**1. Introduction**

The risk management market provides many opportunities for mitigating financial risks in construction. The risk management process consists of identifying risks, measuring risks and then deciding how to handle the risks. Once identified, risks can be avoided, retained or transferred (The A-R-T of Risk Management). There are ways of doing this, such as retaining, mitigating the risk through actions that reduce the frequency and/or severity of the risk consequence, or contractually transferring the risk to another party, either through insurance or contractual risk transfer agreements.

This chapter focuses primarily on transferring the economic (financial) consequences of losses that result from risk realization in the construction industry. We particularly explore available optimal financial risk transfer techniques, including various insurance products, and methods for transferring the financial consequences of risk realization through contractual agreements. We conclude with a section on indemnifying the financial considerations associated with new and evolving risks such as changing technology.

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*Risk Management in Construction Projects*

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Construction contracts are often written with incentive clauses based on the contracted for completion date. When construction is finished ahead of schedule the contractor is rewarded a pre-specified amount per day. If the project finishes after the deadline, a pre-specified penalty is assessed for each day late. Thus, risk realization in the construction process can have twofold financial consequences: direct and indirect costs of liability and damages. We cover direct losses to property, liability to contractors, business interruption coverage (e.g., delay in start-up or completion insurance and contingent business interruption in supply chain management), worker's compensation liability, and other important insurance mechanisms pertinent to construction risk management.
