Industrial relations risk may materialise at both the construction and operational phases of the project. Where the risk does materialise, it may have a major effect on the economics of a project and affect both inputs and outputs.
This supporting document treats industrial relations risk as a distinct risk, and acknowledges that, in context, it may form part of construction risk, operational risk, interface risk or change-in-law risk.
During the construction phase, delay in delivering construction materials caused by industrial action and on site stop-work action may cause 'delay costs', including increased finance and construction costs. Delay as a result of industrial action (whether affecting the project directly or indirectly) may also result in loss of revenue to the private party by delaying the start of the payment regime. During the operational phase, industrial action may delay or frustrate service delivery and may cause interface risks to materialise where, for example, provision of core services is dependent on the service that is being disrupted.
Generally the losses arising from industrial action are attributable to delays in obtaining supplies, delays in construction and/or delays in delivering the service, leading to increased costs, reduced or lost revenue to the private party and possibly a contractual liability to pay damages to government.
Because of its similar impact on the project, civil commotion and unrest (usually occurring in the form of civil demonstrations) is commonly conjoined with industrial relations risk in contract clauses.