PRACTICAL RISK MANAGEMENT

Typical construction-related risks which may result in

delays and/or increased costs to a client
A detailed assessment should be made of all the hazards associated
with a particular project. The following lists cover some of the
more usual risks. The reader is reminded that some general com-
mercial risks have been listed earlier in the text and that many
of those (e.g. overseas and political risks), although not repeated
here, will be applicable equally to construction clients. Particular
construction risks for clients can include

Third-party-controlled risks
• Approvals
o planning approvals
o use of hazardous substances on site consents
o tree preservation orders
o conservauon area consents
o scheduled monument consents
o need for environmental impact assessments
• Public inquiries
• Legal agreements
o rights of way
o rights of light
o wayleaves
o noise control requirements
o sites of special scientific interest
• Pressure groups, local protests
• Industrial action
• Terrorism in some locations, particularly overseas.
• Changes in regulations
• Changes in statutory legislation

Inherent site-specific risks

• Access restrictions or limitations
• Existing occupiers/users
o alternative provisions (e.g. accommodation, parking)
o working hour restrictions
o maintenance of access (roads, footpaths , associated barriers)
o maintenance of services
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 RISK CONSIDERATIONS OF CLIENTS

• Effect of existing buildings

o need for protection
o need for demolition
• Existing site boundaries
o need to protect and keep in good condition
o need for temporary enhancement to suit works
• Security
o protection of works in hand, including temporary works,
particularly if several contractors on the same site
o security provisions including staffing
• Additional land requirements
o for permanent works
o for temporary works or for access
• Requirements for new services from statutory undertakings
o these will include water, gas, sewage, electricity, telephone
• Use of existing services
o their availability to suit site requirements, capacity,
conditions
o need to determine location, effect of disruption
o need for relocation around site
• Known ground conditions
o extent of pre-construction investigations
o soil types and variability
o possibility of mining works, subsidence
o contaminated land
• Climate and weather conditions.

Direct client-controlled risks

• Inaccurate or insufficient terms of reference
• Changes in requirements
o occupancy, usage, size, scope pre- and post-contract award
• Changes to timescale
o late decision taking
o late handing over of site
o postponements, accelerations or delayed programme
o early handover of part or whole of contract
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PRA CT I CAL RI S K MANAGEMENT

• Financial implications
o availability of funds, generally
o availability of funds to meet payments due to contractor
or needed for third parties
o liabilities to others if contract completed late

Design-team risks
• Inaccurate interpretation of terms of reference
• Errors in design, contract documents, drawings
• Failure to meet required timescale
o for producing various phases of duties as required by client
o for co-ordination of subconsultants
o delivery of drawings and information to contractor
• Estimating inadequacies
o changes in labour, plant, material costs
o inflation
o taxation changes
• Experience of team
o experience of members of team
o continuity of staff
• T ype of design
o established design methods or prototype/leading edge/
unusual structure type designs
• Inadequacy of client protection
o professional indemnity insurance, collateral warranties
o provisions for maintaining foregoing after handing over
works
• Liquidation/insolvency of members of design team.

Contractor risks
• Failure to meet programme
o inadequate resources, estimates of duration of activities
o poor co-ordination of subcontractors
o inclement weather
• Price changes permitted under certain contracts
• Disputes and claims
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 RI S K C 0 N SIDER A T I 0 N S 0 F C LI E .V T S

• Poor workmanship
• Poor site management, quality control, staff expenence,
continuity
• Accidents or injuries for which client may retain responsibility
o under contract
o due to client staff or joint site occupancy
• Latent defects
• Liquidation/insolvency of contractor.

Other risks
• Changes in conditions affecting viability of completed project
• Political change, i.e. those leading to changes of project scope
or cancellations, sanctions and embargoes, tighter exchange
controls, repatriation of funds
• Government legislation
• Uninsurable risks , e.g. force majeure.

Identification of technical risks

A technical risk assessment will assist highlight hazardous areas
of a project, including those for which a client must make provision.

Normal risks
There are risks normally associated with the construction of large
civil engineering works including those relating to guarding, watch-
ing, site safety, poor materials, poor workmanship, poor plant
operation and maintenance, theft, arson, poor setting out, etc .
These matters are generally at a contractor 's risk: an indemnity
and/or insurance will usually be required by the construction
contract for damage or loss to works, plant, equipment, third party
injury and property damage or loss. Advice may be needed from
insurance advisors as to the insurance requirements necessary to
cover risks which might result both from within and from outside
the contract.

Particular risks
There are risks associated with designing and constructing works
of any one particular type (e.g. bridges, tunnels, roads, marine
works). In addition, particular locations will have their own risks.
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19 Risk considerations of
contractors

The need for a detailed risk assessment for each project has already
been described with reference to clients. It applies equally to
contractors. The following lists some of the more usual contractor
risks. The reader is also referred to other lists included in this text
for items which may not necessarily be repeated here.

