R I S K M A N A G E M E N T

The five key areas of

risk in consultants’
appointments
INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS

A Short Guide

Fédération Internationale des Ingénieurs-Conseils

International Federation of Consulting Engineers
Internationale Vereinigung Beratender Ingenieure
Federación Internacional de Ingenieros Consultores

2009
FIDIC is an international federation of national Member Associations of consulting engineers.
IDIC was founded in 1913 by three national associations of consulting engineers within Europe. The objectives of forming the
F Federation were to promote in common the professional interests of the Member Associations, and to disseminate information
of interest to their members. Today, FIDIC membership covers more than 80 countries from all parts of the globe and
encompassing most of the private practice consulting engineers.

IDIC is charged with promoting and implementing the consulting engineering industry’s strategic goals on behalf of Member
F Associations. Its strategic objectives are to: represent world-wide the majority of firms providing technology-based
intellectual services for the built and natural environment; assist members with issues relating to business practice; define and
actively promote conformance to a code of ethics; enhance the image of consulting engineers as leaders and wealth creators
in society; promote the commitment to sustainability.

IDIC arranges seminars, conferences and other events in the furtherance of its goals: maintenance of high ethical and
F professional standards; exchange of views and information; discussion of problems of mutual concern among Member
Associations and representatives of the international financial institutions; development of the consulting engineering industry in
developing countries.

IDIC members endorse FIDIC’s statutes and policy statements and comply with FIDIC’s Code of Ethics which calls for
F professional competence, impartial advice and open and fair competition.

IDIC, in the furtherance of its goals, publishes international standard forms of contracts for works and for clients, consultants,
F sub-consultants, joint ventures and representatives, together with related materials such as standard pre-qualification forms.

IDIC also publishes business practice documents such as policy statements, position papers, guides, guidelines, training
F manuals and training resource kits in the areas of management systems (quality management, risk management, business
integrity management, environment management, sustainability) and business processes (consultant selection, quality based
selection, tendering, procurement, insurance, liability, technology transfer, capacity building).

IDIC organizes an extensive programme of seminars, conferences, capacity building workshops and training courses.
F
IDIC publications and details about events are available from the Secretariat in Switzerland. Specific activities are detailed in an
F annual business plan, and the FIDIC website, www.fidic.org, gives extensive background information.

Published by

© Copyright FIDIC 2009 Fédération Internationale des Ingénieurs-Conseils (FIDIC)

World Trade Center II
All rights reserved. P.O. Box 311
No part of this publication 1215 Geneva15, Switzerland
may be reproduced Phone +41 22 799 4900
or transmitted in any form Fax +41 22 799 4901
or by any means without E-mail [email protected]
permission of the publisher. Internet www.fidic.org
 F o r e w o r d

There has been an increase worldwide in The short guide focuses on straightforward
liability actions affecting consultants supplying and basic risk management of the key issues commonly
professional services. As a consequence, many found in all professional services appointments.
consultants risk the possibility of claims on every
assignment they undertake. Since FIDIC members practice in many
countries, with differing laws and conditions of practice,
A liability claim, even if successfully a publication of this type can provide only broad and
defended, can prove to be a major distraction and even general information. To that extent, the reader is
disastrous for a professional practice. cautioned to recognise that the discussion under each
heading may or may not be totally applicable or
The deterioration in the working climate has appropriate to the conduct of a professional practice in
occurred for many reasons. Important among these has a particular country or situation.
been a marked change towards consultant relationships
with some form of committee as the client coupled with Before acting on any specific points covered
greatly increased statutory requirements and more in this publication, the consultant should check with a
complex procurement processes. FIDIC Member Association, and with legal and
insurance advisors to determine the most appropriate
It is in the interest of the consulting course of action.
industry as a whole to reverse adverse trends in the
liability scene. Consultants can help achieve this by
practicing sound risk management procedures.
 A c k n o w l e d g e m e n t s

This short guide to risk management for FIDIC’s Executive Committee and Risk and
consultant’s appointments has been prepared by a Liability Committee acknowledge the considerable
drafting task group of the Risk and Liability Committee contributions by the drafting task group that comprised
of the International Federation of Consulting Engineers Kevin Corbett, AECOM , UK, Nicola Grayson, ACEA,
(FIDIC) for the benefit of member firms of Member Australia, Steve Jenkins, Connell Wagner, New Zealand,
Associations of the federation, their clients and Keith Lonsdale, Berrymans Lace Mawer, UK, and Adam
partners. Thornton, Dunning Thornton Consultants, New Zealand.

