A dynamic mechanism of risk allocation of construction project from perspective of incomplete contract theory: A theoretical model

Proper risk allocation (RA) can promote project management performance by means of contract clauses, but the existing researches were mainly on the philosophy of one-time and static RA, which hindered the project management performance improvement persistently. On the basis of literature review, the paper pointed out the characteristic of dynamic RA , and further analyzed the RA contract clauses of incomplete contract nature, and established a theory model of dynamic RA in construction project which includes initial RA and risk reallocation, which has important significance on reasonable RA in the process of contract negotiation between the project owner and the contractor.

I. INTRODUCTION

As a governance mechanism, project transaction contracts' purpose is to promote the project parties forming a collaborative project organization, and to implement appropriate risk allocation (RA) and its management [1]. Valid contract management can enhance the project management performance 8–30% [2]. In the project contract management mechanism, RA is the core element [3] for improving good governance of project [4]. From the perspective of the Economics of Contracts, the contract can be divided into initial contract (namely contract) and renegotiations [5], correspondingly, as an important part of the contract, the RA process can be also divided into initial RA in contract signing stage and risk re-allocation in contract performance stage. Therefore, designing good RA mechanism to realize the above two stages of reasonable RA is the key to improve project management performance.