approached in a proactive rather than reactive manner (e.g.). However, disclaimer clauses are often included in a contract to transfer the risk to the contractor (e.g. Zaghloul and Hartman, 2002) This leads to inappropriate risk allocation and significantly increased construction costs (Love et al., 2008). Finally, arbitrary passing down of risk is another issue relating to unequal risk allocation. Risks are not always allocated to the party who is in the best position to manage them (e.g., Yates & Sashegyi, 2001; Waldron, 2011; Sharkey et al., 2014). Towards the lower end of the construction supply chain, people have less decision power and their actions are likely to react to problems faced rather than proactive and opportunity-oriented (Loosemore and McCarthy, 2008). Clients are said to often pass down the risks to consultants and contractors (Yates & Sashegyi, 2001; Waldron, 2011; Sharkey et al., 2014). In this process, perceptions of risk, rather than formal quantification and evaluation, play an important role in determining the allocation of risk between contractual parties (Andi, 2006). This problem may also be caused by increased subcontracting, which enables the re-distribution of risks between a number of subcontractors (Artto, 2007). There are many empirical studies of risk allocation for different procurement paths. For example, partnering in the Chinese construction industry (Tang et al., 2006); public-private- This is an Accepted Manuscript of an article published on 3 Apr 2017 by Taylor & Francis in International Journal of Construction Management, available online: https://doi.org/10.1080/15623599.2016.1233087 partnerships (PPPs) in China (Chan et al., 2010), target cost contracts in Hong Kong (Chan et al., 2011); in Australia from a transaction cost economics perspective (Jin & Doloi, 2008; Jin, 2009); risk management and insurance in China (Liu et al., 2007); and performance based contracting in the UK (Gruneberg et al., 2007). Significantly, Tang et al.’s (2007) study of risk management in the Chinese construction industry concludes that future studies should be conducted to facilitate equitable sharing of rewards through effective risk management among participants. Of the empirical work done to date on risk allocation, most are solely from the perspective of the client and none focus exclusively on contractual risk misallocation. Waldron’s (2011) Australian survey of major infrastructure projects, however, indicates that client-based studies lead to biased results. For example, “only 4% of the public sector principals and 20% of the private sector principals surveyed felt that risk allocation was inappropriate, compared with 43% of contractors” (Waldron, 2011: 11). The views were also split on how the risks are allocated, with 25% of private sector principals and 43% of public sector principals of the view that “all, or the majority of risks” are imposed on contractors, compared with 58% of contractors (Waldron, 2011: 11). A similar result was found for consultants, 47% of whom also felt that all or the majority of risks associated with their work were imposed on them too. In contrast with previous work, therefore, this paper specifically investigates these four factors of unequal risk allocation for contractors and consultants with the intention of shedding more light on the reality of the issue from their perspective as clear recipients of the allocation process - of which Waldron’s study suggests clients are largely unaware. This being the case, the results will contribute to the understanding of the real critical outcomes of risk allocation and management. Better informing clients in this way, offers a potential means for improved collaboration between project parties, reducing inequalities experienced by contractors and consultants and increased successful project delivery. RESEARCH METHOD The data collection method was a perception survey distributed via an online questionnaire programmed to record all the participants‟ responses into a database. The advantages of having a database included not having to manually transcribe data, minimise errors, easy querying and cross-referencing,. It also facilitated data retrieval for statistical analysis and the possibility of using data mining to extract inferred or derived information. In addition to the questionnaire, a series of short follow-up telephone interviews were conducted to ensure that all responses were gathered and any inconsistencies clarified. The sample population is composed of contractors and consultants who have been involved with mid to high-tier construction projects, with the location and scope constrained within South East Queensland. The contractors included in the study are involved in commercial construction - residential construction being excluded from the scope of the study. For the purpose of the study, the contractors‟ could be working as Project Managers, Contract Administrators and/or Estimators for their respective companies. The questionnaire was designed to elicit the opinions of contractors and consultants concerning the four factors influencing risk allocation between contractual parties gleaned from the review of the literature in the previous section together with some additional questions drawn from local knowledge of industry practice. The questionnaire contains five parts: (1) demographics; (2) knowledge and formal methods; (3) project costs (3) contractual practices; and (4) the arbitrary passing down of risks. A Likert scale is used for most questions. In addition, respondents also had the opportunity to provide further descriptions and explanations of their opinions. This is an Accepted Manuscript of an article published on 3 Apr 2017 by Taylor & Francis in International Journal of Construction Management, available online: https://doi.org/10.1080/15623599.2016.1233087  Four firms in Brisbane