The guide aims to be useful in all countries The drafting task group benefitted from
in which FIDIC members operate, irrespective of legal extensive consultation with the Liability and Insurance
codes, applicable legislation and the state of Committee of the European Federation of Engineering
development of the consulting engineering industry. Consultancy Associations.
 C o n t e n t s

Page

Foreword

Acknowledgements

Contents 1

1 Introduction 2

2 Clients 3

3 Fees 5

4 Scope 9

5 Resources 11

6 Agreements 13

Further information 15

1
 I n t r o d u c t i o n

Risk is an inherent part of the delivery of This short guide focuses on the
any professional services project. It can take many straightforward and basic risk management of the key
forms including the risk of personal injury or death, issues commonly found in all professional services
damage to the project itself or to third party property, appointments. The issues involve:
and financial losses such as an increase in project costs.
The client
Risk management represents a process in The fee
which an organisation is protected against internal and The scope of services
external threats. The process can vary in complexity Resources
from a simple set of house rules on business ethics and The professional services agreement
conduct to an advanced system in which risks are
systematically identified, quantified, evaluated, The guide seeks to highlight the benefits of
remedied, and administered. using FIDIC’s standard documents and guidelines and
the advice contained therein, such as an express cap on
Risk management is also a tool to reduce liability in the FIDIC Client/Consultant Model Services
both the probability and severity of risk events in project Agreement. For this reason, the guide gives extensive
delivery. Systematic risk management aims to set up of references to other FIDIC documents.
realistic mechanisms to finance the residual risk on a
project-by-project basis. It is improbable, however, that The aim is to introduce the key issues that
risk can be eliminated entirely. The allocation of residual will need to be addressed as the starting point for risk
risk should be on the basis of the party best placed to management is all organisations. Only when the extent
manage and finance that risk. to which good practice can be deployed in an
organisation has been exhausted, or when the
Risk management also embraces the organisation wishes to examine specific areas of
management of society and client expectations of uncertainty, or rank the risks in order of importance or
design professionals and other specialists who provide evaluate the effectiveness of risk mitigating measures,
the essential services on which modern living depends. would there be a need for advanced risk management
While these professionals offer technical expertise, they systems and for which special assistance should be
do not normally possess the financial resources sought.
necessary to absorb their clients’ financial troubles.
The guide touches on all aspects of risk
Within this broad context, risk management management, but focusses on the five key issues that
addresses the management of relationships between arise when managing the practical relationships
individual clients and the professionals and other between professionals and their clients. The guide
participants in a project. Procedures involve reconciling mainly addresses consultants acting as professional
legal relationships and the practical implementation of advisors to clients and their partners in the construction
the legal obligations. and infrastructure sectors.

2
 It is important to assess the risks to a
project that can arise directly from a
client’s competence, attitude to ethics
and desire for an equitable relationship.

1 C l i e n t s

If a client fails to perform the project will fail, authorities and clients with secured loans are likely to
leading to the risk of non-payment, disputes and counter have adequate sources of funding; clients who rely on
claims. This is not in the interests either of the project or commercial lending will be more susceptible to external
of any party interested in the project’s success. economic and market fluctuations and to financial
downturn or failure, and are hence less tolerant to
Regardless of whether a client approaches a budget overruns.
consultant or vice versa, there are a few key risk
assessment tools relating to a client that should be 1.3 An informed client
applied during the engagement phase of a project. The
client’s performance and the relationship between the Clients have varying degrees of experience
client and the consultant should also be monitored in appointing a consultant. An essential feature is
proactively during the entire project life cycle. whether the client is a “professional” or regular client,
who repeatedly procures engineering services, or a
1.1 Assessing the client “one-off” client who requires the services of an engineer
perhaps only once, or very infrequently. The experienced
Clients who understand the nature of risk client is more likely to be informed, and have a clear
and who manage and mitigate risk equitably and understanding of the services that are required. A one-
prudently pose little threat to competent consultants. off or inexperienced client may require help to
Those that attempt to instigate disproportionate risk understand the services which are required and in
transfer and who follow inappropriate risk management preparing a scope of services.
practices can place the consultant (and the project) at
greater than normal risk. An informed client will:

Inappropriate risk management includes: - Understand the need for equitable conditions of
contract between all parties including a reasonable
- Inadequate contingencies and/or margins. limit of liability (see Section 5).
- Inadequate (and/or limiting) budgets for - Make allowance for design and construction
investigations. contingency, including a reasonable provision for
- Engaging consultants for less than full service, such errors and omissions.
as for supervision or by specifying limited or ad hoc - Understand the need, and the corresponding
supervision. budget and programme, for a peer review of projects
- Procuring contractors without adequate quality involving complex works.
assurance and health and safety systems. - Appropriately manage the risks to clients and
- In the case of construction projects, failing to consultants that can arise from the use of
understand that construction cost estimates are an subconsultants.
assessment of probable cost and not a guarantee of - Understand the risks that third parties can pose to
the total outturn cost. the consultant and project participants.

