There is a flow to risk in the engineering and construction industry, and risk management actions taken by the contractor must recognize that flow. The deeper into the project the contractor goes, the fewer risk management options available. Wait too long and the only option is a claim or dispute.

This chart shows how risk flows through an engineering and construction project plotted against the options contractors have to manage that risk.

Once the contractor decides to tender a bid, he has, in effect, accepted the financial risks imposed by the contract and inherent to executing the set of tasks in his scope of work. While preparing a bid, it is critical to identify all of the potential sources of risk so they can be accurately evaluated and priced. During contract negotiations, the contractor may be able to modify or place upper limits on his risk exposure, however, he is not normally able to dictate the basic terms under which he will accept the contract.

 
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