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May 2014
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Construction Law Masterclass: Project Risks for Developers and Funders Tuesday, 6 May 2014
Francis Ho, Head of Construction francis.ho@olswang.com | +44 20 7067 3505 | @fkyh
One project risk …
#olswangconstruction
Types of Project Risk
1. Design and Construction
2. Other Party Risks
3. Environmental and Approvals
4. Force Majeure
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1. Design and Construction
• Developer risks
• Design complexity
• Construction risk:
• Construction team
• Site conditions
• Cost overruns
• Late completion
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2. Other Party Risks
• Sale/letting risk
• Documentation risk
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3. Environmental and Approvals
• Contaminated land
• Planning permission
• Listed buildings consent
• Environmental impact assessment
• Rights of light, party walls
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4. Force Majeure
• Extension of completion date for construction
• Wider than an “Act of God”
• May be a default under credit agreement
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Mitigating and Managing Project Risks
• Due diligence
• Turnkey construction contract
• Fixed price construction contract
• Guarantees
• Cost overruns
• Completion/interest shortfall
• Liquidated damages
• Insurances
• Bonds
• Credit agreement terms
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Turnkey Construction Contract
• Design and construction risk lies with Contractor
• Contract negotiations more straightforward
• Novation of design professionals to Contractor
• Suitable for wide range of projects (but not all)
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Turnkey Construction Contract
#olswangconstruction
Sub-Contracts
Direct Contracts
Client
Contractor
Sub-Contractor
Sub-Contractor
Sub-Contractor
Design Consultant
Design Consultant
Design Consultant
Contract Administrator
Cost Consultant
CDM Co-ordinator
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Guarantees
• Sponsors can avoid having to commit finance to cover key risks
• May vary in nature from letters of comfort to absolute guarantees
• Ensure drafted to be absolute and unconditional
• Parent company guarantees
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Insurance
• Works insurance
• Third party liability
• Environmental liability
• Professional indemnity
• Inherent defects
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Bonds
• Performance bonds
• Retention bonds (or retention monies)
• Advanced payment bonds
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Facility Agreement
• Conditions precedent
• “Drawstops”
• Events of default
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Closing Thoughts
• Differing attitudes of Developers and Funders to risk
• Consider risks important to Funders
• Due diligence can identify and manage risks
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Any questions?
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