were approached to participate in a pilot study before the main survey was launched. The firms were approached via an introductory email explaining the purpose of the survey and a link to website hosting the survey. Their participation was immediate and the first nine respondents were selected for the pilot study. Two professionals in the industry (from the four firms selected) were also approached to act as advisors and provide feedback on the survey questions and the suitability of the delivery method. As a result, potential problems in the language, interpretation of questions and industry terms were examined and rectified to avoid any ambiguity and unreliability. Similar to Waldron’s (2011) 121 despatched questionnaires, a total of 115 questionnaires were distributed via an online questionnaire that was programmed to record all the participants’ responses into a database. 37 valid responses were obtained, representing a response rate of 32%. Although seemingly quite a low sample size, it is not unusual for construction industry questionnaire surveys. A recent survey by Jaafar et al (2014) of the determinants of female construction entrepreneurs, for example, involved 34 responses (18% response rate), citing Sekaran (2003) for its acceptability. Similarly, Hughes and Thorpe’s (2014) survey of enabling factors in construction industry productivity involved 36 responses (40.4% response rate), with Priyadarshani et al’s (2013) survey of construction safety assessment also having 36 responses (90% response rate). Of the valid responses obtained, 65% are from contractors and builders and 32% work as consultant project managers, risk analysts, engineers and quantity surveyors. 68% of the respondents work in private companies and over 60% have over 5 years industry experience. The majority of the respondents (65%) identify the Brisbane region as the usual area of operation for their projects. The survey results were analysed using quantitative and qualitative analysis of the data. The quantitative data analysis was carried out by interpreting and representing the data obtained after the results of quantitative type questions had been reduced to a numerical value. Quantitative data was represented in tabular format and graphed to facilitate its interpretation. Data for the qualitative analysis was gathered via the explanatory type questions of the survey where respondents were allowed to not just provide an opinion or description based on the statements provided in the survey but to provide explanations and interpretations of the data. This type of data was important in terms of determining how the industry, as represented by the sample involved, perceived the problem being researched. It also provided a means of verifying or corroborating the qualitative data analysis results. The descriptive analysis tools, mean, median, mode and standard deviation were used to analyse this type of data and identify any central tendency or dispersion patterns. RESULTS Knowledge of formal methods of risk analysis and allocation Formal and informal methods used in risk allocation. 57% of respondents point out that they often or always use formal risk allocation methods, while 16% never use formal methods. If formal methods of risk allocation are used, 79% of the respondents use a combination of formal and informal methods. Of these, 68% have a ratio of 50/50 or higher for the formal and informal methods used. This is consistent with existing research findings that, in spite of the formal methods that exist, risk allocation still relies significantly on informal methods such as personal experience, opinions and business This is an Accepted Manuscript of an article published on 3 Apr 2017 by Taylor & Francis in International Journal of Construction Management, available online: https://doi.org/10.1080/15623599.2016.1233087 needs (e.g., Akintoye and Chinyio, 2005; Lam et al., 2007). A combination of methods is preferred in most instances as it can reduce risks derived from lack of experience (Xu et al., 2010). However, a formal approach is necessary in order to avoid subjectivity and implicitness (Lam et al., 2007). Regarding information risk allocation methods, ‘decisions based on business needs’ is considered to be the most important method used by 89% of respondents, followed by ‘past experience’ (62%), ‘individual judgment’ (51%), ‘opinions’ (49%) and ‘personal values’ (30%), with both the consultants and contractor-builders having the same ranking. Formal qualifications, skills and knowledge. The most prevalent qualification/skill of the respondents is formal project management (76%), followed by business skills and knowledge (73%), technical skills and knowledge (70%), with formal risk management (54%) and interpersonal skills and knowledge (57%) being the least prevalent. This suggests that people involved in risk allocation may have grown into their current positions via other professional avenues, such as through their project management, technical and business skills. This is a beneficial attribute, as it is known that people involved in risk management can benefit from having skills in a variety of fields and disciplines (Lucas, 2007). Final decisions in risk allocation. 