RESULTS OF THE CONTRACTUAL RISK QUESTIONNAIRE ISSUED BY THE AGS LOSS PREVENTION WORKING GROUP IN 2002

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120 questionnaires were issued, 18 responses were received, giving a 15% return rate

Of the responding members, 88% were consultants, 32% were contractors and 6% specialists, indicating a number of members operating in both the consultancy and contracting fields. No laboratories responded. The company size of respondents was evenly spread with 25% below 10 employees and 37.5% each between 10-100 and over 100 employees.

A number of the questions related to ‘risk’ and how it is perceived and managed by members. The general perception of risk over the last decade would appear to remain relatively constant, but that awareness has increased. Almost unanimously, respondents agreed that geo-environmental work carried more risk than geotechnical work alone and concerns were noted that Clients’ perception of risk and the role of PI insurance cover are often incorrect.

Nearly all respondents feel they were not sufficiently financially compensated for the risks they take, given that the risk of consequential losses is likely to be high, even though the risk of something going wrong is generally low . The predominant impression is that risk is unfairly allocated to consultant/contractor, often due to the wording of contracts produced by legal practitioners, who are aiming for nil risk transfer and have little practical understanding of the restrictions on PII cover due to pollution and contamination. This perception is magnified when margins are tight, but in reality Clients only get what they pay for.

Typically contracts appear to be divided in four forms, standard, client specific, in house and exchange of letters, but the form does not appear to affect the acceptability of a contract. In deciding whether to accept either a geotechnical or geoenvironmental contract, the prime issue was consistently the client relationship, followed by the terms and conditions and fees. The capacity to undertake the project was also a serious consideration but of less perceived importance. The least influential considerations were possibility of and size of potential claims and the project structure.

It is apparent that most companies adopt a conservative but pragmatic approach, when asked to accept clients’ terms and conditions. Whilst some members accept these contracts as non-negotiable, nearly 30% of respondents refer non-standard documents for legal review. A further 25% routinely challenge objectionable provisions with respect to key issues, and a further 25% do not worry unduly about terms relating to liability, as claims are generally rare. An alternative approach adopted in relation to contract terms is that they are deemed effectively irrelevant where good QM and experienced staff limits the potential for negligence.

An assessment of client contract practise identified the Utilities, e.g. Lattice, Railtrack, as having the most aggressive contract practises, whilst other professionals were believed to be the least aggressive. It is observed that it is often the larger, near monopoly clients who try to impose the most onerous conditions and are unwilling to accept a realistic proportion of the risk. The majority of members are concerned about Client specific contractual clauses and NEVER accept contractual clauses including unlimited liability or warranties, Client rights to assign and power of attorney and ‘fitness for purpose’, but they appear willing to accept PI cover requirements.

However, an overall impression appears of members being increasingly aware of the risk involved in geoenvironmental and geotechnical work and the areas where these risks occur. Whilst some are still prepared to carry on with this knowledge, there is evidence of a number of members being unwilling to accept unbalanced contracts unchallenged and, in some cases, will, if necessary, refuse to accept commissions under certain circumstances.