On 31 January 2018 and 7 February 2018 we hosted a Managing Risk Seminar covering the following topics:
- Identifying and Managing Risk, Ruth Wilkinson, Partner
- Managing Insolvency Risk, Stephen James, Partner
- Dispute Avoidance and Strategies, Hannah Mycock-Overell, Senior Solicitor
- Soft Landings – the Industry Perspective, Michelle Agha-Hossein, BSRIA
- Soft Landings – Contractual Issues, David Rintoul, Partner
The starting point was “no construction project is risk free. Risk can be managed, minimised, shared, transferred, or accepted. It cannot be ignored” (Latham, 1994).
Risk allocation: it’s crucial to ensure risks are allocated to the right contracting party, particularly those most able to bear or manage risk. Examples of parties best suited to risk allocation include:
- Those with significant control
- Those who are insured for the relevant risk
- Those who derive the most economic benefit from a project
- Where a risk allocation will drive efficiency or innovation by a party
- Where a loss would fall with that party
Consequences of poor risk allocation are increased project costs, delays and related management time which divert from the overall project objectives. Stressed the need for more active risk management on projects e.g. use of Risk Registers (NEC3).
Collaboration: Questions raised include: Will the current round of challenges for the industry lead to changes in risk allocation, or improved collaboration? Will there be more use of BIM, Alliance Contracting and Integrated Project Insurance in future?
Managing the supply chain: The complexity of the construction supply chain requires significant risk management. This is becoming more onerous with new legislation such as the Modern Slavery Act. How will the industry deal with the skills shortage and Brexit?
Steps to take beyond due diligence:
- Ensuring retention of title to goods and plant
- Check contracts with supply chain to ensure risks are reduced
- Ensure contracts have rights to terminate in the event of insolvency, and know what those terms are.
Insolvency warning signs:
- (Lack of) progress on site
- Requests to renegotiate
- Unjustified claims
- Late filings at Companies House / CCJs
- Rumours / press coverage
- Evasiveness in communications
- Unpaid sub-contractors
Causes: Difference between types and causes of disputes. Causes include failures in project administration, compliance with the contract and poorly drafted/unsubstantiated claims.
Avoid a Dispute through:
- Good contract administration / project management
- Monitoring issues arising including behaviour of other parties
- Good and structured record keeping
- Compliance with contract machinery especially notices and conditions precedent
Key point is the importance of collaboration:
- The goal of soft landings is to close the gap between actual performance in operation and the design target.
- At present the outlay on constructing a building and connection with those responsible for operating it can be lost. With Soft Landings, the aim is to join the two and reduce the cost.
- The need for champions – there should be a senior lead on both the client and project team side, driving Soft Landings forward.
The Twelve Core Principles of Soft Landings are:
- Adopt the entire process
- Provide leadership
- Set roles and responsibilities
- Ensure continuity
- Commit to aftercare
- Share risk and responsibility
- Use feedback to inform design
- Focus on operational outcomes
- Involve the building managers
- Involve the end users
- Set performance objectives
- Communicate and inform
Contractual & risk points for Soft Landings:
- Use of Soft Landings Framework (SLF) document
- Early involvement – getting everyone (including Facilities Managers) on board sooner rather than later
- Appointment of a formal Soft Landings champion
- Consider impact on definition of Practical Completion and Defects
- Contracts should be amended to ensure incorporates SLF and compliance
If you would like any further information or to discuss the issues summarised by in this note please contact David Rintoul (firstname.lastname@example.org) or Ruth Wilkinson (email@example.com).