78% of respondents agree that a risk allocation is a group decision. This is observed across all roles and sectors and suggests that most mid to high tier projects require a variety of knowledge and skills, including technical, business, managerial and interpersonal skills. Loosemore and McCarthy (2008) believe that most risk management is focused on technical aspects, but that in many occasions the risk is caused by non-technical factors. Therefore, having a group of people with varied skills and knowledge involved should improve risk management decisions. Reactive contractual practices Disclaimer clauses. Disclaimer clauses can contribute to cost increases in Australia (Love et al., 2008) and the economic downturn may have increased the need for their use. 78% of respondents report that current construction contracts include a form of disclaimer as reactive clauses. Of these, 27% report that they are included ‘sometimes’, 27% ‘often, and 24% that they are ‘always’ included. The remaining 22% are composed of two groups: 8% indicating that disclaimer clauses rarely occur and 14% reporting that they are never included. The inclusion of disclaimer clauses or other reactive clauses in contracts is also sector driven, with the private sector respondents being ‘rarely’ affected by the inclusion of disclaimer clauses, while 56% and 50% of the public sector/develop-builder respondents respectively are often/always affected. Despite local and global economic downturns, 65% of respondents agreed that the trend of including disclaimer clauses in contracts has not significantly changed during the last two to three years. This is an Accepted Manuscript of an article published on 3 Apr 2017 by Taylor & Francis in International Journal of Construction Management, available online: https://doi.org/10.1080/15623599.2016.1233087 Price adjustment clauses. Price adjustment clauses are usually included to ensure that prices reflect the prevailing market price and also to eliminate the need for contingency clauses (Kelleher et al., 2002). The results show that some form of price adjustment clauses is included in 51% of contracts. Of these, 19% are included ‘sometimes’, 16% ‘often’, and 16% ‘always’. For the remaining 49% of respondents, 38% indicate that they rarely occur and 11% report that they are never included. This can be explained by the fact that price adjustment clauses have mainly been used in government contracts, while only 24% of the respondents work for the public sector against 76% in the private sector. Although an overall analysis reveals that 65% of respondents perceive that the same levels of application of price adjustment clauses are used compared with two to three years ago, price adjustment clauses are sector dependent, with 89% and 52% of public and private sector respondents respectively. Uncontrollable environmental factors. According to 68% of respondents, cost overrun is the largest contributor to the inclusion of disclaimer and price adjustment clauses in contracts. Ahmad (2009) argues that cost overruns related to uncontrollable risks are inevitable. Global and local economic instability appears to be another contributing factor to contractual changes. The current economic downturn has increased the cost of materials and labour, and has lowered the quality of the work leading to poor quality and worse OH&S practices, as money is scarce. The introduction of environmental practices has also contributed to the inclusion of special clauses in contacts. It is interesting to notice that respondents place emphasis on the local and global economy and that the results show that they disassociate them from the socio-political issues. Perhaps they consider them to be more uncontrollable in nature. This also indicates that they perceive quality, OHS and lack of skilled trades as more controllable factors. The lack of skilled trades does not receive any attention from the respondents in regards to factors contributing to the inclusion of special contract clauses. This may be an issue for the major contractors or sub-contractors to manage down the supply chain. Communication between the parties appears to be one of the most concerted areas covered by disclaimer or special contract clauses, in terms of misunderstandings or disputes. Another aspect of the respondents’ comments is the transparency of practice in a variety of areas such as money matters and chain of command. Ambiguity, due to lack of transparency of terms, together with unsatisfactory communication appears to be problematic. If this can be resolved in contracts, future problems can be minimised. Increased project cost Factors contributing to project cost increases. ‘Unrealistic estimates’ are perceived by the most respondents (51%) as a factor in cost increases, followed by external disputes conflicts and claims (43%), state of the economy (43%), increased customer demands (41%), competition (38%), internal disputes and conflicts (38%), changing environmental practices (35%), employment trends (32%) and socio-political pressures (30%). The three lowest ranked factors are response to contractual This is an Accepted Manuscript of an article published on 3 Apr 2017 by Taylor & Francis in International Journal of Construction Management, available online: https://doi.org/10.1080/15623599.2016.1233087 practices (22%), unfair risk allocation (22%) and inclusion of contingency costs in contracts (24%). A closer look at the results indicates that the issues currently dominating the construction industry in Queensland at the time of the survey were concerned with the state of the economy and market volatility, which have resulted in narrow profit margins for contractors to manoeuvre between increased customer demands and completion. This may explain the high ranking of unrealistic estimates. A consequence of this situation is the frequent disputes occurring between the contractual parties at this time. In terms of the respondents’ different project roles, ‘unrealistic estimates’ is an equally pressing issue for all three roles represented in the survey. It is interesting to find that, while they all disciplines agree that ‘internal disputes and conflicts’ are a contributor to cost increases, 62.5% contractor-builders also believe ‘external disputes, conflicts and claims’ to be a contributing factor in contrast with only 8% of consultants. The result clearly reflects the greater involvement contractor-builders have with external parties, especially in terms of cost-related interactions. They have