Typical hazards which may result in delays and/or increased

costs to a contractor
Client risks
• Client cancels project
• Client delays start of project
• Client suspends works
• Client delays payments of certificates and claims
• Client delays taking over works
• Client insolvency leaves outstanding debts for work done
• Client insolvency gives receiver material on site for which
suppliers have not been paid
• Deficiencies, errors, contradictions, ambiguities in contract
documents, e.g. specifications and drawings
• Inadequate supply, quality, timing of information and drawings
by client's designers, architects, etc.
• Unexpectedly onerous requirements by client's supervisors
• Unexpected inadequacy of pre-construction site investigation
data in terms of interpretation or recommendations
• Unforeseen ground conditions
• Late project changes in size, scope
• Consequences of delays in interconnecting contracts, e.g. plant.

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PRACTICAL RISK MA N AGEME NT

Supplier/subcontractor risks
• Supplier start delay
• Supplier poor performance, quality of materials, timing,
delivery of information
• Subcontractor (nominated or otherwise) start delay
• Subcontractor poor performance, quality of materials, work-
manship, design, timing, delivery of information
• Subcontractor insolvency.

Constructional plant risks

• Delay in availability of constructional plant
• Poor performance of constructional plant
• Breakdown of key constructional plant
• Lack of standby plant, spares
• Fall in expected resale values.

Direct contractor risks

• Shortages of experienced staff and labour
• Contractor start delay
• Contractor poor performance, inappropriate materials, work-
manship, design, timing, management inefficiency
• Poor performance by any joint venture partners
• Liabilities for injury, damage or interference to persons or third
party property on or off the site
• Responsibility to correct defects in the defects liabilityI
maintenance period
• Long-term responsibilities for latent defects which become
evident after the end of a contract
• Strikes, labour disputes
• Consequential losses, e.g. loss of profits arising from incidents
• Accident to key operatives, management staff
• Frustration of contract due to some fortuitous intervening event
altering the nature of the contract to the extent that it can no
longer be undertaken as intended
• Adverse weather
• Fire, theft, other physical risks
• Significant temporary and permanent works failures during
construction due to design, materials or workmanship
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 RI SK CONS ID E R ATI ONS OF CON TR ACTOR S

• Unforeseen services, obstructions, contamination, ground

conditions, water inflows, gases, vertical shafts, mine workings
• Archaeological finds
• Explosive finds
• Malicious damage, terrorism, war, civil commotion
• Contractually defined 'excepted risks ' occurring
• Unforeseen events and delays not allowed for in tender.

Financial risks
• Inadequate tender pricing
• Unexpected price escalations not covered/covered by contract
clause
• Statutory pay increases, tax increases, etc .
• Devaluation
• Financial constraints on ability to meet payments to others.

Third party risks

• Statutory changes affecting construction, e.g. health and safety
requirements
• Failure to obtain planning consents, easements, etc . in time
allowed
• Unexpected difficulties as a result of interface with third party
utilities and others
• Unexpected difficulties as a result of need to liaise with other
contractors on site
• Delays in approvals by engineer, client, local authorities
• Local environmental pressure groups
• Damage to works by third parties.
f

Overseas risks
v- • Overseas skill/supervision shortages
v- • Overseas plant, spares and material shortages
v • Local customs
v • Import/export difficulties
'""""" • Exchange control restrictions
• Unexpected exchange rate movements
v • Bureaucratic delays
v • Remoteness of site access and/or facilities and/or communica-
tions.
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PRA C TI CA L RISK MA NAGE MENT

Litigation/ arbitration risks

• Delay in resolving litigation/arbitration disputes
• Uncertainty of result of disputes
• Unfavourable decisions
• Costs of legal processes.

Identification of technical risks

As for clients, a detailed technical risk assessment of particular
projects can be undertaken. The initial risks retained by a contractor
will to a significant extent depend upon what terms exist within
the contract between the contractor and the client (other than
liabilities outside the contract pertaining to tort, statute or strict
liability as described earlier).
Lists and studies similar to the foregoing can be used to check
what risk controls are already in place or need to be implemented
in order to reduce potential consequences to an acceptable level
compatible with the policy and self-retention capacity of the
contractor concerned .

Contractor risk control

A contractor can tackle identified risks by methods including
• undertaking additional site-related investigations of poorly
defined risk areas, e.g. sub-soil conditions, likelihood of
flooding
• contractual transfer
• using safer working methods plant and materials
• Insurances
• adding a risk premium to its tender
• alternative methods of risk financing.
Figure 6 shows how some of a contractor's risks can be reduced.

Contractual transfer
Contractual transfers have been considered earlier in this text
and many of the procedures are equally applicable to contractor's
risks .

Use of safe working methods, appropriate plant and materials,

trained workforce
A prudent contractor will always seek to use safe procedures on
78