Contracting and execution risks

The main operational risks for Boskalis are related to the contracting and execution of projects. For a substantial part of our contracting activities the common type of contract is fixed price/lump sum. Under this type of contract, the contractor’s price must reflect virtually all the operational risks as well as the risks associated with the procurement of materials and subcontractor services. Typically, it is not possible to charge clients for any unforeseen costs. Furthermore, many contracts include milestones and associated penalty clauses for if the milestones are not achieved on time. That is why great emphasis is placed on identifying, analyzing and quantifying such delay risks and the associated operating costs during the tendering process and the preparation and execution phase of a project.

Operational risks mainly relate to variable weather or working conditions, technical suitability and availability of the equipment, unexpected soil and settlement conditions, wear and tear of equipment (especially dredging equipment), damage to third-party equipment and property, the performance of subcontractors and suppliers, and the timely availability of cargo or services provided by the client in case of heavy marine transport and/or installation activities.

The following measures are taken systematically to manage the aforementioned risks in the tender, preparation and/or execution phase of a contract:

  • During the tendering procedure and the contracting phase of projects much emphasis is placed on identifying, analyzing and quantifying execution, cost and delay risks. Contracts are classified based on their size and risk profile. This classification determines the subsequent course of the tender process and the requirements for authorization of the tender price and conditions. Above a certain level of risk, tender commitments require authorization from the Board of Management.
  • In the preparation phase of a project tender and depending on the nature and risk classification of the project, we gain insight by conducting surveys and soil investigations; by consulting (proprietary) databases containing historical data and by applying extensive risk analysis techniques. The results of the risk analyses are then used in the process of costing the project and in setting the commercial and contractual terms and conditions for the offer to be issued to the client.
  • Risks related to price developments on the procurement elements of a project, such as costs of materials and services, subcontracting costs and fuel prices, as well as the cost of labor, are all considered when calculating cost prices. Wherever possible, and especially on projects with a long execution time, cost indexation clauses are included in the contract terms and conditions, particularly regarding labor and fuel costs.
  • When a contract is awarded, an updated risk analysis is part of the project preparation phase, based upon which measures are taken to mitigate the risks identified.
  • In addition, much attention is devoted to the continuous education and training of staff, appropriate project planning and project management, the execution and implementation of certified quality, safety and environmental systems, and the optimal maintenance of equipment.

Our terminal services, which have been incorporated in the Smit Lamnalco strategic joint venture, are to a substantial extent performed under long-term contracts corresponding to the client’s requirements and specifications. Most of these contracts include some form of price indexation.

Salvage activities relating to vessels in distress – Emergency Response – are often carried out under great time pressure and without an extensive tendering procedure and associated preparation activities. Such contracts are regularly concluded based on the standard Lloyd’s Open Form (LOF). This means that compensation is based on a valuation mechanism related to various factors, including the salvage value of the vessel and its cargo, the technical complexity of the salvage operation, environmental risks and the use of own equipment and subcontractors. This valuation results in a lump sum, which is finalized through negotiations with the client or through an arbitration process. Experience shows that the company is usually able to make a reasonably accurate estimate of this income. Should it transpire during a salvage operation that the final salvage fee may not be sufficient to cover the costs incurred, then the choice can be made to convert the LOF into a contract based on a daily hire fee, thus limiting the financial risks. Contracts for salvaging sunken vessels (wrecks) are usually carried out on a lump sum basis. The contracting and execution of such projects, which in many cases do involve a tendering procedure, are subject to the customary procedures for contracting and execution activities applicable within Boskalis.

Some of the equipment within the Offshore Energy division, as well as in some of the strategic joint ventures, is chartered out for relatively short periods (spot markets), mainly subject to standard conditions. Although the operational risks involved in such activities are generally relatively limited, they do result in increased utilization and pricing risk, which we aim to mitigate through adequate capacity and strict cost control.

Human resources

As for any organization, having sufficiently knowledgeable, skilled and experienced personnel is a prerequisite for operational excellence. Boskalis employs an increasingly diverse, multinational workforce requiring our staff to be aware of cultural differences and to develop international competencies. The international travel- and work-requirements inherent to our operations are particularly challenging for younger people in dual career households. To help address these challenges, we have renewed our (international) talent sourcing and development process as well as our onboarding process. We also run various talent development programs including Boskalis Trainee Program, Boskalis Project Professionals, Finance Development Program, Boskalis Contracting Academy, Boskalis Operational Development Program and – partly external – leadership development programs. Additionally, a comprehensive employee performance management system is in place as well a strategic workforce planning process that includes succession planning. We strive to offer our staff a present-day, attractive set of (flexible) employment terms.

Environmental and social risks

To gain insight into the relevance and importance of environmental and social topics, Boskalis engages with its stakeholders and regularly conducts a materiality analysis. The outcome of this engagement is reflected in our sustainability report in a materiality matrix. The nature of most of our activities implies that we have an impact on society and the environment. In most cases this impact will be positive, for example when we are involved in creating infrastructure, making land safer or facilitating the transition to renewable energy sources such as offshore wind. However, a potential negative impact during the execution of projects cannot be ruled out. Environmental risks include the impact on biodiversity in vulnerable ecosystems and the emissions produced by our vessels. Boskalis has developed the innovative Building with Nature program and has an in-house engineering department to address ecological aspects from the early tender stage through to monitoring during execution. CO2 emissions are measured and reported and Boskalis is seeking means by which it can reduce its emissions footprint.

Social risks include the impact of projects on local communities. The extent to which our activities have a social impact is highly dependent on the type and/or location of a project. Where relevant, we implement a social impact program and work with our clients to mitigate the impact and where possible make a positive contribution to communities affected by our activities.

Climate change risks

As mentioned, climate change adaptation and the energy transition will require major investments in infrastructure with significant additional opportunities for Boskalis. There are nonetheless several associated risks that could negatively impact our operations. For instance, further restrictions on emissions or increased carbon pricing could result in higher production costs. The increase in frequency and severity of extreme weather events may result in disruptions in project execution. Temperature increase and extreme weather events could also reduce economic activity and GDP growth. Rising climate change concerns may lead to additional regulatory measures which can result in project delays or cancellations. Such concerns also have the potential for a deteriorating relationship with the public and governments in countries where we operate.

ICT risks

Like most companies, Boskalis is faced with an increase in cybersecurity risks and increasingly sophisticated levels of computer crime. Successful cyberattacks can result in significant costs as well as other negative consequences including reputational damage, remediation costs and other liabilities to stakeholders. Furthermore, enhanced protection measures place additional financial and operational burdens on the business. To help mitigate these risks Boskalis has developed information security policies and practices based on the international Code of Practice for Information Security Management. We continuously monitor for suspicious activity on our ICT infrastructure and sustain our (training) efforts to increase awareness of cybercrime risks amongst our staff. The increase in remote working further heightens the importance of these measures. During the year under review, we also made good progress towards timely compliance with the latest guidelines on maritime cyber risk management issued by the International Maritime Organization which will take effect during the current year.

Local working condition risks

Local management on projects and operations must have a proper understanding of the local (working) conditions. The scale of local operations is often too small to warrant a full-fledged organization, including extensive support services and staff departments. This is addressed through regular visits by responsible managers and employees from the relevant business units and support from central staff departments at head office as well as by involving (local) external advisors.

More about risk management

Back to top