Select Committee on Health Minutes of Evidence

Appendix A: Typical Construction and Development Risks

Risk Heading Definition
Incorrect cost/time estimatesThe cost/time taken to complete the construction phase may be different from the estimated cost/time.
Unforeseen ground/site conditionsUnforeseen ground/site conditions may lead to variations in the estimated cost
Unforeseen ground/site conditions under the foot print of the existing facilities Addition costs resulting from where the private sector is unable to carry out necessary surveys prior to commencing work because facilities are currently occupied
Delay in gaining access to the siteA delay in gaining access to the site may put back the entire project
Responsibility for maintaining on-site security Theft and/or damage to equipment and materials may lead to unforeseen costs in terms of replacing damaged items, and delay.
Responsibility for maintaining site safety The Construction, Design and Management (CDM) regulations must be complied with during the construction phase of the project.
Third party claimsThis risk refers to the costs associated with third party claims such as subsidence on adjacent properties or in injuries to visitors to the hospital.
"Delay Events" (These are those which the trust is responsible for and not, for example, delay because the ground is frozen so they can't build) An event of this kind may delay or impede completion of the new building.
"Compensation Events"This is a Delay event which also causes the building contractor additional expense as well as delay.
Force Majeure +In the event of Force Majeure additional costs will be incurred. Facilities may also be unavailable.
Termination due to force majeure + There is a risk that an event of force majeure will mean the parties are no longer able to perform the contract.
Legislative/regulatory change: NHS Specific A change in NHS specific legislation/regulations (including NHS policy or guidance) leading to a change in the requirements and variations in costs.
Legislative/regulatory change: non NHS Specific A change in non-NHS specific legislation/regulations leading to a change on the requirements and variations in costs.
Changes in taxationChanges in taxation may affect the costs met by the NHS.
Changes in the rate of VATChanges in the rate of VAT may increase the costs of the project. VAT should generally be refundable to the NHS Trust
Other changes in VATChanges in VAT legislation other than changes in the rate of VAT payable
Contractor defaultIn the case of contractor default, additional costs may be incurred in appointing a replacement, and this may cause a delay.
Poor Project ManagementThere is a risk that poor project management will lead to additional costs. For example, if sub-contractors are not well co-ordinated, one sub-contractor could be delayed because the work of another is incomplete.
Contractor/sub-contractor industrial action Industrial action may cause the construction to be delayed, as well as causing additional management costs.
Protestor actionProtestor action against the development may incur additional costs eg security costs
Incorrect time and cost estimates for decanting from existing buildings The estimated cost of decanting from existing buildings may be incorrect, there may also be delays leading to further costs.
Incorrect time and cost estimates for commissioning new buildings The estimated cost of commissioning new buildings may be incorrect, there may also be delays leading to further costs.

  + These are matters which prevent performance of the contract and which are beyond either party's control. Some are risks which can normally be covered by insurance (eg fire) some cannot (eg war, terrorism).

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Prepared 15 May 2002