Uncertainty and Information Asymmetry in Underground Works: A Case Study

Uncertainty, information asymmetry and inappropriate risk sharing negatively influence the delivery of construction projects and are primary causes of claims, disputes and mistrust between the contracting parties. The presence of uncertainty in subsurface soil conditions is the main challenge in construction of underground works. It leads to information asymmetry and opportunistic behavior by the contractor for acquiring additional benefits. The International Federation of Consulting Engineers (FIDIC) has introduced a Geotechnical Baseline Report (GBR) for underground works based on the principle of balanced risk sharing which may reduce the uncertainty in soil conditions. In this paper, principle-agent theory is used to understand the relationship of Employer (principle) and the Contractor (agent) and impact of uncertainty and information asymmetry on project delivery. Case study of an under-construction hydropower project by government organization is carried out to evaluate the contractor’s opportunistic behavior for acquiring higher profits. It is concluded that uncertainty in soil conditions and asymmetric information led to the contractor’s possible opportunistic behaviors.