1.2 A financially sound client 1.4 A clearly defined scope

Understanding a client’s business and the Consultants can easily overestimate the
way in which the client measures success is an essential client’s understanding of their work and how
prerequisite for assessing the client. In particular, a consultants manage their risks, both technical and
client’s financial standing or backing can be an commercial. A thorough scope definition is essential,
important factor in the success of a project and in the but many clients do not have the expertise either to
risk to the consultant. Central and local government define scope or to determine beforehand the specialist

3
 1 C l i e n t s

skills which may be required for a particular project (see drive down the overall project cost clearly do not
Section 4). In particular, clients may not understand the understand the nature of professional services or the
consultant’s limitations and working assumptions and way to deliver a successful project.
the extent to which the consultant relies on proprietary
or contactor design and on the advice of others 1.6 The client-consultant relationship
(including information supplied by the client).
The relationship between a client and a
1.5 Consultant selection consultant, and the maintenance of this relationship,
can influence greatly the likelihood of a claim or legal
Clients who select their consultants on the action. The relationship is more than simply a
basis of quality and competence and then negotiate a contractual relationship as it is essentially about the
fee that is equitable and appropriate for the scope of personalities, views and objectives of those involved,
services, are more likely to value more highly the both at a personal and corporate level. Compatibility of
services that a consultant provides. Clients who select outlook and objectives, and the common goal of
their consultants and contractors purely on a price basis delivering a successful project, will make it easier for a
and then expect the consultant to put in extra effort to consultant to wholeheartedly service the client’s project.

Client Checklist
- Budget and programme: does the client have a - Specialists: has the client engaged consultants to
realistic budget and programme? cover all the specialist disciplines that will be
- Funding: is funding for the project adequate and required on the project?
secure, and what is the source of the funding? - Other consultants: are the other consultants on the
- Fee payment: does the client have a reputation for project competent and do they have adequate
the slow or non-payment of fees? professional indemnity insurance cover?
- Consultant selection: how will the client choose - Pre-design and feasibility: have adequate pre-design
consultants and other members of the project investigation and feasibility studies been carried out?
delivery team? - Educated client: is the client experienced and
- Owner or user: is the client the owner or user of the competent in project delivery? If not, does he have
completed project? If not, are the end-users’ appropriate advisors?
requirements known, to limit the consultants’ - Client access: do the consultants have direct access
exposure to third-party claims? to the client? Is communication with the client clear
- Procurement: are the consultants for the project and direct?
being procured by Quality Based Selection? - Design limitations: Will consultants have an
- Fee: is the fee adequate for providing the scope of opportunity to adequately explain the assumptions
services that are sufficient to maintain professional and limitations of the design?
integrity and to carry out a reputable job? - Contractor procurement: how will contractor
- Agreement: will the client agree equitable contract procurement be carried out?
terms such as the FIDIC Client/Consultant Model - Will non-cost attributes such as relevant experience,
Services Agreement (including the incorporation of a quality assurance, integrity management and H&S
fair limitation of liability)? policies be given high attribute ranking?
- Risk management: will the consultant have to spend - Personality: are the client’s personality and outlook
a disproportionate time on risk management? on key issues compatible with the consultant’s?
- Claims and litigation: does the client have a history
of claims and litigation?

4
 There are significant risks for a consultant
who agrees to carry out services or
undertake a defined scope of work at a
fee that is insufficient to allow for the
adequate provision of intellect and
experience and to make a commercial
profit.

