The avoidance of claims – Managing risk in a changing business world

The effective management of risk has always been a crucial factor in the success of businesses in the infrastructure sector. Antony Oliver explores the challenges of a changing professional and commercial environment.

As every professional in infrastructure knows, risk is an integral and unavoidable part of the business. And to be successful, it is something that must be embraced, understood, managed properly and, of course, priced for accordingly.

Yet history is littered with examples of things going wrong. 

The challenges of managing risk in this already complex sector continue to increase. Whether it is the drive towards collaboration, the emergence of new technology such as BIM, the rapid rise in post-recession workload, the integration of teams to meet changing client needs or the emergence of truly global businesses, it is clear that professionals need to constantly review their approach.

Tales of unexpected ground conditions and poorly specified waterproofing; of misunderstood contract obligations and limits of liability; of badly drafted clauses; of overestimated revenue models; and of misaligned expectations between partners and across the supply chain..

As our collection of classic insurance case studies demonstrates

The reality is that infrastructure, and the projects that deliver it, are complex beasts involving a multitude of different stakeholders whose objectives and drivers are quite often, usually for very good reasons, misaligned.

The net result of this misalignment continues to be time-consuming, business damaging and costly professional liability claims. 

Ten years ago insurance broker and risk management specialist Griffiths & Armour put the spotlight on the causes and consequences of poor risk management across the construction industry. The work was a blatant attempt to help the industry to embrace better business practice and so avoid the rising tide of these professional liability claims. 

Today, the challenges of managing risk in this already complex sector continue to increase. Whether it is the drive towards collaboration, the emergence of new technology such as Building Information Modelling, the rapid rise in post-recession workload, the integration of teams to meet changing client needs or the emergence of truly global businesses, it is clear the professionals need to constantly review their approach.

And with this end in mind Infrastructure Intelligence is working with Griffiths & Armour over the next 18 months to help identify the best approaches to meeting these new challenges.

The industry view: SME's and their approach to risk. A round table to discuss the issues.

Using some new research work, regular conversations with the industry at special breakfast meetings and a comprehensive review of the best practice (and worst practice) examples currently in the business, the aim is to help the industry to really understand the business and professional benefits of properly managed risk.

That said, the messages from Griffiths & Armour’s report still ring loud and clear about the sheer waste of time and resources caused by poorly managed risk on projects. And while some might say it is in the interests of the insurance industry to limit the number of claims against professional indemnity policies, few would disagree that it is unquestionably in the industry’s interest to stay out of court. 

As this 2005 work points out, risk is an inherent part of any engineering and architectural project and as such is a critical business issue in infrastructure. Implementing robust and effective strategies to manage risk is therefore vital to the long term health of the sector. 

The key issues to bear in mind when assembling these strategies to manage risk and avoid claims remain as true today as they did ten years ago and come down to three simple ideas based around: 

• Identifying the risks
• Quantifying the harm arising from the adverse effect 
• Minimising the likelihood of the harm being realised

Across each of these headings there remains a critical need to share best practice across the industry as a fundamental step in helping to raise the collective performance when it comes to managing risk. Only by learning from the successes and failings and embracing behaviour change will we move towards a lower cost, less adversarial future. 

Griffiths and Armour's 2013 report on "Contractual Liability Claims - lessons to be learnt" contains essential explanation and case studies to help the industry reduce the risk of claims. Access this document here

With support from Griffith & Armour, Infrastructure Intelligence has already brought together a number of important case studies on-line at www.infrastructure-intelligence.com that highlight lessons to be learned when avoiding contractual liability claims.

This work will be expanded over the next 18 months to assemble a comprehensive information resource to help guide professionals towards a lower claim, lower cost future.

Along the way some new issues must be tackled and discussed as the industry embraces the 21st century world of global infrastructure. These new critical issues include:

• The impact of BIM technology on the market: 

Technology and in particularly the introduction and potentially mandatory use of Building Information Modelling to public sector procurement is having a major impact on the way the industry operates. 

But do businesses recognise this change as a potential risk to manage? And are steps being taken to identify and minimise the risks and costs of the impacts of this new technology?

• The role and challenge of integrated project insurance

With BIM technology comes a desire and an inherent obligation to embrace silo-busting – and blame sharing – collaboration across the project team in which the old model of individual professionals shouldering proportions of risk is  exchanged for a collective approach to achieving the client’s outcome.

But is the industry, clients or, indeed the insurance market, ready and prepared physically or emotionally to move from the traditional liability, and corresponding professional indemnity, model towards an integrated project insurance future?

• The expert client versus the inexpert client 

As the recovery builds we see a distinct difference in approach emerging between expert clients compared to inexpert clients. But there remains huge questions around how infrastructure firms, both large and SME, understand, embrace and exploit the risks associated with this change. 

“Management of risk and the avoidance of claims is a key priority for every firm. Best practice brought to light must be considered by all for possible adoption within their own businesses.”

• The consequences for business in a growing market

The infrastructure market in the UK is expanding rapidly putting increasing demands on the supply chain while clients become increasingly demanding in terms of price and service. Management of risk is becoming increasingly difficult across the supply chain.

• Working around the world – geographic liability issues

Infrastructure is now a global business, not least as we see the recent rash of business mergers increase the number of super-large global businesses tackling a workload on multiple continents.

Managing risk up and down the supply chain is therefore increasingly complex and without proper global strategies in place to manage risk there is increasing opportunity for claims and disputes to arise on a global scale.

These and many other issues will be tackled and discussed over the next 18 months as we work with the Griffiths & Armour team and its partners to help prepare the industry for the 21st century risk environment.

“Management of risk and the avoidance of claims is a key priority for every firm. Best practice brought to light must be considered by all for possible adoption within their own businesses,” said the 2005 research paper. Words that remain equally relevant today.