Risk Allocation Framework in Agent-Construction Project in China

Agent-construction system is an innovative management method for the Chinese government in delivering public project, in which the government client choose a professional company to undertake the managing responsibilities of investment and construction, and hand over to the user party when the project completed. In agent-construction system, the agent (the professional company) implements the developer's duty, such as land acquirement, contractor selection, contract management, project cost, time, and quality management, etc. Therefore, the quadrangle relationship of sponsor, agent, consultant, and contractor makes the project management more complicated, particular in the responsibility and risk allocation. It is well known that the client and agent establish strategy cooperation relationship can reduce the risk management expenditure. The public known principle of risk allocation is to distribute the risk to the one who has the greatest capacity, such as expertise and authority, to manage the risk effectively and efficiently and thus charge the lowest risk premium. Some literatures suggest that risk would be better allocated if the management capacity of the parties are pair-wise determined. This paper is trying to present a conceptual risk allocation model based on risk management capacity (RMC). The components of RMC mainly include the financial indicator and non-financial indicator, additionally, a coefficient beta was proposed when comparing the RMC between two different industries in order to eliminate the discrepancy among different industries. It is hoped that this model would provide a feasible and convenient way to determine the risk allocation strategy between collaboration parties.