Available online at www.sciencedirect.

com

International Journal of Project Management 26 (2008) 431438 www.elsevier.com/locate/ijproman

Risk assessment and allocation in the UAE construction industry

Sameh Monir El-Sayegh
*
Civil Engineering Department, American University of Sharjah, P.O. Box 26666, Sharjah, United Arab Emirates Received 24 January 2007; received in revised form 11 July 2007; accepted 12 July 2007

Abstract This study identies and assesses the signicant risks in the UAE construction industry and addresses their proper allocation. Data were collected through a questionnaire distributed to construction experts. The study reveals that economic risks such as ination and sudden changes in prices, shortage in material and labor supply are signicant. Other signicant risks include owner risks such as unrealistic construction schedule, improper intervention and changes in design. Political, social and cultural risks are found to be insignicant. Local and international experts are in agreement as to the ranking of construction risks in the UAE. More risks are allocated to contractors or shared between contractors and owners with only two risks allocated directly to the owners. 2007 Elsevier Ltd and IPMA. All rights reserved.
Keywords: Risk management; Risk assessment; International construction; UAE construction industry

1. Introduction The construction business, like any other business, is risky. However, construction projects are perceived to have more inherent risks due to the involvement of many contracting parties such as owners, designers, contractors, subcontractors, suppliers, etc. Construction projects are unique and built only once. They also involve a temporary project team that is assembled from dierent companies, countries, cultures, etc. Moreover, the size and complexity of construction projects are increasing which adds to the risks. This is in addition to the economic, political, social and cultural conditions where the project is to be undertaken. Project risk can be dened as an uncertain event or condition that, if it occurs, has a positive or negative eect on at least one project objective, such as time, cost, scope, or quality [1]. Risks are related to rewards. Some risks should be accepted as long as they are in line with the rewards. Risks are threats to project success [2]. Failure to adequately deal with risks has been shown to cause cost and time overruns in construction projects [3,4]. Trying to
*

Tel.: +971 6 5152941; fax: +971 6 5152979. E-mail address: selsayegh@aus.edu

eliminate all risks in construction projects is impossible. Thus, there is a need for a formal risk management process to manage all types of risks. Risk management is a formal and orderly process of systematically identifying, analyzing and responding to risks throughout the lifecycle of a project to obtain the optimum degree of risk elimination, mitigation and/or control [5]. To be successful, the organization should be committed to addressing the management of risk proactively and consistently throughout the project [1]. One of the major steps in project risk management is to identify and assess the potential risks in the project. Every project contains some degree of risk; and yet, most project managers are ill prepared when it comes to identifying or adequately addressing potential risks [6]. Trying to identify all the risks is time-consuming and counter productive. Attempts to consider every risk are doomed to failure [3]. The trick is to identify the most critical risks and control them [7]. Thus it is important to determine the most significant risks in the construction industry. There are a number of researches on construction risks in several countries such as Indonesia [3], USA [8], Kuwait [9], Hong Kong [10], China [11], India [12], and Taiwan [13]. However, no such study had been performed in the United Arab Emirates

0263-7863/$30.00 2007 Elsevier Ltd and IPMA. All rights reserved. doi:10.1016/j.ijproman.2007.07.004

432

S.M. El-Sayegh / International Journal of Project Management 26 (2008) 431438 Table 1 Respondents prole Category Respondents Number Years of experience >20 years 1020 years 510 years <5 years Role Owner Designer Contractor Construction Manager Position Executives Project Managers Department Heads Architect/Engineers Average project sizea <50 (Million AED) 50100 (Million AED) 100500 (Million AED) >500 (Million AED)
a

