www.bakertilly.co.uk
Risk (and assurance?) transfer in
contracts The relationship between risk and assurance as seen
through the reality lens of complex contractual relationships
19 May 2015
Contact:
Walter Akers Contract Risk & Projects Advisory
Tel: +44 (0)7561 327662
2
Baker Tilly Tax and Advisory Services LLP, Baker Tilly UK Audit LLP, Baker Tilly Corporate Finance LLP, Baker Tilly Risk Advisory Services LLP and Baker Tilly Restructuring and Recovery LLP are limited liability partnerships registered in England and Wales, with registered numbers
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Contract Risk & Projects Advisory
Walter Akers
Partner [email protected]
07561 327662
For most organisations, contracts and
commercial relationships play a vital role in
achieving success. Businesses that are
commercially astute, negotiate strong contracts
and have rigorous contract management are at
a distinct competitive advantage.
Our specialist team has extensive experience in
helping clients manage commercial contract risk
and to deliver enhanced value from their
contractual relationships. We advise and
support organizations in both the private and
public sectors through:
• Building capability in knowledge, processes
and controls to get the most out of
procurement and contractual relationships;
• Recovering value lost from under-performing
commercial relationships; and
• Providing assurance that procurement,
contracts and associated processes and
controls are operating as intended.
Our service offering:
• Procurement & contract
management process
improvement
• Cost savings on existing
contracts
• Programme assurance
• Strategic sourcing, demand
management and procurement
effectiveness
• Contract cost & performance
compliance
• Contract management training
• Capital projects
• Supply chain risk
• Outsourcing contracts
• In-sourcing projects
• Commercial contract training &
learning solutions
• Contracts for complex projects
• Contract negotiations
• Commercial internal audit
Sola Fadojutimi
Director [email protected]
07590 066808
Themes
Relationship between contract management and project
management
A third dimension to project risk and assurance – the who factor
Impact of organisational structural alignment on risk and
assurance
Specific challenges posed by ultimate risk
Conflict between optimum risk transfer and risk appetite
So who should hold the risk and what if they don’t?
Understand risk transfer is fundamental to assurance
Page 3
Traditional view of risk management
Page 4
The third dimension
Page 5
6
Projects and risk allocation
“The most important difference between Terminal 5 and
other large building projects has been the approach to
project management and especially to risk”
Tony Douglas T5 Managing Director
The Economist
18 August 2005
7
Heathrow T5 contracting approach
Traditional Contracting
• Transfer risk
• Price in advance
• Full cost at risk
• Penalties
• Defined scope
• Contractor’s team
• Silos
T5 Contracting
• Remain flexible
• Emerging scope
• Risk not transferred
• BAA manage risk
• Integrated teams & culture
• Reimburse properly incurred
costs
• Profit pre agreed
• Profit at risk
Projects and risk allocation
8
So was Heathrow T5 a successful on time and on budget project or not?
Projects and risk allocation
Page 9
Alignment and its impact on risk
Page 10
http://www.youtube.com/watch?v=z628SdTCHgs
At 2.40
Alignment and its impact on risk
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So how should risk be allocated?
What if we get this wrong?
Page 12
Supplier’s Risk
Risk
Buyer’s Risk
The Terms and Conditions
Onerous T&C’s in
favour of supplier
Onerous T&C’s in
favour of buyer
Supplier’s Risk
Risk
Buyer’s Risk Supplier’s Risk
Risk
Buyer’s Risk
Type of scope
Outcome Input Output
Type of charging mechanism
Fixed Price Variable price
Risk transfer in contracts
Page 13
Supplier’s Risk
Risk
Buyer’s Risk
The Terms and Conditions
Onerous T&C’s in
favour of supplier
Onerous T&C’s in
favour of buyer
Supplier’s Risk
Risk
Buyer’s Risk Supplier’s Risk
Risk
Buyer’s Risk
Type of scope
Outcome Input Output
Type of charging mechanism
Fixed Price Variable price
Risk transfer in contracts
Recap and Q&A
14
Contact:
Walter Akers Contract Risk & Projects Advisory
Tel: +44 (0)7561 327662
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