This document summarizes a presentation on project risks for developers and funders of construction projects. It identifies four main types of project risk: design and construction risks; other party risks; environmental and approvals risks; and force majeure risks. It then discusses various strategies for mitigating and managing these risks, such as due diligence, turnkey construction contracts, guarantees, insurances, bonds, and ensuring facility agreements address conditions precedent, events of default, and drawstops. The presentation emphasizes the importance of considering risks important to funders and using due diligence to identify and manage risks.

1. 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

2. One project risk …
#olswangconstruction

3. Types of Project Risk
1. Design and Construction
2. Other Party Risks
3. Environmental and Approvals
4. Force Majeure
#olswangconstruction#olswangconstruction www.constructiveblog.com

4. 1. Design and Construction
• Developer risks
• Design complexity
• Construction risk:
• Construction team
• Site conditions
• Cost overruns
• Late completion
#olswangconstruction#olswangconstruction www.constructiveblog.com

5. 2. Other Party Risks
• Sale/letting risk
• Documentation risk
#olswangconstruction#olswangconstruction www.constructiveblog.com

6. 3. Environmental and Approvals
• Contaminated land
• Planning permission
• Listed buildings consent
• Environmental impact assessment
• Rights of light, party walls
#olswangconstruction#olswangconstruction www.constructiveblog.com

7. 4. Force Majeure
• Extension of completion date for construction
• Wider than an “Act of God”
• May be a default under credit agreement
#olswangconstruction#olswangconstruction www.constructiveblog.com

8. 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
#olswangconstruction#olswangconstruction www.constructiveblog.com

9. 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)
#olswangconstruction#olswangconstruction www.constructiveblog.com

10. 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
#olswangconstruction www.constructiveblog.com

11. 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
#olswangconstruction#olswangconstruction www.constructiveblog.com

12. Insurance
• Works insurance
• Third party liability
• Environmental liability
• Professional indemnity
• Inherent defects
#olswangconstruction#olswangconstruction www.constructiveblog.com

13. Bonds
• Performance bonds
• Retention bonds (or retention
monies)
• Advanced payment bonds
#olswangconstruction#olswangconstruction www.constructiveblog.com

14. Facility Agreement
• Conditions precedent
• “Drawstops”
• Events of default
#olswangconstruction#olswangconstruction www.constructiveblog.com

15. Closing Thoughts
• Differing attitudes of Developers and
Funders to risk
• Consider risks important to Funders
• Due diligence can identify and manage
risks
#olswangconstruction#olswangconstruction www.constructiveblog.com

16. Any questions?