Appendix B: Tenders - quantifying risk to contractors

Probability analysis provides a method for a contractor to quantify the risk he will carry [801. For example, for a contract for the construction of 100 km of pipeline in the Middle East the contractor was required to import all the construction plant. The consequence of the relatively short construction period was that a large amount of plant was needed. The working life of the plant was expected to exceed the contract duration and so command a considerable resale price. The implications of the major risks perceived by the contractor are shown in Fig. 15. All five factors shown produce a significant variation in the estimated basic cost of £3.65m.