Risk Allocation in Lump sum Contracts:
A Case Study of Saudi Aramco LSTK Contract
Student Name:
Abdulmohsen Al-Shuhail
Abstract
The General contract conditions are very important and very controversial
part of all contact documents. Hence Construction Contracts clauses should
contain a fair, clear, and comprehensive allocation of risk. And also should
explicitly define the rights and responsibilities of the contracting parties and
reasonably distribute construction risks between the contracting parties.
Appropriate risk allocation to all contracting parties motivates to perform in
a professional manner. The degree of control over the risk must also be
considered in the risk allocation process. Failure of contract conditions to
define the areas and rights and responsibilities of the risks and the
boundaries of the responsibilities between the parities could have a major
impact on project success.
The study looked at the fairness in allocating construction risks between the
Owner and the Contractor in the general conditions of the Saudi Aramco
LSTK contract. A questionnaire survey was conducted to collect data from
owner representative (Saudi Aramco and Contractors to identified and assess
(he contractual risk in the general contract clauses of the Saudi Aramco
LSTK contract. Out of 26 general condition contract clauses of Saudi
Aramco LSTK contracts were carefully analyzed, Six (6) were identified as
consistent and clear and Six (6) were identified as ambiguous in
understanding. The remaining clauses lay between these two categories. It is
recommended that clauses that were iden4jied to be ambiguous need to be
further studied rewording improvement.