to negotiate with the parties down the construction supply chain, including hiring and firing, subcontracting, suppliers, as well as dealing with the legal and regulatory issues of the development. Contractor-builders appear to be slightly less in favour of ‘competition’ and ‘unfair risk allocation’ being the major contributing factors of project cost increases. It is apparent that contractor-builders experience cost increases from a different perspective than consultants, perceiving that they are more likely to occur in the mismanagement of claims and disputes and unrealistic estimates. They also identify the ‘state of the economy’ as a major factor, although clearly one over which they have no direct control. Cost increases and disputes, conflicts and claims. ‘Poor risk management skills’ and ‘usage of inefficient methods’ are considered to be the major causes of cost increase by 70% of respondents, followed by ‘poor communication and negotiation skills’ (68%), ‘poor interpersonal skills’ (62%), and ‘use of inefficient analyses tools’ (51%). The consultant group appears to be more concerned with poor risk management than the contractor-builder group. This is because contractors are usually the party that accepts most of the risks (Baram, 2005) and may perceive risk to be uncontrollable. In terms of ‘usage of inefficient methods’, both groups acknowledge that the methods used are not effective in managing risk and keeping costs down. In practice, although quantitative and qualitative formal methods exist, they are not always used (e.g., Sheikh and Qiao, 2010). In general, qualitative methods are preferred, but in combination with other methods in many instances. A point of interest is that most risk management methods require personal expertise and judgement. This could explain why many practitioners rely on value-based decision-making systems to allocate risk (e.g., Lam et al., 2007). Protective clauses such as insurance wrap-ups are usually included in contracts to minimise project cost and 61% of respondents believe this to be the case. Of these, 32% state that project costs are reduced ‘sometimes’, 25% ‘often’ and 3.5% ‘always’. Of the remaining 39%, 36% state that it happens rarely and 3.5% that it never happens at all. This is an Accepted Manuscript of an article published on 3 Apr 2017 by Taylor & Francis in International Journal of Construction Management, available online: https://doi.org/10.1080/15623599.2016.1233087 Arbitrary passing-down risks Fairness of risk allocation. 36% of respondents consider risk allocation to be ‘rarely’ or ‘never’ fair, 22% that it is ‘sometimes’ fair and 41% that it is “often” or always “fair”. To compare this result with Waldron’s (2011) more basic finding that 43% of contractors felt risk allocation to be “inappropriate”, if we assume half of the 22% “sometimes” responses to be in the “appropriate” category and half in the “inappropriate” category, then we have 36+11=47% of our respondents in the “inappropriate” category – indicating a similar result. 79% have also not noticed any change in the fairness of risk allocation practices during the last two to three years, 12% consider that it was fairer in the past and 9% report that the current situation is better, suggesting that the situation is quite stable. It also indicates the situation has not improved either. It is also noted that the opinions of consultants and contractor-builders on these issue are similar, which also corresponds to some extent with Waldron’s (2011) findings. Passing down risks from client to contractor. The vast majority (91%) of the respondents report that passing-down risks along the construction supply chain from client to contractor is an extensive practice. This is consistent with existing research findings that this is a usual practice of the construction industry (e.g., Yates & Sashegyi, 2001; Mead, 2007; Waldron, 2011). 34% report that it happens ‘sometimes’, 37% ‘often’ and 20% say that it happens ‘always’. The survey results demonstrate that the practice of passing-down risks from clients to contractors has increased over the last two to three years. 52% and 6% of the respondents report an increase and decrease of the practice respectively. The remaining 42% believe that the practice has not changed over that period of time. Passing down risks from contractor to subcontractor. Existing studies identify a considerable number of risks being passed down from the main contractor to the sub-contractor, leading to inequalities in the risk allocation process (e.g., Yates & Sashegyi, 2001; Artto, 2007; Waldron, 2011). This is especially the case in instances where the contractor is handed down risks from the client. Erikson et al. (2007) argue that, in most instances, the relationship between the contractor and the sub-contractor often entails mistrust and conflict due to the added responsibility and dependency. Over 85% of respondents acknowledge that it is ‘common practice’; over 45% have experienced it ‘sometimes’, 26% ‘often’ and 14% ‘all the time’. 8% acknowledge it is ‘seldom’ implemented and around 5% of respondents have ‘never’ experienced it. 50% of respondents believe that the practice has remained unchanged over the last two to three years, 44% report an increase and 6% consider that it has decreased over the period. Within the group who perceive an increase of the practice, more contractor-builders (46%) present this opinion compared to consultants (33%). This is an Accepted Manuscript of an article published on 3 Apr 2017 by Taylor & Francis in International Journal of Construction Management, available online: https://doi.org/10.1080/15623599.2016.1233087 Likelihood of passing down risks. Over 31% of respondents believe that it is very likely that a contractor will pass down uncontrollable risks to subcontractors if the risks are passed down from the client. 