(UAE). Construction risks dier among dierent countries as the economic, political, social and cultural conditions are dierent. The management of risk is greatly inuenced by the uniqueness of the construction industry in a specic country [3]. The UAE construction industry is unique. The UAE is witnessing an unprecedented boom in construction activity at all levels with the governments goal of diversifying its income away from oil dependence to tourism, commercial and industrial activities. There are a lot of new mega projects that are underway and others in the pipeline. The number, size and complexity of new construction projects has created an extra burden on construction participants and resulted in lots of risks. Therefore, it is important to identify and assess the signicant risks in the UAE construction industry in order to help local companies and international companies who do or plan to work in the UAE to pay attention to these signicant risks. Risk identication and allocation are inuential factors in risk handling decisions [13]. The main objective of this paper is to identify and assess the signicant risks in the UAE construction industry based on their risk rating (impact and probability). The paper also compares the perspectives of local and international companies working in the UAE. Moreover, this research addresses the proper allocation of risks to the appropriate contracting party. 2. Research methodology The rst step was to identify risks in construction projects. This was done primarily through literature review. A comprehensive list of 42 risks was developed based on previous studies in Indonesia [3], USA [8], Kuwait [9], Hong Kong [10], and China [11]. A questionnaire was then structured to get the perceptions of construction experts in the UAE. The questionnaire consisted of two sections. The rst section was intended to gather information about the respondents prole. The second section was intended to get the perception on the rating of each risk. Each risk had three questions. The rst question relates to the probability of the risk event occurring on construction projects. The respondents were asked to choose between very low, low, moderate, high and very high. The second question refers to the impact on project objectives once the risk event occurs. The third question relates to the proper allocation of the risk to the owner, contractor or shared. The questionnaire survey forms were distributed to construction professionals associated with the UAE construction industry. The completed responses were collected either personally, or received through regular postal mails, e-mails, and faxes. Out of 200 distributed questionnaires, 70 were returned (or collected). Sixty ve out of 70 questionnaires were complete and used in the analysis. Table 1 summarizes the respondents prole. Eighty percent of the respondents had more than 10 years of experience.

% 50.77 29.23 07.69 12.31 20.00 15.38 46.15 18.46 26.15 35.38 18.46 20.00 09.23 15.38 47.69 27.69

33 19 5 8 13 10 30 12 17 23 12 13 6 10 31 18

US$ = 3.67 AED (2006 currency).

Forty three respondents work in local companies while 22 work in international companies. The relative importance index (RII) for each risk was calculated using Eq. (1). An RII was calculated for the probability, impact and rating. The risk rating is calculated by multiplying the probability and impact for each risk. The risk rating can be used to prioritize risks for further quantitative assessment or response planning. The specic combinations of probability and impact lead to a risk being rated as high, moderate, or low importance [1] P5 i 1 W i X i Relative importance index; RII P 1 5 i1 X i where Wi Xi i weight assigned to ith response; Wi = 1, 2, 3, 4 and 5 for i = 1, 2, 3, 4 and 5, respectively frequency of the ith response response category index = 1, 2, 3, 4 and 5 for very low, low, moderate, high and very high, respectively

To study the strength of relationship between two sets of ranking, the Spearman rank correlation coecient was determined using Eq. (2) [14]. The Spearman rank correlation coecient has been widely used by many researchers for the statistical analysis, particularly when the rank is used for the data analysis. The spearmans rank correlation coecient is a nonparametric measure of correlation between two series using the ranks rather than the actual values [14]

S.M. El-Sayegh / International Journal of Project Management 26 (2008) 431438

433

P 6 d2 rs 1 3 N N where rs d N Spearman rank correlation coecient dierence in ranking number of variables (risks) = 42

The higher the value of rs (approaching 1) indicates a strong association between the two sets of ranking [15]. 3. Risk identication Various risks were identied in the rst stage. This was accomplished mainly through literature review. The Risk Breakdown Structure (RBS) is then developed to organize the dierent categories of risks (Fig. 1). To improve the risk identication process, risks can be categorized according to the source of risks. The Risk Breakdown Structure (RBS) shows the risk groups, risk categories and risk events at the lowest level. Project risks are divided into two groups, according to their source, into internal and external. Internal risks are those that are project related and usually fall

under the control of the project management team. External risks are those risks that are beyond the control of the project management team. Other researchers divided projects risks into internal and external [11,13,16]. Aleshin [16] stated that internal risks are initiated inside the project while external risks originate due to the project environment. Internal risks are then divided according to the party who might be the originator of risk events such as owner, designer, contractor, etc. External risks are those initiated at the macro level [16]. 3.1. Internal risks The owners category includes owners delayed payments to contractors. Payments from owners are the main source of revenue for construction contractors. When owners delay payments to contractors, a nancial hardship is placed on the contractors. Owners often impose tight construction schedules that might be dicult and impractical to achieve. Owners often improperly intervene in the construction phase. Owners may require lots of design changes. This may result from poor scope of work denition or simply owners might change their mind during