2 F e e s

Engineering intellect is not a commodity. The reduction in the level of design fees
Consultants are entitled to receive adequate together with limited time made available to carry out
remuneration to enable the provision of the standard of the work can cause problems for the quality of design
service capable of meeting the needs of the client and to documents. In the case of a construction, these
fulfil the professional obligations of the consultant. problems have been shown to affect the efficiency of the
Clients expect to receive value for money from their construction process.
consultants and accordingly, the fee will need to be fair
and equitable to both parties. Some clients may need to The pressure on fees from several causes
be assisted in the correct procedures for negotiating gives rise to several probable outcomes:
contracts that deliver quality and experience.
- Cash flow maintenance
2.1 Risks
Work output is compromised
If a consultant does not charge for Principals pay the cost of the loss
professional services in an appropriate manner then Low staff morale.
adverse risks can arise for the consultant from several
causes that give rise to various consequences: - Loss mitigation

- Poor and ineffective design as a deliberate component Work output is compromised

of cost cutting to sustain low fees Principals pay the cost of the loss
Low staff morale
Loss of reputation
Loss of staff - Profit derives from turnover with low margin
Potentially expensive protracted litigation
Poor quality.
- Low bidding in pursuit of work at any price Low staff morale for smaller firms
Low margins for larger firms.
Insolvency or bankruptcy
- Business promotion to new clients to secure work
- Token fee
Businesses large enough to finance job
Poor or ineffective design or advice loss from a promotion budget may find, at
Cursory inspection best, a new client or increased work
Incomplete report opportunities with improved future
margins.
2.2 Consultant selection
- Price cutting
In a competitive environment, particularly
where price is a critical factor in making an Quality of work is compromised to varying
appointment, a consultant cannot include more than degrees in most cases. This compromise
what is required by the project brief. This leads to a may involve one or more of the following:
minimisation or scaling of the brief so as to compute - increased whole of life cost;
the minimum fee and consequent tension between the - increased construction cost;
parties when the work done does not meet project - reduced quality or amenity;
objectives. Design deficiency can arise when design fees - design components “downloaded” to
are reduced below the optimum level. This in turn the construction phase.
increases project costs.

5
 2 F e e s

2.3 Basis of remuneration Consultants also need to quantify real costs

in determining a fee. In addition to overhead costs,
Fees for the work of a consultant can be which include for example, salaries, medical, insurances
expressed in a number of different ways, with payment, etc,. consultants should also include provision for such
for example, in terms of: costs as, long service leave, accrued holiday pay/leave,
taxes, and commercial profits.
- Time basis
2.5 Appropriate remuneration
Payments normally invoiced monthly or at other
agreed intervals. Appropriate remuneration is required to
allow consultants to provide a professional service,
- Lump sum including independent and informed advice focusing on
the extent and quality of service.
Based on either:
- consultant’s estimate of the work involved and Clients and the project should capitalise on
after subsequent discussion with the client; or the concept of “value for money” where a greater
- a generally accepted fee scale, if any. investment in the early stages of project development
Normally payable in instalments. (investigations; pre-design briefing; design and
documentation) will generally result in a much
- Percentage of the cost of the works improved project outcome in terms of both capital cost
and facilities management or life cycle cost.
Based on a percent of the contract price for the
works contract. In a competitive situation, well-informed
clients will place greater emphasis on the capability and
Direct expenses are normally reimbursed competence of the bidder rather than focussing on the
separately, or can be included partly or wholly in other lowest price and risk appetite. This will result in a more
payments, depending on the circumstances. competitive and competent industry with sufficient
skills to meet the needs of its clients, which together are
2.4 Cost of services the basis for the Quality Based Selection of consulting
services.
The cost of the services will depend on their
type and extent, which should be determined in 2.6 Cost plus profit
consultation between the client and the consultant and
clearly defined in the scope of works. They should be Consultants may find themselves
commensurate with: negotiating on a cost-plus-profit basis.In such cases it is
important to ensure that the hours presented allow an
- Scale and duration of the services adequate margin, especially on large projects that have
a tendency to become more complex than was assumed
- Level of experience and expertise involved initially.

- Responsibilities being undertaken 2.7 Gaining concessions

Payments should not be affected by risks An effective way to gain concessions from a
over which the consultant has no control, such as client is to identify items that can be deleted from the
procedural delays or the performance of other project scope of services in order to reduce the cost, while still
participants, such as a contractor. maintaining the integrity of the project. This amounts to
negotiation on the basis of scope rather than price.

6
 2 F e e s

Items that can be considered include: - Weekly invoicing cycle

- Design alternatives Specify a weekly invoicing cycle based upon

a pre-established schedule. For example, if
Limiting the number of design alternatives a $130,000 project is scheduled to last 13
to be evaluated. weeks, the contract can specify an invoicing
amount of $10,000 each week.
- Pre-engineered packages
- Interest on late payments
Using pre-engineered package systems
instead of custom-designed components. Include a clause in the services agreement
with the client obliging the payment of
- Specialist services interest for delayed payments.

