Identifying Risk In Cost Reimbursable Contracts

Open Access
Author:
Omar, Sadek A
Graduate Program:
Civil Engineering
Degree:
Master of Science
Document Type:
Master Thesis
Date of Defense:
November 20, 2009
Committee Members:
  • Dr Thomas, Thesis Advisor
  • Horace Randolph Thomas Jr., Thesis Advisor
Keywords:
  • Cost Reimbursable
  • Risk
Abstract:
The primary goal of the research is to assess risk elements in cost reimbursable contracts. There is a notion that these contract types serve little risk to a contractor. Nine total contracts were read and, using a standard definition for risk; risky clauses were selected and evaluated. The contracts were all from large industrial projects with large owners. The clauses analyzed were broken down into smaller categories such as entitlement and rights and responsibility. The clauses were then ranked as low risk, intermediate risk and a high risk. Stripping all superfluous language from the clause, specific risk factors were identified for each category. This provided a table where risk factors and level of risk were shown, which allows for comparison to any contract when assessing contractual risk. Furthermore, other risk aspects were discovered when reading the contracts. Contract coordination, overall contract tone and excessive referencing were some of the other non-clause related risk factors identified in the contracts. The result of the research identified that even in cost reimbursable contracts there will be risk for the contractor. The owner includes specific clauses to shed risk to the contractor, the more clauses are included the more risk can be identified. The term cost reimbursable does not always include all the aspects of a job and will have disallowed costs, which must be carefully managed.