Understanding and Negotiating Key Risks on Large Infrastructure Projects

Contracts for the design, construction and delivery of any infrastructure project have a number of unique characteristics that distinguish them from other commercial contracts, caused by the complexity of the technical requirements, the need to comply with specific legislation that may vary in certain jurisdictions, or by the nature and complexity of the actual construction work itself.

In general terms, impacts of weather and geotechnical conditions cannot be quantified at the start of a construction contract but these risks can be expected to impact on the project to some extent, and are typically defined as a “… known unknown risk … ”.  Other risks that are often more difficult to quantify but can occur include impacts of changes in legislation, potential impacts on the environment [erosion, contamination, noise, vibration, stakeholder discontent], and impacts of inter related contracts and agreements.

Whatever the risks are, they can only be addressed in three ways – managed by the owner of the projects, managed by the contractor engaged to design, construct and deliver the infrastructure, or through insurance taken out by either of the two parties to the contract.  However, every insurance policy has exclusions and failure to fully understand the extent and impact of some exclusions can have significant adverse impacts on large projects.

The scope of required works and technical specifications is usually complex involving extensive documentation, with the owner usually having a right to vary the works creating additional obligations for both parties.  The management of such changes must be undertaken in a clear and transparent manner to avoid creating additional unnecessary challenges in delivering a successful project.

Other critical areas that must be managed by experienced and qualified project and contract managers include delays or acceleration requirements, issues caused by cost increases, rate changes, payments and cash flow, design discrepancies, quality of materials and workmanship, defects, to ensure that the successful delivery of a project is not jeopardised.

Finally, disputes frequently occur and the processes and language used to resolve disputed issues are both critical in achieving successful deliveries of large infrastructure projects.

This presentation is based on Tim’s 48 year experience across a variety of industries including commercial and naval shipbuilding, high speed packaging and brewing, steel mills and aluminium refineries, electrical infrastructure and coal mining, and is intended to outline a brief high level introduction to recognising key risks on large infrastructure projects, and provide an awareness for project managers to use their unique experience and expertise in making meaningful contributions during contract negotiations before contracts are signed.