| An empirical study of the cost impact of exculpatory clauses was conducted by investigating qualitatively and quantitatively, using a mail survey, how bid prices of construction contractors varied between situations with different level of risk and exculpatory clauses. Two hundred and fifty questionnaires out of five hundred and fifty were completed by top project management personnel with more than 15 years of experience. This gave a response rate of 46%.;The motivation for this investigation was that exculpatory clauses are routinely used by owners to pass on risk to the contractor without any quantification of associated risk premiums or assessment of the benefits.;The results of this study identified the existence and quantified the size of risk premiums. Additionally, this study isolated associated premiums in ideal and adverse conditions and other impacts of shifting risk to the other parties in contracts. Furthermore, the findings suggest that inappropriate allocation of construction risks between owners and their contractors and the resulting disputes cause significant project inefficiencies and adversarial relationships and has a significant impact on the total construction costs paid by owners.;Several applications and implications of these premiums are considered. Specifically, recommendations as to how risk premiums can be used to determine the cost-effectiveness of risk sharing or reduction measures on projects are proposed. The existence and size of these risk premiums also implies a significant role for owners, contractors, consultants and project managers. These stakeholders need to be proactive in reversing the current trends and hence in reducing the risks in contract. |