Project Risks

Internal Risks

External Risks

Owners

Designers

Contractors

SubContractors
Poor Performance Breach of Contract

Suppliers

Political

Social & Cultural

Economic

Natural

Others

Delayed Payments to Contractors Unreasonably Imposed Tight Schedule Improper Intervention Change of Design Lack of Scope Definition Delays in Obtaining Site Access Breach of Contract Sudden Bankruptcy

Defective Design Deficiency in Drawings Changes in Design

Construction Accidents

Material Quality Problems Delay of Material Supply

War Threats

Criminal Acts

Inflation

Unexpected Inclement Weather Unforeseen Site Conditions

Poor Quality

Labor Strikes

Substance Abuse Conflicts due to Differences in Culture

Currency Fluctuation Shortage in Material Availability Shortage in Manpower Availability Shortage in Equipment Availability

Delays in resolving contractual issues Delays in Resolving Litigation Unfairness in Tendering

Low Productivity

Changes in Laws Corruption & Bribes Delays in Approvals

Documents not Technical Issued on Problems Time Contractors Incompetence Lack or Departure of Qualified Staff

Local Protectionism Difficulty in Claiming Insurance

Fig. 1. Risk Breakdown Structure.

434

S.M. El-Sayegh / International Journal of Project Management 26 (2008) 431438

the construction phase. Excessive changes by owners can be very dangerous and might jeopardize project objectives. Owners tend to rush projects for obvious time and money reasons. This results in poor denition of the scope of work which may aect project objectives. In some cases, owners rush into awarding contracts without securing the right of way to the contractors. This results in delays. Also, owners do not solve disputes in a timely manner which results in litigation. Owners may suddenly bankrupt. Although this is not a major risk, there are cases where owners cancel projects or breach their contracts due to bankruptcy. As for the designers category, there is a risk of defective design. The design might not be complete, may include lots of mistakes or may be not constructable. Designers maybe rushed to complete the design phase by owners to start construction early and achieve the time to market objectives. Another risk is the deciencies in drawings and specications. This risk relates to the quality of drawings and specications produced by the design professional. Changes made by the design professional during the construction phase are another risk. This is done by designers to improve their design or x any deciency. There is also a risk of delays in issuing construction drawings or other documents that contractors need for the construction activities. As for the contractors category, there is a risk of accidents during construction which may have negative impact on all other project objectives such as cost overruns, delays, loss of productivity and loss of morale. Other risks relate to construction quality and productivity of labor and equipment. Unpredicted technical problems in construction are another risk. This might occur because of the uniqueness of the project or the unfamiliarity of the contractor with this type of projects. Another risk relates to the contractors competence in achieving project objectives and the degree to which the contractor is employing construction management techniques for cost, time and quality control. Lack or departure of qualied sta is another risk. Qualied sta is hard to hire and retain. Use of subcontractors in the UAE construction industry is increasing. Subcontracting oers many advantages to the contractor and to the project as a whole. However, subcontracting is risky. Subcontractor poor performance refers to the risk of low quality, delayed completion, unsafe practice by subcontractors. Another risk relates to subcontractor breach of contract (including sudden bankruptcy) and disputes with the general contractor. Material suppliers risks include delay of material supply by suppliers and quality problems with supplier material. 3.2. External risks The political risk category includes war threats and political instability. Labor strikes and disputes can disrupt construction activity and may aect project objectives negatively. Another risk includes changes in law and regulations by the UAE government that aects construction

