Material risk events in P3s: Causes and potential solutions
By David BowcottRisk Management David Bowcott P3s risk
In the February issue we talked about material risk events that manifested in the Canadian P3 space up to 2011 and up to 2016. In this issue, I will focus on what is causing these risk events and how we can reduce the frequency (and severity) of their manifestations.
For this column, I’ll focus on the 70 per cent of all material risk events up to 2016 within the P3 community – professional risks (40 per cent) and workmanship risks (30 per cent).
Professional Risk – Select Causes
Profit Compression – The P3 market place is awash with competition. Not only are most of Canada’s top contractors heavily focused in this sector, but the world’s largest global contractors have all set up shop in the last 20 years as well. This competition naturally drives down profitability of the P3 market and causes some players to carry pricing that leaves little profit or contingency to procure/manage/design effectively. Thus, the frequency and severity of professional liability claims have gone up. In 2011 it was 30 per cent of all events, and in 2016 it was 40 per cent.
Fast-Track Design – P3s use a design-build methodology that starts construction prior to the completion of design documents. This is done to accelerate the project completion and allows the consortium bidding the P3 to win the job. With Fast Track design you are building foundational components of an asset, and if later design requirements don’t line up with how the foundational components were built, you have a problem. And, when there’s a design problem, professional liability policy claims often occur.
Experience in the Design and Construction Sector – Our best, and most experienced people are retiring, and it seems the next generation isn’t quite ready to take over. Experience is a primary pillar of success and when it isn’t there, poor decisions lead to poor results, and poor results lead to claims under professional liability policies.
Professional Risk – Select Solutions
Improved Request for Qualification (RFQ) Practices – Owners should review current RFQ documentation to ensure comprehensive vetting of a design-build team’s ability to deliver. The concept of RFQs is relatively new in the construction sector and should continuously be improved as new counter-party risk solutions make their way into the market. Through better qualification of the bid team you can protect your project against inadequate job pricing, better communicate Fast Track design strategies, and improve the level of experience through deeper dives into capabilities of the individuals working on your project. The RFQ process shouldn’t be exclusively conducted by the owner. Various parties involved in the P3 should RFQ their partners to ensure comfort with the team.
Fast Track design best practices – Fast Track is riskier than other delivery models that have more complete designs when construction takes place. Be sure to consider what is the best percentage of design completion you should have prior to starting construction? Is it 30 per cent? Is it 40 per cent? Is it more? Additionally, what best practices can you use to ensure optimal communication amongst all stakeholders?
Improved QA/QC Practices – Having solid protocols in place around quality assurance and quality control will ensure you limit the risk of professional and workmanship issues.
Use of Technology – There are several collaborative and easy to use technologies that improve communication of design amongst project stakeholders. Use them to reduce professional event risk.
(There are, of course, others not mentioned here.)
I haven’t addressed the causes and solutions to the next biggest risk event – workmanship, but that’s because professional and workmanship events are two halves of the same coin. Insufficient profit/contingencies due to competition, Fast Track design making it harder to perform accurate workmanship, and a lack of experience in the construction industry are also the primary reasons why workmanship risk manifests on a project. As such, the same solutions apply.
Not only do design and construction teams need to better integrate with each other, but so too does the owner. It is a three-party collaboration, and investigating these causes of design and workmanship risk will go a long way in mitigating and preventing future risk events.
David Bowcott is Global Director – Growth, Innovation & Insight, Global Construction and Infrastructure Group at Aon Risk
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