K&L Gates
Allocating Risk
in Today’s
Marketplace
Session E14
December 13, 2007
1
Anchorage
London
Beijing
Hong Kong
Seattle
Portland
Spokane/
Coeur d’Alene
Newark
Pittsburgh
Washington, D.C.
Taipei
San Francisco
Palo Alto
Los Angeles
Boston
New York
Harrisburg
Orange County
Dallas
Miami
2
Berlin
MODERATOR
Brian R. Davidson – K&L Gates

Partner, with K&L Gates since 1994.

Represents domestic and foreign corporations
in international (ICC, UNCITRAL and AD HOC)
arbitration proceedings, and federal and state
court proceedings.

Involved in several multi-million dollar industrial
projects, including steel, offshore oil and gas,
and power facilities.
4
PANELIST
Eileen G. Akerson – KBR, Inc.

Joined KBR’s Law Department in 1999;
previously a lawyer with Spriggs &
Hollingsworth in Washington D.C.

Current VP, Legal and Chief Counsel of
KBR’s Energy & Chemicals Division.

Responsible for managing the legal functions
for KBR’s Energy & Chemicals Division.
5
PANELIST
Bart Turner – KBR, Inc.




Director of KBR’s Legal Department.
Manages KBR’s lawyers located in the
Americas offices and provides counsel to
KBR on a variety of legal issues related to
KBR’s activities around the globe.
Involved in the development, acquisition and
execution of several multi-billion dollar
international projects for the development of
oil and gas facilities.
Counseled KBR on a variety of multi-million
dollar claims.
6
PANELIST
R. Suzen Shaw – Microsoft Corporation

Senior Risk Manager for Microsoft’s
Worldwide Operations.

This position places her on the core team for
every construction project undertaken
globally by Microsoft.

25 years experience in the risk management
and commercial insurance industry, including
risk consulting, brokerage, safety and loss
control, underwriting, claims adjusting and
operational risk management.
7
OVERVIEW
This session focuses on two primary
questions:
1. How have current market forces impacted
the construction industry?
2. Given the current market conditions, how
can owners and contractors minimize and
allocate risk on any given project?
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THE CONSTRUCTION MARKET
 Has demand for large scale (nonresidential) construction projects
increased over the past decade?
 Does demand for construction services
vary depending upon the industry being
analyzed?
 Data Centers  Manufacturing
 Oil & Gas
 Power Plants
 Transportation  Other
9
THE CONSTRUCTION MARKET
 Does demand for construction services
vary depending on whether the project
is domestic or international?
 What other variables impact the
construction marketplace?
 Demand for Materials
 Demand for Labor
 Contractors Acquisitions and
Consolidation
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ALLOCATION OF RISK
 Step 1: Owners and contractors
identify risk
 What procedures do owners and
contractors use to identify risk?
 Outline the role of:
o sales department
o management
o in-house lawyers
o outside lawyers
o risk managers
o others
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ALLOCATION OF RISK
 Step 2: Once risks are identified,
how do contractors and owners
minimize and allocate risk given
current marketplace conditions?
Bidding / Contracting
 Owners - maximize the number of
bidders.
 Contractors - decide whether or not
to bid.
 Lenders Requirements.
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ALLOCATION OF RISK
Securities for Payment




Letters of Credit
Guarantees
Credit Analysis / Payment Risks
Up-front Payments
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ALLOCATION OF RISK
Contract Structures





Lump Sum Contract
Cost Plus Incentives
Open-book Estimates
Reimbursable EPC
Conversion from lump sum to
reimbursable pricing structures
 Price escalations clauses
 Mixed hybrid lump sum /
reimbursable
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ALLOCATION OF RISK
Contract Provisions
 Limitation of Liability Clauses
 Termination for Convenience and
Default Clauses
 Liquidated Damages
 Waiver of Consequential
Damages
 Indemnity Clauses
 Different Site Condition Clause
 Change Orders
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ALLOCATION OF RISK
Insurance/Bonding
 How can owners and contractors
use third-parties to protect
themselves against potential
future risks?
 Bonds
o Bid Bonds
o Payment Bonds
o Performance Bonds
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ALLOCATION OF RISK
 Insurance Products
o
o
o
o
o
o
o
o
CGL
Builder’s Risk
Property
Professional Liability
Default (“Subguard”)
Efficacy
Force Majeure
Professional Protective
 Letters of Credit in Lieu of Bonds /
Retainage
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ALLOCATION OF RISK
Owner / Contractor Relationships
 “Partnering” Concepts
 Public Private Partnerships (P3s)
 Alliancing Agreements (Australia)
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LESSONS LEARNED
 Market trend favors contractors for
large non-residential construction
projects.
 Contractors should take advantage of
market forces and carefully review all
options to allocate risk to owner or
third-parties.
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K&L Gates
Allocating Risk
in Today’s
Marketplace
Session E14
December 13, 2007
20