activity. An example in recent years was passing a law that stops construction work during the summer (July and August) between 1 and 3 pm. This change has aected ongoing projects. Another risk includes corruption and bribes in the supervisory units for construction projects. There is also a risk of delays in obtaining permits and approvals from the concerned government entities. The social and cultural risk category includes criminal acts, substance abuse and conicts due to dierence in culture and traditions. The economic risk category includes ination and sudden changes in prices. This relates to the risk of price increases during the construction phase. Another risk relates to the risk of uctuating exchange rates that aect the protability of the project. Shortage in supply and availability of resources such as material labor and equipment are also economic risks. The natural risk category includes unexpected inclement weather and unforeseen site conditions. Other risks include the risk of delays in resolving contractual issues during the construction phase including change order negotiations. The source of this risk involves many participants. Also, there is the risk of delays in resolving contractual issues after the completion of the construction phase. Other risks include unfairness in tendering during the pre-construction phase and local protectionism which includes favoring local companies. The last risk relates to the diculty in claiming insurance compensation from insurance companies. 4. Risk signicance Based on the survey results, the relative importance index (RII) was calculated for each risk based on probability, impact and rating. These risks were then ranked according to their RII. The results are presented in Table 2. Table 3 presents the top 10 risks in the UAE construction industry based on risk rating. According to risk rating values, the most signicant risk is ination and sudden changes in prices. The RII is 15.48 (scales 125). Ination is a key risk in the UAE. The latest gures showed ination as high as 10% for 2006 [17] while other sources report an estimated 13.8% in 2006 [18]. Also, most construction professionals did not forget what happened in 2005 when material prices sky-rocketed causing bankruptcy for some contractors and delays in major projects. Ination was ranked high (2nd) in Indonesia [3] while low (18th) in Kuwait [9] and China (30th) [11]. The second risk is that owners often impose tight construction schedule that might be dicult and impractical to achieve. This might be caused by the importance of time to market but often is caused by political reasons. This risk was ranked 6th in China [11]. The third risk is subcontractors poor performance and management (RII = 13.2). This is especially true for local companies who have a number of small subcontractors that can not cope with the size and complexity of new projects in the UAE. This risk was ranked 9th in Indonesia [3], 5th in Kuwait [9] and 9th in China [11].

S.M. El-Sayegh / International Journal of Project Management 26 (2008) 431438 Table 2 Overall risk signicance Risk Description Probability RII 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 Owners delayed payment to contractors Owners unreasonably imposed tight schedule Owners improper intervention Change of design required by owners Lack of scope of work denition by owner Delays in obtaining site access and right of way Owners breach of contracts and disputes Owners sudden bankruptcy Defective design Deciencies in drawings and specications Frequent changes of design by designers Drawings and documents are not issued on time Accidents during construction Poor quality of work Low productivity of labor and equipment Unpredicted technical problems in construction Contractors incompetence Lack or departure of qualied sta Subcontractors poor performance Subcontractors breach of contracts and disputes Delay of material supply by suppliers Quality problems of supplier material War threats and political instability Labor strikes and disputes Changes in laws and regulations Corruption and bribes Delays in approvals Criminal acts Substance abuse Conicts due to dierences in culture Ination and sudden changes in prices Currency uctuation Shortage in material supply and availability Shortage in manpower supply and availability Shortage in equipment availability Unexpected inclement weather Unforeseen site conditions Delays in resolving contractual issues Delays in resolving disputes Unfairness in tendering Local protectionism Diculty in claiming insurance compensation 3.05 3.52 3.28 3.29 3.00 2.57 2.55 1.72 2.32 2.94 2.94 2.83 2.54 2.62 2.74 2.55 3.06 3.17 3.32 2.95 3.23 2.77 1.62 2.06 2.28 2.08 3.20 1.52 1.75 2.20 3.62 2.25 3.08 3.14 2.77 1.77 2.40 3.17 2.80 2.68 2.58 2.65 Rank 13 2 5 4 14 27 28 40 32 16 17 18 30 25 22 29 12 8 3 15 6 20 41 37 33 36 7 42 39 35 1 34 11 10 21 38 31 9 19 23 26 24 Impact RII 3.58 3.60 3.65 3.71 3.57 3.25 3.46 3.97 3.37 3.34 3.43 3.38 2.80 3.20 3.45 3.25 3.58 3.75 3.85 3.55 3.86 3.38 3.60 3.37 3.02 2.83 3.74 2.43 2.38 2.55 4.15 3.18 3.60 3.80 3.52 2.80 3.18 3.40 3.20 3.31 2.85 3.11 Rank 13 10 9 8 15 28 18 2 24 26 20 22 38 30 19 29 14 6 4 16 3 23 11 25 35 37 7 41 42 40 1 32 12 5 17 39 33 21 31 27 36 34 Rating Value 11.18 13.32 12.38 12.63 11.38 8.95 9.14 7.05 8.29 10.48 10.31 10.12 7.54 8.97 9.97 8.85 11.31 12.15 13.2 10.74 12.8 9.78 6 7.42 7.37 6.51 12.32 4.02 4.52 6.34 15.48 7.78 11.83 12.37 10.17 5.32 8.15 11.38 9.55 9.2 7.83 8.71

