Project Risk Management: The Commercial Dimension

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Despite modern tools and models, projects are becoming more complex and so more subject to risk. Increasing use of litigation means that managers must now have a much sharper commercial grasp. This Report introduces the concept of Total Risk Management as the key method for reducing risk and explains the crucial connection between project management (the job) and commercial management (the contract) and the need for running them in tandem. The benefits to you are clear: you will significantly reduce the risk of serious problems arising; where problems do arise, you will greatly reduce the risk of catastrophic results; project risk management and commercial risk management are too often handled separately-even though they both have the same aim: to complete the project on time, to specification and within budget, with no hidden liabilities (the lurking time bombs). Bringing together these two facets of project management at prime contract stage is already too late. They need to be combined from bid stage on in a Total Risk Management process. The Report will enable you to: fully appreciate all the commercial dimensions of important projects; understand how to identify all the risks during the pre-contract bidding phase; be fully aware of the hidden commercialdangers of things said or done in good faith before, during and after contract negotiations; look beyond technical and time-frame matters to the commercial aspects of project implementation; understand the risks and problems of converting a successful bid into a good contract.

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Tim Boyce began his career in the Ministry of Defence holding executive positions in contracts, contracts policy and finance. His industrial career began at Plessey in 1980 after which he enjoyed appointments with Siemens, British Aerospace and more recently as commercial director at BAE SYSTEMS. His functional responsibilities have included contracts, commercial, procurement, estimating, legal, project accounting and the implementation of the European Business Excellence Model. His committee work includes the Chartered Institute of Purchasing and Supply National Contracts Management Committee, the CBI Contracts Panel, the CBI Defence Procurement Panel and the CBI/MoD Working groups on partnering and incentive contracting. He was the CBI observer at the HM Treasury Central Unit on Purchasing working group on incentivising industry. In 1997 he was invited by the Director General of the CBI to join the CBI Public Private Partnership Forum. He has lectured widely in the UK and in the US on business, contract and commercial management. Table of Contents TOTAL RISK MANAGEMENT GETTINGTO CONTRACT The risk - risk scenario The bid/no bid decision Bidding Pricing for risk Risk review board Making an offer The priced list of risks The caveats register An effective contract Negotiation Contract launch Pointers for project risk management Checklist FINANCIAL RISK Prime contract financial risk The nature of price and the sharing of cost risk The client will not pay The client cannot pay Inflationary cost increases Foreign currency fluctuations Contract termination Financial claims against the prime contractor Pointers for project risk management Checklist TECHNICAL RISK Do we want to take this risk? Analysing the requirement Options Sharing the risk The commercial engineer Setting the baseline Requirement creep The changing requirement The work takes longer than expected The never-ending contract Failure of performance Buyer initiated problems Pointers for project risk management Checklist TIMEFRAME RISK Bidding compliant delivery The timeframe obligation Time is of the essence Consequences of delay Liquidated damages Force majeure Delivery incentives Client delay Subcontractor delay Prime contractor delay The threat of termination The threat of damages Pointers for project risk management Checklist SUBCONTRACTOR RISK For the want of a nail Subcontracting: Benefit, risk and strategy Subcontractor lateness Subcontractor failure Subcontractor work unfit Monitoring subcontractors Pointers for project risk management Checklist PROJECT COMPLETION AND BEYOND Life after completion Key contractual milestones Residual obligations and risks Acceptance Products rejected Title does not pass Products lost or damaged in transit Failure after delivery/acceptance Warranty The hand over of technical data to the client Third party intellectual property rights Account management Pointers for project risk management Checklist