NewsMinimising risk in design and construction projects

In Greece, design and construction aspects of projects are frequently separated under different contracts with basic and detailed engineering being provided under an initial contract and construction, in accordance with the design, under a subsequent contract.

Integrated design and build contracts are another option and have the advantage of offering the employer greater security as the supplier is responsible for both the design as well as its successful implementation. In practice, however, this integrated approach is not necessarily preferred by employers as although it offers a single point of responsibility, it precludes employers from seeking bids for the construction works from a range of interested suppliers and may be considered as being less cost-effective.

In design and construction projects, employers are concerned to ensure that the project is feasible and can be successfully brought to completion without defects or deficiencies and within the approved budget and timeframe.

On the other hand, contractors are concerned to ensure that they are properly remunerated for the supplies and services they provide and that the project is completed according to schedule. Contractors will also wish to minimise the risk of being exposed to contractual liability after the project’s completion, for instance requiring them to make good any faults in order to comply with contractually agreed minimum performance levels or to pay liquidated damages where performance guarantees cannot be met.

The employer and contractor should co-operate with a view to reaching an agreement on risk allocation, having due regard to the considerations that are specific to the particular project. While those risks that are within the control of the contractual party should be allocated to such party, there are other important risks that may not necessarily be within the control of the parties such as force majeure events, materials shortages, risk of price escalation and interface co-ordination with other contractors. These risks are best collaboratively and jointly managed so as to reduce time and cost implications.

Early involvement of the parties’ legal teams that should work together with the technical and engineering teams and have a clear understanding of the project’s objectives will increase the likelihood of all envisaged risks being properly identified and, where possible, prevented.

Risks that cannot be prevented, should be fairly and reasonably allocated amongst the parties or otherwise shared in a manner that is consistent and unambiguous throughout the contractual documentation thereby enhancing the prospects of timely and efficient project delivery.

This insight has been prepared for general information of our clients and other interested persons. It is not intended to be regarded as legal advice.

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