37% believe that it is a likely event and over 28% think that it is somehow likely. Only 3% consider it to be unlikely to occur. This finding is consistent with the existing research results that passing-down of risks from one level to the next is a common practice in current contractual risk allocation methods in the South East Queensland. DISCUSSION This paper identifies the fundamental issues contributing to unequal risk allocation in mid to high-tier commercial construction projects. The survey results support the literature finding that there is a lack of formally qualified risk management practitioners in the construction industry of Queensland (Lyons & Skitmore, 2004). The lack of formal risk management expertise is also denoted by the use of inefficient methods and tools in risk allocation (e.g., Ranesh et al., 2013). Risk allocation decisions are generally made by a group of people with a combination of formal and informal methods. In the informal methods, business needs is the most important consideration, followed by past experience. The majority of people involved in risk allocation are not formally trained in risk management, but they normally have formal project management qualifications, and business, technical and interpersonal skills. These skills and capabilities can make a transition to the risk management field. There are a number of internal and external factors contributing to cost increases as congruent with the literature (e.g., Olawale & Sun, 2010). Unrealistic estimates are identified as the largest contributor to cost increases followed by external disputes, conflicts and claims, the state of the economy, increased customer demands and competition. The state of the economy is outside the control of contractors but directly contributes to project costs in terms of competition, cost of materials and labour, customer demands and legal costs. Unrealistic estimates are presented in order to win tenders and they generate a myriad of disputes and claims. Problems with the economy also affect contractual practices by increasing the number of protective and reactive clauses in contracts. Poor risk management skills and inefficient methods also contribute to cost increases by failing to avoid or manage internal and/or external disputes. Industry specific skills together with interpersonal skills are also identified as significant contributors to project cost increases. From the contractor-builder perspective, cost increases are experienced as on-site changes. These changes are prompted by client change requests that generate deviations from specifications and translate into changes in materials usage with an immediate impact on project cost. They might also require specialised labour, which adds to the cost increases in the form of salaries. If changes are not managed promptly and properly, disputes and claims follow and the cost increases can escalate out of control. Compliance with local councils is also identified by the contractor-builders as a source of external disputes. These disputes can result from necessary changes to specifications and customer demands. For contractors it can also include idle time while council decisions are reached, which increases the overall project cost. From the consultant perspective, changes that result in project cost increases are mainly related to changes in management and documentation of the projects as they generally deal with the project from the clients’ viewpoint. This is an Accepted Manuscript of an article published on 3 Apr 2017 by Taylor & Francis in International Journal of Construction Management, available online: https://doi.org/10.1080/15623599.2016.1233087  Some recommendations are provided by the respondents to avoid disputes, conflicts and claims in order to reduce project costs. These recommendations are primarily related to contractual matters and managerial, business and communication skills as follows. Contractual issues It is argued by the respondents that most problems start from inadequate contracts that are not correctly established and not properly managed once the development has started. This includes the quality and scope, constraints and responsibilities of the contract as well as on- going implementation tasks during the project life cycle. Sole responsibilities Transparency in the responsibilities of the contractual parties is important to ensure that no external parties are given decision-making power on issues that should be controlled by contractual parties in compliance with the contract. Management and communication Breakdowns in communications are often responsible for conflicts and disputes. Managerial and communication skills need to be applied to ensure that the flow of communication continues throughout all the construction stages. Love et al. (2004) report that disputes, conflicts and claims plague the Australian construction sector and this problem is international in scope. Improved communication between contractual parties and suppliers can minimise the number of disputes, conflicts, claims and cost overruns (e.g., Love et al., 2004). Professionalism and quality of contractual parties Experienced and knowledgeable professionals can avert conflicts, disputes and claims by the quality of their decisions and interactions. In terms of the inclusion of disclaimer and price adjustment clauses, the survey results also provide support for existing literature findings (e.g., Yates & Sashegyi, 2001; Waldron, 2011; Sharkey et al., 2014). The support is stronger in the public sector than in the private sector, especially with price adjustment clauses. However, the results also reveal that the practice is spreading into the private sector. The reason appears to be economic volatility. There is strong support for the significant effect of uncontrollable external factors such as the global and local economy on the running cost