Strategies mitigate risks

After several lacklustre  years, the construction world in B.C. is heating up again.With more work comes more risk. The promise of greater returns will be illusory unless those risks are properly managed and contained. Fortunately,there are some basic riskmanagement strategies that are sure to help keep you out of trouble.

First,undertake preliminary risk assessment before you approach a new project. Some considerations in this regard are whether you have worked with this owner, contractor or trade before. If so, was it a good and profitable experience?

Have you had payment, delay, or other issues with this client? How much work do you have on your books already and will that impact your ability to deliver a quality project or obtain bonding if your bid is successful?

Second, consider the contract. What type of contract is intended and do any unusual allocations of risk exist within it?

In this regard, it is helpful to create a template risk matrix that your company can use on every project that clearly identifies the common areas of contract risk allocation (e.g. scheduling, site conditions, payment clauses, indemnity provisions, etc.). That matrix can then be used with the procurement specifications to properly identify the risk assumed by the parties to the contract. Once completed, the matrix can form the basis of discussion at the management level of exactly what the risks you

  • are agreeing to undertake in a particular project;
  • are prepared to take as a company; and
  • what premium, if any, are you charging for that particular risk.

Third, keep accurate and comprehensive records. Care in ensuring that proper records are created, filed and organized does requires a company-wide sensitivity to the importance that good record keeping will have in resolving disputes in your favour.

Good records give you an objective basis upon which to either support or defend a claim. They also assist in the legal pursuit or defence of that claim. The overriding objective of good record keeping, however, is to prevent the issue from developing into full-blown litigation in the first place. Good records can go a long way to persuade the other party of the strength of your position – thereby hopefully avoiding a lengthy dispute.

Fourth, communicate. The importance of effective communication cannot be emphasized enough and care should be taken to ensure that it is neutral, firm and always followed up in writing. Finger-pointing
and derogatory comments should be avoided at all costs. Threatening letters or emails feel good when they are written; however, they rarely assist in actually resolving a dispute.

If, despite these measures, an issue looks like it is going to spin out of control, do not underestimate the power of a face-to-face meeting between the principals or senior management to reach a resolution short of something costly and time consuming.

Finally, seek legal advice early into a problem. Don’t try and sort it out yourself, calling your lawyer only when you’ve really made a mess. Like a late visit to a doctor, a late visit to your lawyer can be a fatal error.

Risk cannot be avoided. But a proactive approach to managing it can make a significant difference to your bottom line.

Norm Streu is the president and chief operating officer of the LMS Reinforcing Steel Group. Christopher Hirst is a partner and the leader of the Construction & Engineering Group,Alexander Holburn Beaudin + Lang LLP