FIDIC 2005 Beijing

Workshop 14
Risk and Liability for Consulting
Engineers: An Australian Perspective

Tony Barry, President and Therese Charles CEO

Association of Consulting Engineers Australia

Risk or Liability Management?

Risk management is one aspect
of project management and like
quality management,
environmental management and
safety management it is about
the project or the service we
deliver to our clients
Liability management on the
other hand is about managing the
impact of claims for loss on our
business
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Will Managing Risk Limit our Liability?

If risk is managed effectively, it
may reduce the likelihood and
severity of loss
However, the consulting engineer
is rarely in a position to manage,
control or bear project risk
Liability management may
prevent or reduce the loss
incurred by the consulting
engineer.
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The Business Environment

The last 10 years

PI Insurance
Where are we heading?
ACEA Initiatives
The Problem
Onerous Terms
What can you do?

Last 10 years
Increasing obligations on consultants
- well beyond common law
Common law has moved in its
application exposing consultants to
new sources of claim
Clients laying off responsibility for
own actions
Trade Practices exposure
Occupational Health & Safety
Insurance crisis
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PI Insurance 2001 -2004

Increased premiums
Absorb the first level of loss increasing deductibles
Increasing use of captive
insurance
Restricted cover - narrower policy
wording
Insurers concentrate on risk
selection
Restrictions on availability
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PI Insurance - Unreasonable
Outcomes?
Could infer consultants are taking
on risks they cannot manage or
bear
Could infer the problem is inherent
in the forms of project delivery we
use
When the loss ratios improve,
capital will flow back into the PI
Insurance market
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ACEA Initiatives

Law reform
Policy debate
Information
Negotiation

ACEA Initiatives
Promoting Legislative Reform
Professional Standards Legislation
Proportionate Liability
Trade Practices Act Amendments

Educating Insurers and Firms

Insurer Site Visits

Guidelines and Tips for Firms
Continuing Professional Development
Individual Contacts for Firms

Talking to Clients
Public Sector - APCC Guidelines
Private Sector - Discussions to Follow
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PI Insurance - A Scarce Resource

Engineers fees - 1% - 5% project
Insurance premiums 2% - 4% income
Claim pool resource say 0.07 - 0.1%
industry value
Building & Construction industry
value say $ 35 Billion
Claims pool resource say $ 35 Million
Reported claims history (IBNRs)
300% of premium

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APCC /ACEA PI Guidelines

Professional indemnity insurance of
consultants relate to project risk and
the services required
A consistent approach (formula
developed for determining project risk
and insurance requirements
Principal-organised insurance
recognised as an alternative to
consultant PI insurance, or for some
extreme risk projects
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The Problem
Client risk dumping through contracts
Risks inherent in Design & Construct, no
avenue to claim against client, the losses
crystallise in the D&C team
Clients pass on risk to consultants for fitness
for purpose, delayed project delivery,
inadequate or incorrect information, cost
overruns, safety and consequential loss
Most of the risks are commercial risks in
contract not in the consultants control
Onerous contracts create grounds for claim
against consultant
Neither the Consultants or their PI cannot
support project risks
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Onerous Terms Create Liability

High standard of care
Responsibility for client supplied
information
Absolute Fitness for Purpose
warranties
Strict compliance
Open ended Indemnities
Duty of Care to multiple parties
Liability for delays outside control
Disclosing terms of PI Policy
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The Solution
Dont accept unreasonable terms
walk away
Negotiate terms which focus on
maintaining a good relationship
and a good business
Use Limits of Liability above
which Clients carry the risk
Adopt commercially sustainable
PI Insurance levels and guidelines
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Limits of Liability - the Firms

Perspective
reduces the impact of unreasonable
indemnities
dissuades clients from taking legal action
where the prospect of recovery is small
assists in maintaining the firm as an
attractive risk to insurers
protects the livelihood of thousands
employees
protects the owners interests in the firm
assists to maintain the professions as an
attractive career
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Limits of Liability - the Clients

Perspective
reflects an agreed realistic
allocation of risk between the
Consultant and the Client
forces the Client to properly
consider managing (and insuring)
the risk which it in reality retains
protects the Client from the
impact of adverse outcome of a
claim against the Consultant
taken out by another client
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Limits of Liability - the Clients

Perspective
maintains PI insurance as being
available to Consultants generally
keeps the cost of providing
consulting services reasonable
assists to maintain professional
services for the community
equitable basis for tendering all
required to offer same capacity
avoid unsustainable risk-taking
culture
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Therese Charles
Chief Executive
on behalf of

Level 12, 75 Miller Street | North Sydney NSW 2059

(02) 99224711 | www.acea.com.au | acea@acea.com.au

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