LRequiring the client to contract directly for These approaches can cut the overhead rate
other required services such as surveying, substantially by reducing or eliminating the cost of
soils investigations or other field work. interest to finance project expenditure.

- Contractor design 2.9 Reducing normal overhead costs

Specifying that some design activities be Reduce or eliminate costs that are normally
done by the construction contractor, based built in to your overhead rate. For example, if the firm
on performance specifications. allocates accounting costs to a general overhead
account (as do most design firms) these costs can be
- Reprographics reduced for a specific project by obtaining agreement
from the client for a simple invoicing format with no
Permitting the use of reprographic backup documentation of expenses, such as copies of
techniques. time sheets, phone logs or receipts. Under this kind of
arrangement, the client can still be protected by being
A careful analysis of each project will allowed to audit invoices on a random basis.
usually reveal many ways of reducing costs.
An option is to accept the project on a
At the negotiation stage, the consultant compressed schedule and work overtime. As long as the
should be prepared to discuss the cost impact of any client agrees to pay for overtime hours at the same rate
possible combination of these measures. as regular hours, this can be an effective way of
reducing the overhead rate, because overtime hours
2.8 Save interest costs by improving generally do not carry the same burden as normal
cash flow working hours. For example, once the office rent is paid,
it costs little more to occupy the space for 16 hours a
- Payment of a retainer day than it does for eight hours a day.

Consider the merits of the payment of a 3.10 Fee tendering

substantial retainer upon project initiation,
to be held until the final payment. Fee tendering, while strongly discouraged,
requires careful management. Factors the consultant
needs to consider include understanding the:

7
 2 F e e s

- Cost of the deliverables

Cost of the deliverables, in particular, those

by which the performance will be judged by
the client.

- Agreements

Services agreement and associated

documents, such as insurance policies.

- Risks

Risks in the appointment.

8
 Proactive risk management can be
achieved by properly assessing and clearly
defining the scope of services in the
appointment. A poorly described, vague
or ambiguous scope causes uncertainty,
misunderstanding, fee risk and has the
potential to lead to disagreement and
protracted disputes.

3 S c o p e

All written agreements for the provision of understanding the services are required - something
professional services contain contractual obligations that a consultant can do as well as any of the other
(for instance, provision of services, duty of care, professionals who generally need to be engaged for a
payment terms, insurance coverage, etc.) as well as a particular project. In certain circumstances, it may be
description of the services (or scope) to be performed appropriate for the consultant, following discussion and
by the consultant under the appointment. The level of consideration of the client’s requirements, to set out the
detail in terms of scope description will vary depending services that will provided in order to meet the client’s
on the appointment and should include such matters as objectives. In other commissions, the client may be
scale, technical complexity, role, etc. experienced, already knows what is required, and/or
may have other professionals advising, and is therefore
Achieving a precise definition of the in a position to set out the services that the consultant
services to be delivered is a key risk mitigator in every is required to deliver.
assignment. This rule applies whether the professional
services agreement is a bespoke form, a standard form Particular care is required when performing
such as the FIDIC Client/Consultant Model Services project supervision. The client, with the aid of the
Agreement (the “White Book” ), or a purchase order consultant or other professionals, must specify the level
delivered by letter, email or orally. of supervision required, be it occasional, part-time or
full-time. The precise requirements for the client/project
3.1 Define the scope will include such matters as the complexity of the
project, the procurement method, other retained
It is important, fundamentally, that the supervisors (including possibly the client’s own
scope of services to be provided by the consultant is representatives), remoteness of location, etc. The
clearly and precisely defined. It is in the interests of both consultant must ensure that the client’s requirements
the client and the consultant that the total services to be are clear and recognise the limitations of the specified
delivered are fully understood so that: level of supervision. Whatever the extent of supervision
that is agreed, the consultant cannot guarantee the
- Services can be properly resourced and priced by the contractor’s performance or the quality of the works.
consultant. The agreed level of supervision should be precisely
- The consultant is clear as to what has to be done to defined in the appointment.
discharge the obligations under the services
agreement. Other obligations, such as responsibility for
- The client is entirely clear as to the services that will the coordination of other design professionals,
be received. planning, permits and health and safety obligations also
need to be clarified at the outset.
In very simple terms, each project and
assignment has to be considered on its own merits. If 3.2 Further guidance
the consultant is being appointed to provide structural
engineering design services, the precise nature of these Owing to the global spread and diverse
services should be set out, identifying what is included nature of the services provided by FIDIC member firms,
(e.g., detailed design and layout drawings) and, if the FIDIC Client/Consultant Model Services Agreement
appropriate, what is not included (e.g., details of provides an appendix for the client and consultant to set
steelwork and connections or reinforcement). out the scope of the consultant services required to be
performed.
The experience and sophistication of the
client needs to be taken into account. A client with Several FIDIC Member Associations also
limited experience will require assistance in have standard appointment terms designed for their

