eld on the 23rd October, the Chapter recent breakfast network meeting featured Nigel Wood of Jardine Lloyd Thompson deliver an interesting talk on professional risk, with particular reference to outsourcing. Fifteen members turned up to hear the tallk and to eat the usual Dot.Cod full English breakfast.

Enjoying a full English breakfast

For me the take-aways from this talk were the breakdown of professional risk into three areas of law -common law, contract and breach of statutory duty – and the key points for each Statutory duty is reasonably clear and the there is generally guidance available.

Common law relates to the duty of care everyone holds towards their ‘neighbours’ to exercise reasonable skill and care in whatever you are doing, and this applies to FMs in their day-to-day work. If you are sued or you sue under common law, you will only get back to where you started – there is no consideration of consequential loss or damages.

Contracts are generally governed by the terms within the contract. Whilst there are exceptions, if you accept terms within a contract, even  if they are onerous, then you had better be prepared to meet those terms or you will have liability under that contract – and this is likely to include liability for consequential loss and damages. Remember – a contract can be verbal if there is an offer and an acceptance, and these can be reasonably proven to exist.

Delivering the finer points

When  writing a contract the 1st party has different needs from the 3rd party – so if you receive a contract to sign don’t assume the terms will be in your favour. Read it and make sure. Query what you are not sure about. If you can’t get the terms changed then you need to weigh the risks you will run and be sure the outcome of the conttract is worth the risk.

Under the type of contract FMs are usually involved in, the 1st party will invariably require the 3rd party to take out insurance to provide cover in the event of default by the 3rd party. Dont assume that it is always best for the 3rd party to purchase the insurance. In some situations it may be better for the 1st party to purchase and control the insurance.

Most FMs will understand 3rd party insurance, employee’s compensation insurance, contractor’s all risk and property all risk insurance. Professional indemnity insurance covers the professional against neglegence or breach of professional duty, but this insurance has a kick. Past acts are only covered by current insurance, so if you stop payments you lose cover for projects recently completed, and older projects where it takes time to uncover the problem. The alternative is to cover a project specifically, but this can be expensive.

It is essential to thoroughly assess the risk to fully understanding the contract. Mitigate the risk where possible, otherwise transfer the risk to the other party or to insurance. However, make sure you have also assessed the risk of transfer – you may think you are covered, but you can only be sure you are covered when the cheque is in the bank.

If you have a really good understanding of the risk and can accept the potential downside costs, you have the option of accepting that risk as part of the project or operational cost.

You can download the PowerPoint from the talk here or by going to the web site and reviewing “Event Archives” available from a button on the Events web page.