Risk transfer from the client onto the contractor and consultants has reached inequitable levels, says the New Zealand Institute of Quantity Surveyors (NZIQS).
The issue of risk transfer can largely be attributed to the Government, which, as a major purchaser (i.e. client) of construction industry's services in New Zealand, is imposing such transfers.
The key issue? In transferring risk to contracting parties and away from the client, those parties are put under significant and unnecessary pressure.
Risk is now maximised for the contractor and at a minimum for the client. There's a trend in Government construction contracts for the client to put in “special conditions” that supersede all other risk provisions.
In some cases, this removes a contractor's ability to avert any risk whatsoever, even when they have no control over it.
Sometimes a Government contract will push all risk onto the contracting parties, making them (not the Government as the client) liable for risks/contingencies outside of their control. An example for this is if a building is not weathertight – risk passes to the contractors for this; it's not held on to by the client.
NZIQS notes three reasons this is problematic in the New Zealand construction industry.
1) The New Zealand contracting industry is relatively unsophisticated by comparison and contractors do not always fully understand the risks they are assuming under the contract.
2) There is a lack of capacity in the market – in addition to not always having the expertise to fully assess all the various risk factors, contractors often don’t have the time.
3) This combination can lead to the third factor – elements of the industry still adopt a ‘she’ll be right’ attitude.
Many of these contracts are written in excessive page length (one Ministry’s contract contained 300 pages of amendments, even when the original form was only 131 total pages), so it's easy to see why these three factors hurt those in the industry.
Unfortunately, many contractors aren't pricing jobs appropriately because they're not accounting for all potential risk, for fear of losing out on the contract. There's an industry hesitation that the full price would be too prohibitive, and the client would go elsewhere.
The solution is for the Government to lead by example and either accept more risk, or be prepared to pay the full and reasonable price for risk transfer. As quantity surveyors, that's what we see as acceptable risk.