9
 4 S c o p e

particular countries of operation and membership. 3.3 Understand the scope

Some of these associations include in their standard
agreements detailed schedules of services that set out A properly defined and agreed scope
precisely the services to be delivered from the initial assures the client in terms of expectations and enables
appraisal or strategic briefing stage through to the the consultant to deliver the contracted scope of
detailed and final proposal stage, and then on to services. A scope that allows the consultant to deliver as
production and delivery. Both the client and the agreed will negate the risk of misunderstandings and
consultant can add, delete and modify the specified conflict (either concerning fees or misunderstanding
services to suit their and the project’s particular over poor or non-performance) through the satisfactory
requirements. This step is a essential, particularly when performance of the services and the delivery of the
a detailed list of services is being used. agreed scope. In such circumstances, the end results
are a satisfied client and a project well accomplished,
Consider also the guidance given in this these being the aims of the appointment.
guide with respect to Fees, Resources and Contracts
and use the scope checklist given below as an aid to
defining and clarifying the scope of services of the
appointment.

Client Checklist
- Clear and unambiguous: are the consulting services assumed to be part of the scope? If yes, have these
required to be provided clear and unambiguous suspected problem areas (e.g., cladding,
(such as listing of engineering services to be environmental, etc.) been included in the scope?
delivered)? If not, has any ambiguity been clarified? - Specialities: are there any specialities to be provided
- Guidance: does FIDIC or your FIDIC Member for areas such as acoustics, health and safety,
Association provide any guidance or specific security, drainage, fire, lighting, environmental, and
schedules of services for particular commissions project sustainability?
such as lead consultant, programme management, - Survey: does the scope require surveys? If yes, have
engineering design (civil, structural, geotechnical, they been adequately specified in terms of extent and
mechanical, electrical, environmental, building nature (visual, sampling, destructive, etc.)?
services, etc.)? - Health and safety: is it clear who has responsibility
- Properly resourced: have all services to be provided for coordination and all relevant health and safety
been properly resourced (in terms of appropriate matters?
competence and experience) and priced accordingly? - Permits: is it clear who has responsibility for
- Specialist subconsultants: are any specialist obtaining any permits, licences or relevant regulatory
subconsultants required to deliver the agreed scope? approvals?
- Unspecified services: are there any unspecified - Supervisory role: does the appointment require a
services connected to the consultant’s role? If yes, supervisory role? If yes, is the level of supervision
has the client been alerted to their omission? adequately specified and clearly understood by both
- Associated services: are there any associated parties?
services that (if not expressly excluded) might be

1 0
 Resource risk is intimately connected with
the risks associated with fees and scope.
It can be summarised in its worst-case as
not enough of the right people doing the
right job.

4 R e s o u r c e s

The most effective tools for mitigating Consultants must also learn from their
resource risk are a clear project plan, a specific risk successes and mistakes. It is rare to find a crystallised
assessment and good quality control. These risk that has not been recognised in advance, or has
components should be considered not only during the never been seen or experienced before.
pricing phase or at the start of the project, but should
also be reassessed regularly and adjusted to ensure that 41 Project Strategy
they take account of changing circumstances in terms of
programme impacts, scope, fees, resource availability, A good project strategy will start with the
and the risk climate. scope and the professional services agreement,
breaking these down into:
Commitments made in the project proposal
are generally incorporated into the scope of the - allocated tasks;
professional services agreement and become - a review of the resources and programme that were
obligations which, if ignored, then become risks and promised and have now become contractual
potential liabilities. obligations, and the allocation the necessary
resources;
- Promises - appropriate timelines;
- the allocation of the available (and appropriate) fee
Promising the “A-team” and providing budget across the activities.
substitutes is risky business.
As well as providing a basis for managing
- Over-commitment the project, such a strategy provides a sound foundation
and an early warning system for an analysis of the
Going all out for the project and worrying project risk.
later about how it will be carried out raises
the risk profile significantly. A good project strategy will also include
contingency planning. Contingency planning should
- Cutting costs consider how programme delays can be overcome and
succession planning to ensure that in the event of key
Bidding low and hoping to offset or resources becoming unavailable for any reason,
minimise losses by using junior staff who substitutes with appropriate technical knowledge and
may not have the experience to assess the experience are identified and briefed.
technical complexity or to anticipate
difficulties which may arise from early On certain projects, it may be appropriate
design decisions commonly lead to risks that these resources are considered and briefed for peer
becoming crystallised. review roles in the quality plan described below.

