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South African Contractors Risk Management Abilities, are they up to standard?

4 March 2015

The Risk Management Process involves identifying potential risks and deciding which risks should be managed on the basis of the likelihood of their taking place and the magnitude of their potential effect. Thereafter, measuring the effect of the risk and whether it is having the impact that you thought it would and having a risk response that you can implement to mitigate the effect of the risk.

Most contracts in Southern Africa are managed generically. In other words we do the same things to mitigate our risks no matter what risks are actually going to prevail on a particular contract. So although we are doing things that will mitigate the risks that might occur we are not specifically aware of these risks unless they are particularly severe and have a major delay or cost impact. Any special risks that might affect that particular contract are not identified and they come about as a surprise to us. In these circumstances the risks manage us rather than the other way around.

The reason that this is so can be traced to deficiencies in the contract documents that we use. Apart from the NEC contract and a half hearted attempt to introduce an early warning requirement in clause 8.3 of the FIDIC 1999 Red Book, there are no specific risk management tools and requirements in these contracts. The intention, it must be presumed is that in compiling the programme for the work, that risks will be identified and a risk response devised.

So here lies the rub. As a general statement and in an environment where skills are in any case in short supply, our planning skills and procedures are chronically bad! We have a surfeit of schedulers but a shortage of planners. Schedulers are the guys that know how the programming software works but don’t have the on site experience to understand things like construction methods and rates of production. The intention is that the site team that will carry out the work should provide this information to the scheduler. Either this is not done (and the scheduler works in isolation) or it is done in such a way as the risk identification process is either not done at all or it is done superficially.

In an environment where our skills are paper thin this is a really bad thing. We need to empower the people that we appoint to manage and carry out our contracts and the best way to do this is to identify the risks that they will in all probability have to deal with and to give them the tools and the support to manage the risk once they manifest themselves. This can only be done if a risk workshop is convened and fully experienced people are involved in the process.

As a general observation risk management is practiced at tender stage and at the inception of a contract but the effort tends to peter out as the contract progresses.
The management of construction contracts is the management of risk, so it is fundamental to the well being of our projects and our industry going forward that we start to manage risk proactively.