435

Rank 14 2 6 5 11 26 24 36 29 16 17 19 33 25 20 27 13 9 3 15 4 21 39 34 35 37 8 42 41 38 1 32 10 7 18 40 30 12 22 23 31 28

Table 3 Ten most signicant risks in the UAE construction industry Risk Ination and sudden changes in prices Owners unreasonably imposed tight schedule Subcontractors poor performance and management Delay of material supply by suppliers Change of design required by owners Owners improper intervention during construction Shortage in manpower supply and availability Delays in approvals Lack or departure of qualied sta Shortage in material supply and availability Rank 1 2 3 4 5 6 7 8 9 10 RII 15.48 13.32 13.20 12.80 12.63 12.38 12.37 12.32 12.15 11.83

Delays in material supply is also an important risk (RII = 12.8). Again this risk is caused by the large number and size of new projects in the UAE that impose con-

straints on material suppliers. Another reason is that most material are imported and require a long lead time. This was ranked low (28th) in China [11]. Change of design required by owners is ranked 5th (RII = 12.63). This is a common risk as owners rush into projects without the necessary planning and design time and result in changes in design as construction progresses. Also, owners are blamed for the 6th risk (RII = 12.37) that is improper intervention during construction. This risk was ranked high (8th) in China [11]. Shortage in manpower supply and availability is an economic risk that is ranked 7th (RII = 12.37). There is an increased demand on manpower in the UAE as project numbers, size and complexity increase. To add to this problem, the government imposes strict quotas for importing manpower from specic nations. Delays in approvals is

436

S.M. El-Sayegh / International Journal of Project Management 26 (2008) 431438

a political risk that is ranked 8th (RII = 12.32) in the UAE. This is related to obtaining governmental approvals and building permits. This delay is not because the government bodies are not ecient but primarily due to the large number and sizes of ongoing projects. This was ranked 10th in China [11]. The 9th risk is contractor related. Lack or departure of qualied sta is a major problem especially in the elds of construction and project management. Many talented sta keeps moving from one company to another as competition oers excellent opportunity for experienced sta. The 10th risk is the shortage in material supply and availability which is an economic risk that is caused primarily because of the large demand. It is important to note that the social and cultural risks are of low signicance. Criminal acts (RII = 4.02) is the lowest ranked risk while substance abuse is ranked 41st (RII = 4.52) and conicts due to dierences in culture and traditions is ranked 38th (RII = 6.34). Culture and traditions play an important role in the Middle East and the UAE is not dierent. Foreign nationals have to understand these cultural dierences to be able to live and work in the UAE. However, the UAE is a modern country that has the majority of its population as foreigners. This minimizes the signicance of this risk. Political risks such as war threats and political instability, corruption and bribes, changes in laws and regulations, and labor strikes and disputes are also considered of low signicance. The only political risk that is signicant is the delays in approvals. To properly evaluate construction risks, one must consider both the probability of risk occurrence and the impact on project objectives once the risk event occurs. Some authors contend that multiplying the probability and impact values might be misleading [3,19]. This is achieved best by plotting the risk probability impact matrix (Fig. 2). In the matrix, the x-axis represents the impact value while the y-axis represents the probability value. Both scales are 15 (one being very low to 5 being very high). The matrix shows 12 of the risks to be high (Probability > 3 and Impact > 3). It also shows that the majority of the risks are moderate (Probability 23 and Impact > 3).