Risks that crystallise in the resources area If it is contemplated that the project
often have consequences that affect parties other than resources will include staff who are under training then
the consultant, and these consequences are often the project strategy must recognise this. The strategy
exactly the very issues that the client has employed a must also confirm that both time and cost allowances
professional engineering firm to avoid. It is part of a are made for the time and effort that will be required to
consultant’s professional duty to ensure that risks ensure that the training is effective and the work of the
deriving from inadequate resources do not arise during junior staff is being carefully monitored and checked on
the project. a routine basis.

1 1
 4 R e s o u r c e s

4.2 Quality Plan the project strategy relies on additional recruitment

or the availability of contract staff.
A good quality plan in accordance with - The continued availability of specialist
industry or the firm’s standards is an essential tool in subcontracting design organisations, and their
managing risk in the resource area. Emphasis should be attitude to risk and quality control.
given to ensuring that self-checking takes place at the - The availability and reliability of information to be
front line, and that designers, drafters and field provided by the client, and the means by which the
engineering staff do not rely on someone else detecting quality of this information will be assessed.
their mistakes. - A review of the risks to the project which may be
generated by the size and nature of the fee budget.
Peer review using resources from within or - Specific understanding of the level of confidence
outside the firm is an essential mechanism for avoiding required by the client in any cost estimations, and an
risk in this area. It should always be considered for appropriate allocation of resources to meet this level
complex projects, particularly where design or of confidence.
construction involves either a significant amount of - A review of how the risks associated with field
innovation or unusual or non-standard assumptions. A engineering and variations (a primary source of
peer review will not detect detailed design or calculation professional indemnity claims) will be managed and
errors: these should be identified as part of the quality controlled.
control within the project. A peer review will check that - The likely structure of the implementation contract
the scope has been correctly interpreted and that any for the works, since some contracting strategies
assumptions made or standards adopted are such as Guaranteed Maximum Price as well as
appropriate. An experienced peer reviewer will not only design-build contracts have inherently higher risk for
assist in avoiding fundamental errors but also, if the design organisation.
involved from early in the project, be most likely able to
contribute significantly to the project outcomes for all 4.4 Review after action and lessons
the parties involved. learnt

4.3 Project Risk Analysis Every project has the ability to enhance a
consultant’s knowledge and experience. An important
A project risk analysis can, and should, part of limiting resource risk is to carefully review both
cover many more areas than simply the resources. The successful and not so successful projects for lessons
resources section of the project risk analysis should that can be learnt.
consider issues such as:
It is particularly important to review and
- The technical complexity of the project, and the understand projects with risks that have crystallised and
ability of the allocated staff to deal with the where risks have arisen in the resource area since firms
complexities. generally have the ability to eliminate resource risk in
- The interface between professional advisers and the future, or at least institute procedures which will
design disciplines and the level and complexity of mitigate or control it.
these interfaces, and the means by which they will be
coordinated. Case studies developed from actual
- Consideration of the extent to which the design experience provide some of the most effective
process will depend on one or more specialists or mechanisms for illustrating risk management concepts
key individuals, and contingency or succession plans and for training of staff.
in the event that they become unavailable.
- The general availability of resources, particularly if

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 Key risks need to be considered when
entering into agreement for the provision
of professional services.

5 A g r e e m e n t s

The failure to take appropriate care and to unlimited unless express limits are agreed in the
seek advice when agreeing contractual terms can lead to appointment. This is clearly undesirable, especially
disputes, which are expensive and damaging to an given that there will be a limit on a consultant’s PI
firm’s reputation. The main potential problems can be insurance.
identified along with possible remedies.
To avoid/mitigate the risk of liability,
5.1 Burdensome or onerous terms consultants should:

