Project procurement - risk management

Project procurement - risk management

When are the risks in the procurement of investiment programmes or projects?

Typical risks in the procurement of capital programmes / projects:

Financial risks:
  • Increase of interest rate
  • Exchange rate fluctuation
  • Inadequate contingency funds
  • Inadequate revenue to cover maintenance cost
  • Availability of funding
Construction risks:
  • Risks associated with different types of contract
  • Scope changes and claims
  • Delay of project completion
  • Cost overrun at completion
  • Over-estimate of the supply chain’s technical capability and capacity
  • Project fails to meet performance specification
  • Compliance with construction health and safety legislation
Operation and maintenance risks:
  • Lack of necessary staff and skills
  • Failure to identify which party is responsible for any increase of operating costs
  • Neglect of maintenance
  • Force majeure events

Market risks:

  • Misjudgment of supply chain market
  • Difficulty of transporting/delivering the products
  • No long-term purchase agreement/guaranteed payment for the service or product

Political risks:

  • New laws/legislations
  • Strikes/terrorism
  • Government consent/permit/priorities
  • Breach of contract due to political reasons
  • Expropriation or nationalisation of project assets

Other risks:

  • Misidentification of project
  • Corruption in procurement
  • Failure of fulfilling social and environmental obligations
  • Technical/structural risks
  • Misidentification of procurement strategies and/or delivery procedures

Further References:

Merna, T and Njiru, C (2002) Financing Infrastructure Projects
OGC (2007) Procurement and Contract Strategies
Denton Wilde Sapte (2004) A Guide to Project Finance
Hawkins, J, Herd, C and Wells, J (2006) Modifying Infrastructure Procurement to Enhance Social Development

Understand the risk response process; allocate each risk to the project party best placed to deal with it

Risk response process:


Example 1 Construction risk – health and safety in developing countries


  • UK – 100 fatalities on construction sites each year
  • India – 40,000 deaths at work in 2001
  • 262,000 dying from work related diseases
  • 65,000 from dangerous substances

Actions: can be taken at each procurement stage.
Example: Hong Kong government clients – “Pay for Safety” and recent procurement reform in Singapore.
Reference: Engineers Against Poverty (EAP) Promoting Construction Health and Safety through Procurement: A briefing note for developing countries


Example 2 Strategies for Managing Company/Conflict Risk

Construction companies benefit from thinking constructively about understanding and minimising conflict risk and actively contributing to peace

Reference:“Conflict-Sensitive Business Practice: Engineering Contractors and their Clients” by EAP