There are ve risks that have probability of less than 2 and four risks with impact less than 3. These risks are considered low. 5. Comparison of local and international companies The UAE construction market is open to local and international companies. Many of the mega size projects are handled by international companies with local partners. The perceptions of experts working in international companies are compared to that of local companies. Table 4 presents the top ten risks according to experts working in international companies in the UAE. Table 5 presents the top ten risks according to experts working in local companies in the UAE. Ination is ranked 1st in both lists. Owners unreasonably imposed tight schedule is ranked 2nd and 4th by international and local companies respectively. Change of design by owners is ranked much higher by international companies (3rd rank) than local companies (8th rank). Shortage in manpower supply and availability is ranked 4th by international companies while ranked 11th by local companies. This might be due to the ease of importing labor by local companies relative to international companies who have to meet certain requirements. Subcontractors poor performance and management is ranked higher by local companies (3rd) than international (5th). Lack of scope of work denition is ranked 6th by international companies while ranked 14th by local compa-

Table 4 Ten most signicant risks according to international companies Risk Ination and sudden changes in prices Owners unreasonably imposed tight schedule Change of design required by owners Shortage in manpower supply and availability Subcontractors poor performance and management Lack of scope of work denition by owner Frequent changes of design by designers Owners delayed payment to contractors Lack or departure of qualied sta Delays in resolving contractual issues Rank 1 2 3 4 5 6 7 8 9 10 RII 16.14 14.82 14.32 14.32 13.82 13.36 12.73 12.64 12.64 12.64

Probability - Impact Matrix

5.00

4.00

Table 5 Ten most signicant risks according to local companies Risk Rank 1 2 3 4 5 6 7 8 9 10 RII 15.14 12.91 12.88 12.56 12.30 12.21 11.91 11.77 11.63 11.42

Probability

3.00

2.00

1.00 1.00

2.00

3.00

4.00

5.00

Impact
Fig. 2. Probability-impact matrix.

Ination and sudden changes in prices Delay of material supply by suppliers Subcontractors poor performance and management Owners unreasonably imposed tight schedule Owners improper intervention during construction Delays in approvals Lack or departure of qualied sta Change of design required by owners Shortage in material supply and availability Contractors incompetence

S.M. El-Sayegh / International Journal of Project Management 26 (2008) 431438

437

nies. Delay of material supply by suppliers is ranked 2nd by local companies versus 11th for international companies. Although the top ten lists share only ve risks, the spearman rank correlation coecient (for all 42 risks) is calculated to be 0.9023 (using Eq. (2)) which indicates strong agreement between local and international companies on the importance and ranking of risks. 6. Risk allocation Risk allocation is an important issue. It refers to the proper allocation of risks to the contracting party, mainly the owner or the contractor. Sometimes, risks cannot be handled by one party alone so the two share that risk. Generally, risks should be allocated to the party that can best handle it. However, due to an asymmetry in commercial power, there are no rules regarding risk allocation in conTable 6 Risk allocation Risk 13 15 18 16 19 20 35 17 21 14 34 24 22 33 37 8 4 23 28 39 29 25 32 26 38 41 36 31 9 42 30 5 10 2 40 12 11 6 7 3 27 1 Description Accidents during construction Low productivity of labor and equipment Lack or departure of qualied sta Unpredicted technical problems in construction Subcontractors poor performance Subcontractors breach of contracts and disputes Shortage in equipment availability Contractors incompetence Delay of material supply by suppliers Poor quality of work Shortage in manpower supply and availability Labor strikes and disputes Quality problems of supplier material Shortage in material supply and availability Unforeseen site conditions Owners sudden bankruptcy Change of design required by owners War threats and political instability Criminal acts Delays in resolving disputes Substance abuse Changes in laws and regulations Currency uctuation Corruption and bribes Delays in resolving contractual issues Local protectionism Unexpected inclement weather Ination and sudden changes in prices Defective design Diculty in claiming insurance compensation Conicts due to dierences in culture Lack of scope of work denition by owner Deciencies in drawings and specications Owners unreasonably imposed tight schedule Unfairness in tendering Drawings and documents are not issued on time Frequent changes of design by designers Delays in obtaining site access and right of way Owners breach of contracts and disputes Owners improper intervention Delays in approvals Owners delayed payment to contractors

