Starting work ‘at risk’ – but whose risk is it?

In a world where contract durations are becoming ever more aggressive, there’s an increasing pressure to get off to a flying start on a project, and even to start before the formalities are completed.  We’ve recently been working with a major EPC contractor on a mega project who already knew that the chance of achieving the contract schedule was very low, and therefore quite reasonably made the decision to undertake some engineering ‘at risk’ prior to contract award in order to increase that probability. This is not uncommon practice and can work well provided that it is treated with the same rigour as the contract process.  It’s preferable for the client to issue a formal letter of intent, giving at least some protection on payment and terms.  Often however, and usually under pressure from a client without funds or authorisation to instruct such early works, contractors may mobilise their teams and start work with no such guarantee of payment or even the contract going ahead.  Tacit or gentlemen’s agreements may be proffered by the client’s team that the contractor will be properly compensated for its efforts, but other big questions need to be asked.  Will the client also mobilise its team, who are fully authorised to approve your designs? If there is any value engineering to be done, who will agree and commit to the changes and cost savings? Can you realistically achieve the planned productivity levels during this working at risk period such that the full benefit is realised on the project programme? Stakeholders’ representatives often move on to their next opportunity and promises can be forgotten.  As changes and even possible disputes start to raise their heads, suddenly the early commitments become bargaining chips. The eagerness of contractors to please their new clients can cause them to relax the rigours of putting appropriate contractual arrangements in place, that of course are only ever needed when conflicts arise.  The internal pressure from your own business development team not to sour the relationship can stifle the governance that is standard practice during the rest of the project, and the transitionary nature of the teams at this stage can make it unclear where responsibility lies.  The behaviours exhibited by both parties during this early work can also influence the ongoing project delivery relationship – ‘start as you mean to go on’ comes to mind.  Whilst it is often necessary to start work at risk to try to protect the contract schedule, and avoid huge delay damages, it is worth questioning who’s taking this risk.

Karen Cherrill – Director, Kingsfield Consulting

2018-07-09T12:57:01+00:00