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I. INTRODUCTION
Major construction projects are complex and high-risk endeavors. The structures that grace our skylines and make our modern world function-office towers, convention centers, museums, hotels, sports stadiums, airports, highways, bridges, tunnels, power plants, and petrochemical facilities, to name but a few-are testaments to our ingenuity and ability to overcome risks.
Complexity is inherent in construction. By its very nature, construction is a manufacturing process, but unlike manufacturing a product in the predictable environment of a factory, construction is performed outside and subject to the elements. Not until the structure encloses itself is there any reprieve from nature. Adding to the challenges of manufacturing outside, construction projects are on-time events. Things must be done right the first time. On large projects,1 the sheer number of people and entities that are involved creates yet another layer of complexity. The work force on a major international project can exceed ten thousand during the peak of construction.2 Hundreds of companies must be coordinated for the project to succeed; these include engineers, architects, contractors, subcontractors, equipment manufacturers, material suppliers, carriers, freight forwarders, financial institutions, and insurance companies. Some of the participants are experienced construction professionals, but others are not. The failure of any one of these entities to fulfill their obligations, or opposition from organizations outside the project such as governments, non-governmental organizations (NGOs), labor unions, or community groups, can jeopardize the success of the project.
The risks on a project are staggering. First, there are the ordinary and significant risks of design errors and construction defects. In addition, there are: (1) physical risks (severe weather, earthquakes, floods, tornados, tsunamis, heat, cold, altitude, and humidity); (2) labor risks (strikes, work slowdowns, riots); (3) human risks (corruption, vandalism, theft, job site safety, and disease3); (4) design and technology risks (using new and untried technology, materials, or processes); (5) site risks (latent subsurface conditions, environmental contaminations, endangered or protected species, archeological or anthropological discoveries); (6) logistics difficulties (congested urban areas, remote isolated sites); (7) supplier and transportation risks (material shortages and delivery delays); (8) regulatory risks (complex government permitting and approval processes); (9) financial risks (cost of capital, inflation, and taxes); and (10) political risks (war, terrorism, government intervention, such as wage and price controls). Other risks associated with foreign...