of projects. Cost overruns are identified as a critical factor contributing to the inclusion of special clauses in contracts. The overruns may have been propelled by increasing cost in the construction supply chain (materials, labour, etc.) and the cost of settling the large number of reported disputes, conflicts and claims. The survey results are congruent with the literature in ascertaining that there is significant perceived unfairness in the risk allocation process (e.g., Yates & Sashegyi, 2001; Waldron, 2011; Sharkey et al., 2014). The perception of changes in fairness in the last two to three years also depends on the role of the respondent. This is an Accepted Manuscript of an article published on 3 Apr 2017 by Taylor & Francis in International Journal of Construction Management, available online: https://doi.org/10.1080/15623599.2016.1233087  Regarding the issue of passing uncontrollable risk down the construction supply chain, the survey results are also consistent with the literature (e.g., Yates & Sashegyi, 2001; Waldron, 2011; Sharkey et al., 2014). The survey reveals that the practice of passing down uncontrollable risks from the client to the contractor has increased over the last two to three years. It is also a quite common practice to pass down uncontrollable risks from the main contractor to the subcontractors. CONCLUSION Construction projects are very prone to risk because of high expenditure, complex interfaces, variety of stakeholders, integration of materials and technologies and strict timeframes, issues of which are becoming increasingly complex in the modern construction industry and interrelated with other variables including financial, technical and contractual demands. Therefore, risks need to be properly identified and managed otherwise they can lead to disastrous consequences for the project and parties involved. Ideally, the responsibility for risks are allocated to those best able to control and manage them, such as clients, financial institutions, construction consultants, contractors and facilities managers. Contractors and consultants are particularly sensitive to this as misallocation can result in cost and time overruns due to disputes, faults and delays, as well as large contingency amounts to cover excessive risk liability. Although there have been empirical studies to date, only one has involved the contractors and consultants’ perspectives – to show that around half believe the risk allocation to be “inappropriate”, compared with between 4 and 20% of the clients. The extent to which this the case with Australian construction projects and the contributory factors involved is uncertain. In response, this paper utilises a questionnaire survey of industry practitioners on the factors concerning unequal risk allocation in medium to large commercial construction projects in South East Queensland. The major findings can be summarised as:  There is a significant lack of formal risk management skills amongst people involved in risk allocation;  The implementation of formal methods and tools in risk allocation decision-making and management is poor;  Cost increases are caused by a number of issues, including those internal and controllable by the contractual parties and those external and uncontrollable: 1) Lack of formal risk management including use of methods and tools; 2) Unrealistic estimates; 3) State of the economy; 4) Cost overruns; 5) Competition; 6) Increased customer needs; 7) Cost of materials; and 8) Contractual practices.  As with Waldron’s (2011) findings, approximately half the respondents consider that risks are misallocated.  Passing uncontrollable risks down the construction supply chain is a commonly accepted practice. It has increased significantly in the past three years and this is likely to generate substantial problems in the near future such as cost increases and inclusion of protective and reactive clauses in contracts. To address these issues, some recommendations can be provided to promote equal risk allocation and management: This is an Accepted Manuscript of an article published on 3 Apr 2017 by Taylor & Francis in International Journal of Construction Management, available online: https://doi.org/10.1080/15623599.2016.1233087   Develop and implement formal risk management education/training programs for contractors and consultants throughout the industry;  Improve the current decision-making process of risk allocation by ensuring relevant stakeholders consider state of economy and implications for local areas;  Investigate the cost of including and implementing protective and reactive contract clauses prior to formalising contracts to ensure cost effectiveness;  Establish a more transparent contractual process and formalised quality communication processes to ensure contractual parties to find a more equitable way of allocating uncontrollable risks. Being the first such study in Australia, all these findings comprise a significant contribution to local knowledge, such as in the reported lack of formal risk management skills and methods among industry practitioners and that the arbitrary passing down of risks has increased with the economic downturn. Some are also more generalizable, in being generally consistent with existing research results, such as there being around half the respondents feeling risk allocation is unfair. The therefore research provides a better understanding of the issues contributing to unequal risk allocation, decision-making and management from the perspective of contractors and consultants. Further studies on the solutions to addressing these issues are planned. Despite its restriction to mid to high tier construction projects in South East Queensland, Australia, the results are also likely to be applicable to other types of projects for the remainder of country. 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