PLAYING A CHANGING GAME: A Shift in Ownership of Non-Traditional - PowerPoint PPT Presentation

PLAYING A CHANGING GAME: A Shift in Ownership of Non-Traditional Risks AGC 2018 Conference on Surety Bonding & Construction Risk Management Adrian Pellen , SVP – Infrastructure Segment Leader January 30, 2018 Naples, FL

Agenda 1 February 5, 2018

Agenda Risks 1. What’s the Issue? 2. Macro Trends 3. Non-Traditional Risks – Site Conditions (Environmental, Archaeological, Paleontological) – Weather Events – Other Risk Issues (Permitting etc). 4. Management/Negotiating Strategies 5. Risk Transfer Products 6. Q&A 2 MARSH February 5, 2018

What’s the Current Condition? The Issue Owners are transferring risks that they have traditionally retained 3 MARSH February 5, 2018

Macro Trends 4 February 5, 2018

Macro Trends What’s Creating the Conditions? - Advisors Lagging Efficiency Looming Boom Source: BCG, 2015 – Value Creators Report Source: McKinsey, 2017 - Global Infrastructure Initiative 5 MARSH February 5, 2018

Macro Trends What’s Creating the Conditions? - Advisors VfM Source: IO, 2015 – Assessing Value for Money 6 MARSH February 5, 2018

Non-Traditional Risks In Review 7 February 5, 2018

Risk Allocation Standards? Source: FHWA 8 MARSH February 5, 2018

Non-Traditional Risks Site Conditions Archaeological/Paleontological Contamination/HazMat 9 MARSH February 5, 2018

Non-Traditional Risks Site Condition: Environmental & Hazmat – Contract Examples 12.2.4 Costs and Delays . Except for Owner Release(s) of Hazardous Materials, except as set forth in Sections 12.2.3 and 12.3 and without limiting Owner’s role or responsibilities set forth in Section 12.2.5, Contractor shall not be entitled to any compensation due to increased costs or delays associated with the discovery, handling, storage, removal, remediation, transport, treatment or disposal of Hazardous Materials, including contaminated groundwater, encountered in construction of the Project or Utility Adjustments. 12.3.2 Reimbursement for Certain Costs . Owner shall compensate Contractor for 100% of Contractor’s reasonable, out-of-pocket costs and expenses directly attributable to the handling, transport, removal and disposal of Pre-existing Hazardous Materials encountered by Contractor. The foregoing notwithstanding, none of the following costs and expenses shall be chargeable to Owner under this Section 12.3.2: (i) costs and expenses to the extent attributable to Contractor Releases of Hazardous Materials or Owner Releases of Hazardous Materials (without prejudice to any rights in respect of a Compensation Event under clause (j) of the definition of Compensation Event); (ii) delay and disruption costs and expenses; (iii) costs and expenses that could be avoided by the exercise of commercially reasonable efforts to mitigate and reduce cost; and (iv) Contractor’s administrative and overhead expenses arising out of or relating to Pre-existing Hazardous Materials “Pre-existing Hazardous Materials” ……Contractor shall have the burden of proof as to any Hazardous Materials not identified as being present 10 MARSH February 5, 2018

Non-Traditional Risks Site Condition: Environmental & Archaeological – Contract Examples Compensation Event means any of the following: (l) The discovery of any Undisclosed Archaeological Remains during the carrying out of the Construction Work; (m) The discovery of any Undisclosed Regulated Environmental Condition during the carrying out of the Construction Work; Undisclosed Archaeological Remains means any Archaeological Remains that, as at the Setting Date, were neither: (a) known to Developer; or (b) could reasonably have been identified by an appropriately qualified and experienced contractor or engineer exercising due care and skill and Good Industry Practice in the same or equivalent circumstances, including through review and analysis of the Reference Information or publicly available information (including, without limitation, the Final Environmental Impact Statement). Undisclosed Regulated Environmental Condition means any Regulated Environmental Condition that existed on a part of the Project Right of Way prior to the date on which the Department provided the Project Right of Entry to the relevant part of the Project Right of Way and that represents an additional or materially different condition to those described in the Regulated Materials Baseline Report (including conditions that were incorrectly identified (even if otherwise depicted or described) or that manifest themselves in a new location not identified or anticipated in the report), excluding any Regulated Environmental Condition that (a) could reasonably have been identified or discovered by an appropriately qualified and experienced contractor or engineer exercising due care and skill and Good Industry Practice based on the information set forth in the Regulated Materials Baseline Report or (b) arises from the Pre-Existing Gas Wells. 11 MARSH February 5, 2018

Non-Traditional Risks Site Conditions 12 MARSH February 5, 2018

Non-Traditional Risks Weather Events – Contract Examples What about construction phase? 13. RELIEF EVENTS 13.1 Relief Event Defined 13.1.1 Included Events In this Agreement, "Relief Event" means any of the following events, conditions, or circumstances (x) during the Operating Period only, if the outdoor ambient temperature in the XXXXX City Centre, as reported by Environment XXXX, falls below -40 ° C (without wind-chill) or above +40 ° C (each, a "Temperature Exceedance"); High threshold 13 MARSH February 5, 2018

Risk Management 14 February 5, 2018

Management Strategies • Precedence on similar projects/Common Standard • Quantification and Value for Money Argument: Shift Back Negotiation • Sharing – capped amount, co-sharing • Probabilistic modeling Continued Assessment • Risk Mapping & Scenario Analysis • Transfer via contract Risk Transfer • Purchase Insurance 15 MARSH February 5, 2018

Risk Transfer 16 February 5, 2018

Risk Transfer What’s Available? • Environmental Insurance – Insurable - 3 rd Party Liability: Bodily Injury, Property Damage and Cleanup – Potentially Insurable - CERCLA Liability for NODS - Unknown Pre-existing Conditions - 1 st Party Cleanup & Delay Losses – Excluded - Known pre-existing conditions – Key Notes: Schedule Contracts & Disclose Site Assessment Report 17 MARSH February 5, 2018

Risk Transfer What’s Available? • Archaeologically/Paleontological Discoveries – Insurable - As add on to Builder’s Risk (Domestic) LexArchaeology ℠ provides first-party coverage for expenses and construction completion delays that arise due to the unexpected discovery at a construction site of archaeological resources of significant interest - Covers assessment, continuing expenses and other delay costs – Overseas product available for select clients – Excluded - Liquidated Damages – Key Notes: Heavily Underwritten 18 MARSH February 5, 2018

Risk Transfer What’s Available? • Weather Insurance – Insurable - Financial Loss Arising out of Various Specified Perils - Temperature (hot/cold) - Precipitation (snow/rain) – Overseas product available for select clients – Key Notes: - Define threshold “Critical Event” - Definite Deductible - Select Limit 19 MARSH February 5, 2018

Q&A 20 February 5, 2018

Thank You Questions? Comments? Queries? Adrian Pellen Senior Vice President Infrastructure Segment Leader – US & Canada National Construction Practice Marsh USA Inc. 540 West Madison, Chicago, IL, 60661 Direct 312 627 6146 | Mobile 312 607 3865 adrian.pellen@marsh.com www.marsh.com 21 MARSH February 5, 2018