The document discusses risk transfer in complex contractual relationships. It notes that effective contract management and negotiation can provide competitive advantages. The author's consulting firm advises clients on managing commercial contract risk and recovering value from underperforming contracts. They assist with procurement processes, cost savings, program assurance, and compliance monitoring. The document also examines challenges like balancing risk transfer with risk appetite and ensuring the party holding the risk can adequately perform.

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
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. 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. Traditional view of risk management
Page 4

5. The third dimension
Page 5

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
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
So was Heathrow T5 a successful on time and on budget project or not?
Projects and risk allocation

9. Page 9
Alignment and its impact on risk

10. Page 10
http://www.youtube.com/watch?v=z628SdTCHgs
At 2.40
Alignment and its impact on risk

11. 11
So how should risk be allocated?
What if we get this wrong?

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. 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. Recap and Q&A
14
Contact:
Walter Akers
Contract Risk & Projects Advisory
Tel: +44 (0)7561 327662
walter.akers@bakertilly.co.uk