Contract risks in consulting and engineering – with Hannah Bryce
A current critical challenge for the consulting and engineering sector is risk allocation. Clients see many of our industry-standard contracts as outdated and modify them because of increasing insurance costs, more significant exposures, and a shift in risk allocation. APAC General Counsel for GHD, Hannah Bryce, educates staff on identifying contracts that have an inappropriate risk/reward balance and equips them to push back and have conversations with their clients when what they're asking for is difficult to accept in terms of risk.
Hannah Bryce
Hannah, what do you enjoy about working in the sector?
In the role that I have at the moment (and generally with in-house), you don't have to be the perfect lawyer; you can be a little bit grey and a bit commercial. I can certainly do those perfect things with long dissertations, but I get greater enjoyment by making it real for the people I'm working with. I am able to supply the tools to get their work done while protecting the company from risks by ensuring our legal concerns are well covered.
What are the critical challenges for the sector?
One of the most challenging things that we're grappling with at the moment is risk allocation. When you look at Australia, which is now one of the most litigious environments in the world for the engineering and consulting sector, you will see clients looking to push risk on to people who can't manage it adequately. That is creating a race to the bottom where whoever is prepared to take the most risk gets the gig, which leaves the whole industry quite exposed.
What can we do collectively to lessen the contract risk and advance quality outcomes in Aotearoa?
The work that ACE has done over the last couple of years on contract terms with central and local government and private clients has been important. We've seen many instances of misaligned contracts in terms of risk with all Government agencies.
I am pleased that the DIA and MBIE have recognised the need for a discussion around contracts and have included their legal representatives in open and frank conversations with ACE.
We've made some good starts with those discussions. We're starting to see some public entities nationwide becoming more open to our concerns, especially around limits of liability and indemnities.
Working together as an industry has proved a solid strategy to gain traction on specific issues. Having an industry body involved in discussions at the Government level allows us to speak with a unified voice. It provides a greater chance of achieving a good outcome for both parties.
Have these contract issues arisen recently, or have they been building over the years?
For a long time in New Zealand, we have had industry standard contracts, but clients now see many as outdated. On many occasions, the contracts are modified by clients because of increasing insurance costs, more significant exposures, and areas where they think they may defer risks to others.
What the consulting industry is expected to accept in terms of risk has moved in the last five to ten years. There is a push to put in special conditions and change the contract to have consultants accept greater exposure, and unfortunately, the industry is not quite aligned on what companies should or shouldn't accept in the contracts. It has created a "who's going to be the first horse to go" situation, and when someone does go, everyone else is pretty much forced to accept the new conditions. It becomes a slippery slope that you continually slide down, especially in the current COVID environment where we want to make sure that we have a good pipeline of work.
To ensure work is coming in the door, consultants are now feeling the pressure to accept terms that might become onerous further down the track and might not be serving the client's own risk management strategy in the best way possible.
What is GHD doing about it?
We're trying to educate our staff to push back by identifying contracts that have an inappropriate risk/reward balance and aligning them with GHD's risk statements. We also are equipping our team to be able to have serious conversations with our clients when what they're asking for is difficult to accept in terms of risk. In those circumstances, we suggest that they might be better placed to hold some of that risk themselves.
What are the next steps for risk allocation in our industry?
There is an industry and Standards NZ review of NZS3910, and ACE is working with Kainga Ora on their contracts. There are also separate conversations with MBIE and others.
Hannah, when you aren't concerned with risk allocation, what do you like to do
I consider myself an active relaxer. I like to exercise and belong to a very culty gym where we do lots of high fives and 'wooting'. My son and daughter play cricket, football, belong to a surf club, take part in parkour (free-running) and swimming, and I work hard to be a good supportive mum and not shout too much from the sidelines
I've enjoyed being back in Christchurch and spending time with old friends and enjoying the COVID silver-lining, which has bought three of my four siblings home, which is nice for family time.