struction contracts as owners can place any risks to the contractor. Contractors usually respond to these risks by increasing their contingency and markup which ultimately increase the contract price to the owner. Sixty percent of the questionnaire respondents indicated that risks are not allocated properly in the UAE construction industry. Table 6 shows the survey results as to the allocation of each risk and the recommended allocation. The recommended allocation is for the party that gets more than 50% of the votes for each risk. If a risk did not have a party with more than 50% of the votes, it is labeled undecided. It is surprising to note that only two risks are allocated to the owners; the majority of the risks are allocated to contractors or shared and most of the owner/designer risks were undecided. This is probably due to the culture and widespread use of traditional contracts that places most of the risk on the contractor.

Owner (%) 3.08 0.00 1.54 1.54 1.54 3.08 0.00 6.15 0.00 4.62 1.54 4.62 1.54 0.00 3.08 53.85 50.77 10.77 1.54 6.15 1.54 4.62 3.08 4.62 4.62 15.38 1.54 6.15 26.15 1.54 3.08 30.77 16.92 20.00 30.77 32.31 35.38 24.62 27.69 29.23 30.91 32.31

Contractor (%) 87.69 83.08 81.54 78.46 75.38 75.38 75.38 66.15 66.15 64.62 64.62 63.08 60.00 52.31 50.77 18.46 10.77 7.69 26.15 24.62 32.31 29.23 32.31 32.31 33.85 23.08 41.54 38.46 18.46 46.15 44.62 18.46 33.85 32.31 21.54 23.08 21.54 33.85 30.77 29.23 30.91 36.92

Shared (%) 9.23 16.92 16.92 20.00 23.08 21.54 24.62 27.69 33.85 30.77 33.85 32.31 38.46 47.69 46.15 27.69 38.46 81.54 72.31 69.23 66.15 66.15 64.62 63.08 61.54 61.54 56.92 55.38 55.38 52.31 52.31 50.77 49.23 47.69 47.69 44.62 43.08 41.54 41.54 41.54 38.18 30.77

Allocation Contractor Contractor Contractor Contractor Contractor Contractor Contractor Contractor Contractor Contractor Contractor Contractor Contractor Contractor Contractor Owner Owner Shared Shared Shared Shared Shared Shared Shared Shared Shared Shared Shared Shared Shared Shared Shared Undecided Undecided Undecided Undecided Undecided Undecided Undecided Undecided Undecided Undecided

438

S.M. El-Sayegh / International Journal of Project Management 26 (2008) 431438

Although some of the results do not appear to be rational, the majority are properly allocated. The risk of delays in obtaining site access was undecided. This risk is beyond the control of the contractor and should be allocated to the owner [3]. Another controversial risk is the risk of owners delayed payment to contractors. The responses were split among owner, contractor and shared. Previous studies in the US [8] and Kuwait [9] showed that is risk is properly allocated to owners. Owners and designers risks are usually allocated to the owner while contractor, subcontractor and suppliers risks are allocated to the general contractor. On the other hand, external risks are normally shared between the owner and the contractor as they are beyond their control. Studying the responses from international and local respondents did not reveal major dierences as to the risk allocation practices. 7. Summary and conclusions The UAE construction industry is very active. Every day, there is an announcement of a new mega construction project. The number, size and complexity of new construction projects are increasing resulting in extra risks. The top ten risks can be attributed directly to this phenomenon. The results of this study show clearly that ination and sudden changes in prices is the highest risk in the UAE construction industry. Fifty ve percent of the respondents indicated that this risk should be shared between the owner and contractor while 38% indicated that it is contractors risk. Owners in the UAE are reluctant to share this risk with contractors. This allocation problem results in overpricing on the contractor bid to overcome this major risk. Other economic risks are very signicant such as shortages in resources supply and availability including material, labor and equipment. Other major risks included owner risks such as tight construction schedule, improper intervention and change of design. Contractors should negotiate the construction schedule with owners, if possible, or at least allow for time contingency and buers in their schedule. Delays in approvals by government entities should be expected and allowed for in the schedule. Other risks in the top ten include performance and management of subcontractors and delays of material supply by suppliers. This places emphasis on proper contract administration and management with subcontractors and the need for active expediting with material suppliers. The last risk is the lack or departure of qualied sta from the contractor side. This requires proper human resource management to attract and keep the competent sta. Political, social and cultural risks are found to be low and insignicant in the UAE construction industry. These are encouraging indicators that attract foreign companies and employees to come and work in the UAE. The views of local and international experts were compared and they are found to be in agreement as to the ranking of construc-

