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Risk (and assurance) transfer in contracts - Walter Akers

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ASSURANCE190515

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Risk (and assurance) transfer in contracts - Walter Akers

  1. 1. 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. 2. 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
  3. 3. 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
  4. 4. Traditional view of risk management Page 4
  5. 5. The third dimension Page 5
  6. 6. 6 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
  7. 7. 7 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
  8. 8. 8 So was Heathrow T5 a successful on time and on budget project or not? Projects and risk allocation
  9. 9. Page 9 Alignment and its impact on risk
  10. 10. Page 10 http://www.youtube.com/watch?v=z628SdTCHgs At 2.40 Alignment and its impact on risk
  11. 11. 11 So how should risk be allocated? What if we get this wrong?
  12. 12. 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 RiskSupplier’s Risk Risk Buyer’s Risk Type of scope Outcome InputOutput Type of charging mechanism Fixed Price Variable price Risk transfer in contracts
  13. 13. 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 RiskSupplier’s Risk Risk Buyer’s Risk Type of scope Outcome InputOutput Type of charging mechanism Fixed Price Variable price Risk transfer in contracts
  14. 14. Recap and Q&A 14 Contact: Walter Akers Contract Risk & Projects Advisory Tel: +44 (0)7561 327662 walter.akers@bakertilly.co.uk

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