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

walter.akers@bakertilly.co.uk

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

OC325348, OC325350, OC325347 and OC325349 respectively. Baker Tilly Tax and Accounting Limited, Baker Tilly Revas Limited, Baker Tilly Management Limited, Baker Tilly Business Services Limited, Baker Tilly Audit Limited and Baker Tilly CF Limited are registered in England

and Wales with numbers 6677561, 6463594, 3077999, 04066924, 04045321, 06555639 respectively. Baker Tilly Financial Management Limited and Baker Tilly Investment Solutions Limited are registered in England and Wales with numbers 03953153 and 02051492 respectively and

are authorised and regulated by the Financial Conduct Authority, Financial Services Register numbers 0192618, and 0116457. All limited companies and limited liability partnerships are registered at 25 Farringdon Street, London, EC4A 4AB.

Contract Risk & Projects Advisory

Walter Akers

Partner walter.akers@bakertilly.co.uk

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 sola.fadojutimi@bakertilly.co.uk

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

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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

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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

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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

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Contact:

Walter Akers Contract Risk & Projects Advisory

Tel: +44 (0)7561 327662

walter.akers@bakertilly.co.uk