tion risks in the UAE. Risks were allocated more to the contractors or shared between contractors and owners with only two risks allocated directly to the owners. This study is important as it sheds the light on the risks in a booming UAE construction industry. Risk identication and assessment is an important step in project risk management and shows the signicance of several risks that are present in the industry. This study lays the foundations for comparisons with other countries, helps international companies interested in working in the UAE understand and appreciate the risks involved, and assists local companies in negotiating their contracts as to the proper allocation of risks. This study also helps in decision making regarding risk response planning and control. References
[1] Project Management Institute Standards Committee. A Guide to the project management body of knowledge. PMI; 2004. [2] Barber R. Understanding internally generated risks in projects. Int J Project Manage 2005;23(8):58490. [3] ANDI. The importance and allocation of risks in Indonesian construction projects. Construct Manage Econom 2006;24(1):6980. [4] Thomson P, Perry J. Engineering construction risks: a guide to project risk analysis and risk management. London: Thomas Telford; 1992. [5] Wang SQ, Dulaimi MF, Aguria MY. Risk management framework for construction projects in developing countries. Construct Manage Econom 2004;22(3):23752. [6] Termini MJ. Strategic project management. Michigan, Dearborn: Society of Manufacturing Engineers; 1999. [7] Barkley B. Project risk management. New York: McGraw-Hill; 2004. [8] Kangari R. Risk management perceptions and trends of US construction. J Construct Eng Manage 1995;121(4):4229. [9] Kartam N, Kartam S. Risk and its management in the Kuwaiti construction industry: a contractors perspective. Int J Project Manage 2001;19(6):32535. [10] Ahmed S, Ahmad R, Saram D. Risk management trends in the Hong Kong construction industry: a comparison of contractors and owners perceptions. Eng Construct Architec Manage J 1999;6(3):22534. [11] Fang D, Li M, Fong PS, Shen L. Risks in Chinese construction market contractors perspective. J Construct Eng Manage 2004;130(6):85361. [12] Ling F, Hoi L. Risks faced by Singapore rms when undertaking construction projects in India. Int J Project Manage 2006;24(3): 26170. [13] Wang M, Chou H. Risk allocation and risk handling of highway projects in Taiwan. J Manage Eng 2003;19(2):608. [14] Kottegoda NT, Rosso R. Statistics, probability, and reliability for civil and environmental engineers. New York: The McGraw-Hill Companies, Inc; 1997. [15] Odeh AM, Battaineh HT. Causes of construction delay: traditional contracts. Int J Project Manage 2002;20(1):6773. [16] Aleshin A. Risk management of international projects in Russia. Int J Project Manage 2001;20(4):20722. [17] CIA The World Fact Report United Arab Emirates. <https:// www.cia.gov/cia/publications/factbook/print/ae.html> [accessed 20.01.2007]. [18] Shouler, A. Skewed ination and the skewering of expats. Gulf News <http://archive.gulfnews.com/indepth/costoiving/more_stories/ 10066474.html>; 09.11.2006 [accessed 20.01.2006]. [19] William TM. The two-dimensionality of project risk. Int J Project Manage 1996;14(3):1856.