The risk's in the relationship dummy!

The risks that lie in the relationships between interest groups involved in South Africa's current infrastructural boom threaten the delivery of many of South Africas major infrastructural projects.

Paul Skivington, Executive Leader - Strategic Risk Consulting at Alexander Forbes Risk Services points out, "Government-funded construction projects present acute relationship management risks - between contractors, government, owners and the public who are funding this spend. These various interests represent a minefield of contractual, legislative and relationship management risks.

"Key to managing these kinds of relationship risks," Skivington continues, "is recognising that different stakeholders involved in a project have different concerns".

For example, he says, the owners of a project face the risk of that project not being finished on time, costing more than planned, or having no use for it once built.

The builders face construction, labour, skills, materials supply, payment and completion risks.

The people next door to the project face property value risks, noise, contamination or other environmental risks.

Finally, the broader community might face other environmental risks like traffic congestion and loss of custom by local businesses. Managing all these risk perceptions and relationships is central to developing a comprehensive risk strategy.

As such, it is important that many of South Africans current infrastructural plans are thoroughly examined for relationship risk.

A basic predictor of a successful project is sufficient experience on both sides of the contractual fence. Where one partner lacks experience risk increases. In South Africa, government has only recently begun turning its infrastructural promises into projects. As such, government inexperience represents a relationship risk in many contemporary infrastructural deals.
 
Skivington adds that, "Wembley stadium in London provides a textbook case of what can happen if relationship risk is not considered."
 
The owners and builders of the stadium failed to deliver the re-vamped stadium on time. As a result the May 2006 Cup Final had to be moved to Cardiff. This caused the owners significant revenue loss while construction costs soared from R7 to R14 billion.

The damage was caused by the way the relationship and subsequent contract were constructed, a risk never identified or investigated when the project was conceived.

Skivington continues, "As is often the case, the owners went for the cheapest bid and locked the contractors in to a fixed price contract. Communication between the owners and contracting party was poor. All warnings that it was impossible to deliver at the fixed price were ignored. When the contractor encountered difficulties there was no flexibility, with owners merely referring to their contract and refusing to negotiate."

The company which built Wembley had also built the Sydney stadium for the Australian Olympics on time and within budget. The risk therefore lay not so much in the construction, which they could undoubtedly manage, but rather in their relationship management.