Consultants acting in most jurisdictions - Ensure that the contract limits liability to within the
accept that their services will have to be performed with level of protection offered by the consultant’s PI
reasonable skill and care. However, fitness for purpose insurance.
obligations and absolute or strict obligations which - Take legal advice as to the enforceability of limitation
impose a higher burden should be treated with extreme clauses in the relevant jurisdiction.
caution. The use of the word “shall” (meaning to
“ensure”, “comply” or “secure”) creates absolute 5.3 Correct form of agreement
obligations, which may impose liability even for events
that are beyond a party’s control. Professional services agreements can be
made orally, in writing or by conduct. Written contracts
Absolute obligations can also introduce can take the form of bespoke agreements or standard
warranties for fitness for purpose by referring to other forms, modified or otherwise. The risks of using oral
documents, as for example, the provision: “The and bespoke written agreements are: important aspects
Consultant shall ensure that the design will meet the may be omitted (for example, how disputes will be
stated requirements of the Client ....”, where the stated settled); unfavourable terms (see above) can be
requirements contain fitness for purpose obligations. included; there is a greater risk of uncertainty.
Contractual clauses requiring a consultant to indemnify
can broaden a consultant’s liability beyond that of To avoid/mitigate risk associated with the
negligence or a legally enforceable claim. Again, these form of the agreement, consultants should:
should not be agreed without understanding the
onerous risks that they impose. - Take legal advice when drafting bespoke contracts,
and/or
To avoid/mitigate contractual risk, - Consider using one of the many standard forms
consultants should: available, notably the FIDIC Client/Consultant Model
Services Agreement.
- Carefully review and understand the obligations that
are imposed under the services agreement. The most suitable form to use as a
- Identify critical and onerous terms (with legal advice template will depend on a variety of factors such as
where necessary). jurisdiction, type of project, responsibility for design and
- Take legal advice as to the impact of such terms. the preference of the parties. Like most things,
- Negotiate their removal or modification. For choosing the “right tool for the job” is vitally important,
example. a suitable modification for an absolute especially when operating in different jurisdictions.
obligation could begin with: “Subject always to
conditions beyond his reasonable control…” 5.4 Local considerations

5.2 Unlimited liability Multinational contractors entering new

markets may wish to exclude the effect of local laws by
A consultant’s liability will usually be applying English law, for example, to the contract.

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 5 A g r e e m e n t s

However, consideration must be given to the relevant skill and knowledge, they may not be able to do this.
local law. In some areas in the Middle East, for instance, Therefore, consultants should obtain permission in
there is uncertainty as to the effect of Shari’a law on advance if they intend to do this.
some standard clauses in, for example, the FIDIC White
Book. Novation

To avoid/mitigate the risks associated with Novation agreements are widely used on
local law, consultants should: design-build projects. Most employer-devised
agreements seek to make the consultant liable to the
- Take advice from lawyers and from local contractor as if the consultant had been employed by
professionals (engineers or architects) who have a the contractor from the beginning of the project, thereby
greater insight into local regulatory requirements. considerably broadening the consultant’s liability.
- Where possible, use professional services
agreements which contain arbitration provisions for To avoid/mitigate the risks of novation,
dispute resolution. A good example of this is in consultants should:
Dubai where the FIDIC forms are widely used and
contain these provisions as standard. - Only accept liability to the contractor for breaches of
- Whatever part of the world consultants are duties owed to the contractor post novation; and
operating, where modifications to a standard form - If necessary, retain lawyers to negotiate and argue
are anticipated, legal advice should be sought, as that this view represents the legal reality of the
many of the clauses are interrelated. situation.

5.5 Other contractual issues

Sub-consulting

Consultants may wish to subcontract some

of their obligations to be preformed by another party. If
the consultant has been retained due to their special

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 F u r t h e r i n f o r m a t i o n

Getting it right the first time, Queensland Division, Task Force, Engineers Australia, October 2005.

Design documents quality in the Japanese construction industry: factors Influencing and impacting the
construction process, Andi, Takayuki Minato; Construction Management and Economics, Vol. 22, 2004.

Selection, engagement and remuneration of consulting engineers, FIDIC Policy Statement, 1986.

Professional risks in partnering , FIDIC Policy Statement, 2006.

Informed purchaser, FIDIC Policy Statement, 2003.

Professional risk and responsibility, FIDIC Policy Statement, 1991.

Limitation of liability, FIDIC Policy Statement, 1992.

FIDIC Client/Consultant Model Services Agreement, 4th Edition, 2006

Client/Consultant Model Services Agreement (1999 White Book) Guide, 2nd Edition, 2001.

FIDIC Consultant Selection Guidelines, 1st Edition, 2003.

FIDIC Best Practice Guidelines for the Definition of the Scope of Services - Building Construction Projects,
2009

Professional indemnity insurance and project risk, FIDIC, 2004.

FIDIC Risk Management Manual, 1st Edition, 1997, with appendices (electronic edition)

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 FIDIC
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