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InternationalJournalofProjectManagementVolume21,Issue6,August2003,Pages419-424SelectedpapersfromtheFifthBiennialConferenceoftheInternationalResearchNetworkforOrganizingbyProjects.HeldinRenesse,Seeland,TheNetherlands,28-31May2002.doi:10.1016/S0263-7863(02)00082-0|HowtoCiteorLinkUsingDOICopyright©2003ElsevierLtdandIPMA.Allrightsreserved.Permissions&ReprintsConstructioncontracts:thecostofmistrustRamyZaghloul,andFrancisHartmanProjectManagementSpecialization,DepartmentofCivilEngineering,UniversityofCalgary,2500UniversityDr.NW,Calgary,Alberta,Canada,T2N1N4Received12February2002;revised20September2002;accepted19November2002.;Availableonline3April2003.AbstractCurrentcontractualrelationshipsaremainlybasedonconfrontationalsituationsthatreflecttheleveloftrust(ormistrust)inthecontractdocuments.Thiscanbethedrivertoincreasethetotalcostofaspecificprojectandaffecttheoverallrelationshipbetweenthecontractingparties.ThishasbeentestedintheconstructionindustryinCanada,andappearstobegeneralizableacrossNorthAmerica.Basedontwoindependentsurveys(includingtheonepresentedinthispaper)ofOwners,ConsultantsandContractorsacrossCanada,theassessedpremiumassociatedwiththefivemostcommonlyusedexculpatoryclausesinconstructionisbetween8and20%inaseller'smarket.Itshouldbeobviousthattrustandcontractingmethodsarerelatedandthatthisrelationshipisofvitalimportancetoeffectiveprojectmanagementandcontractadministration.Todate,littleworkhasbeendonetoexploretheadvantagesofthisrelationship.ThispaperpresentssomeoftheresultsofasurveyconductedacrosstheCanadianconstructionindustrythatidentifiessomeopportunitiesforbetterriskallocationmechanismandcontractingstrategiesthatarebasedonatrustrelationshipbetweenthecontractingparties.Theseopportunitiesarebasedonatrustrelationshipthatcanbetherootcauseforasignificantsavingintheannualbillforconstruction.AuthorKeywords:Riskallocation;Trustrelationships;Transactioncosts;ContractingstrategiesArticleOutline1.Introduction2.Constructioncontractsandriskallocation3.Riskallocationthroughdisclaimerclauses4.Whytrust5.Thecolouroftrustmodel6.Theindustrysurvey7.Resultsanddiscussion8.Trust,riskbehaviour,andcostreduction9.ConclusionandrecommendationsReferences1.IntroductionTheconstructionindustryinbothCanadaandtheUnitedStatesisthesinglelargestnon-governmentalemployer.In1997,theindustrywasestimatedinCanadatohaveavalueofabout$90billion,representing15%ofthegrossdomesticproductandemployingmorethan872,386workersdirectly[1].However,withinthelast20yearsconsiderablecostwastagehasbeenidentifiedbytheConstructionIndustryInstitute[2].Asignificantportionofthiscostwastagemaybeattributedtoinappropriateriskallocationincontracts,ascitedinvariousexamplesanalysingriskallocationintheconstructionindustryandtheunderlyingcausesofdisputesconductedinCanadaandtheUnitedStates[3,4and30].Meanwhile,constructionrisksareamajorelementthatcansignificantlyaffectsthefinalcostofanyproject.Specifically,howtheserisksareallocatedhasadirectbearingonthefinaltotalcost.Thecostoftheserisksiscarriedbytheowner,contractor,orboth,asdeterminedbythetypeoftheconstructioncontract[5].Riskallocationalwaysoccursinanysituationwheremorethanoneparty(owner,contractor,consultant,etc.)isresponsiblefortheexecutionofaproject.Makingsurethatasmanyrisksaspossiblearerecognisedandmanagedisgoodpracticeinanyproject.Thisactivityisanimportantstepinthatthisallocationcansign...