June 28, 2021
Risk must be effectively identified and managed throughout any project to ensure the project delivery risks are effectively recognised and accounted for. Risk plays a key role in a railway project contract and requires an ongoing monitoring process throughout the project’s life.
Project risk, especially for railway projects, require:
- identification;
- assessment;
- allocation;
- mitigation; and
- monitoring and review.
The risks encountered in railway projects are typically broader than the usual financial and safety risks on construction projects as they potentially prevent or affect the railway from functioning as proposed (i.e. the requirement to use the track between railway shuts). In these instances, risks such as cost overruns, project delays, safety issues in relation to both construction and operation, system integrity and reliability are the most prevalent. As such, it is important that a robust approach towards risk is taken.
One of the most trusted and relied upon documents and mechanisms for detailing, understanding and managing risk is a risk register.
By developing a comprehensive risk register into the contract and adhering to a risk management framework, risks that may create, enhance, prevent, degrade, accelerate or influence the ability to meet the objectives and outcomes can be identified and assessed.
The risk register outlines each unique risk, describes that risk, describes the impact the risk would have on the project, scores that risk on the likelihood that the risk will eventuate, and the seriousness if that risk did eventuate. Together these risk factors combine to create a risk assessment score, which forms an argument as to which risks should be prioritised in terms of speed to action and resources used.
In railway projects, typical risks encountered:
- Technical risks;
- Commercial and procurement risks;
- Interface risks;
- Financial risks; and
- Legal and political risks.
Technical risks can arise as to the design such as issues with completeness, integration and intellectual property rights of the project. Further technical risks that arise can be because of the project’s location (e.g. adverse climatic or geological conditions), an operational risk regarding safety or quality control, or a risk with technology in that it may be untested or outdated.
Commercial and procurement risks can eventuate such as issues with project size or links to other procurements, type of contract or any budget constraints and immoveable timescales.
Interface risks can be physical whereby different Contractors are engaged on the same project and their work connects in some way, or it can be a relationship interface risk which would relate to issues arising between different stakeholders on the project. These interface risks can cause completion delays, claims for damages, stakeholder complaints, loss of profit and reputational damage.
Funding and budget constraints, changes in exchange rates or inflation are all financial risks often encountered on railway projects.
Finally, government policy, taxation, uncertain regulatory environment, and the public perception are examples of legal and political risks that may be experienced.
A risk register can be used in your next project to decrease costs as managing or assigning risk is a major part of delivering any project on time and on budget, and the risk register is the ultimate source of trust for understanding and assessing risk.
Our Team at Lamont Project and Construction Lawyers are equipped with the knowledge and experience to assist with any contractual disputes or related issues you may have. If you would like to discuss any matters raised in the above article as it related to your specific circumstances, please do not hesitate to contact Peter Lamont ([email protected]) or myself ([email protected]).