Construction has become an increasingly multinational industry recently – but that is creating new risks for companies to manage.
The globalisation of construction is increasing the range of risks to which firms are exposed.
As companies form joint ventures with companies from other countries to bolster their expertise, or win contracts overseas, they are increasingly partnering with local supply change with whom they may be unfamiliar.
The consequent mix of different cultures and work practices brings real risks to project delivery.
This is an increasingly familiar issue for the global construction industry as the demand for massive infrastructure projects far outstrips the capacity of national industries both in terms of expertise and on-the-ground workers.
In India, Prime Minister Narendra Modi’s ‘Made In India’ initiative to encourage foreign direct investment into the country means that all major infrastructure projects have to be joint ventures between Indian and foreign companies.
For example, on the Mumbai Metro, Soma partnered with Dogus of Turkey, and overseas partners were involved on each of the seven works packages.
In the UK, the huge Hinkley Point C nuclear reactor is a joint British-French-Chinese project, while in Qatar the construction for the 2022 Football World Cup is drawing in more than 35,000 foreign workers, mainly from Bangladesh, India and Nepal.
Modern construction methods
Added into this already challenging risk management mix is the emergence of a wide range of modern methods of construction, often driven by environmental considerations, using new materials that may not have been thoroughly tested, which can have disastrous consequences.
These project risks have to be well managed from the design stage.
But problems can creep in at local project management level. The design has to be implemented locally, often by another party, and, if they do not have the right expertise, big risks can emerge.
When an Indian contractor is awarded a project in Africa, it is not practical to transport the whole of its workforce to that country to deliver the work. So, it has to partner with local firms.
That requires training programmes to ensure the design and execution follows the required standards.
But the contractor has to overcome a language barrier, and is restricted in terms of an often tight contract programme, so it cannot spend a long time on training.
But, if the workforce is not properly prepared, risks can result.
Growing international concern over the deaths of foreign workers in developing countries is a demonstration of what can happen when risks are not properly managed and/or when international standards (in terms of construction site safety) differ significantly.
Construction execution is another area of risk.
For example, the growth of the Indian construction industry has seen many of its companies expand and tackle overseas contracts, with KEC delivering transmission and distribution projects across Africa, while L&T has specialised in Middle East metro projects.
But for these companies, and for overseas construction companies who win contracts in India, there can be significant risks around local project delivery.
Indian projects now have to follow recognised international standards, such as ISO9001 and ISO14001, and contract forms follow best practice from other countries. Products and equipment also have to meet rigid specifications.
Cyber risk in construction
The internationalisation of projects brings with it other new risks.
With computer-aided design now a standard feature of all major construction projects, cyber risks have to be taken into account.
The heavy state and public-sector involvement in major infrastructure projects means the risk of malicious hacking is high.
JLT’s advice for any client executing a construction contract outside its own country is to assess and manage the risks as thoroughly as possible.
Conventional construction insurances will cover many risks but companies should pay close attention to professional indemnity exposure, property damage and public liability.
The appropriate employer insurances should also be in place, including health insurance and kidnap and ransom insurance, given the increasing political volatility around the world.
For more information, contact Bidhan Saha, Director of the Energy and Commercial Practice at JLT Independent on firstname.lastname@example.org