Contractors embarking on international construction projects must assess risks, including environmental, in advance: ACE

NEW ORLEANS, La. – The growing international demand for new buildings and infrastructure presents a significant opportunity for contractors, but with that opportunity comes risk, including environmental exposures, that must be evaluated before embarking on any such venture, recommend two senior officials with ACE.

“As the economies of developing nations mature, they need to meet the needs of a rapidly growing middle class,” with most growth occurring outside Europe and North America, Craig Richardson, senior vice president of ACE environmental risk, and Christopher Robertson, vice president of environmental liability and casualty product development, told Canadian Underwriter in advance of the RIMS 2015 Annual Conference & Exhibition.

Citing figures from the McKinsey Global Institute, Richardson and Robertson note that approximately US$57 trillion in “infrastructure investment will be needed globally through 2030 just to keep pace with economic growth.”

They report that a geographic example of this middle class growth is in South America, where the region has begun to invest in its infrastructure. In addition, “as emerging economies are seeking to improve their infrastructure, developed nations continue to take advantage of global opportunities. In western Canada, energy-related projects remain a key focus,” they note by way of example.

However, contractors taking on international construction projects “will always have potential operational and pre-existing concerns,” they caution. These concerns are “particularly true in parts of the world where development is occurring on or adjacent to land that has been heavily industrialized for centuries in some cases,” Richardson and Robertson explain.

“In addition, regulations in every country continue to evolve and change so contractors need to be aware of the changes in order to avoid potential claims, unexpected litigation or fines/taxes,” they point out.

Contractors involved in international projects “should make sure that they take insurance implications into consideration from the start, including contractual obligations,” Richardson and Robertson advise. “They should be aware of contractual terms that could hinder their ability to obtain adequate risk transfer and should work with their brokers and insurers early in the process.”

When it comes to environmental exposures on international construction projects, steps that contractors should take in advance include the following:

• assessing the specific country’s environmental regulations to ensure the construction work will comply with local laws and customs;

• reviewing the contractor’s insurance program to determine if it can provide the needed coverage or if local insurance coverage and claims-handling capabilities will be necessary;

• evaluating any potential pre-existing conditions that could lead to adverse environmental conditions or exposures after the project commences; and

• having an understanding of possible operational exposures that can be derived from construction operations.

Richardson and Robertson report that common environmental exposures can arise from on-site construction efforts, including fuel or chemical spills. Contractors can also be responsible for other damage to the local natural environment, they add.

“In some jurisdictions, such as in Europe, responsibility for environmental damage extends to damage that is not the direct result of a pollution condition. Contractors can be held responsible when their physical operations result in other forms of environmental damage,” Richardson and Robertson note.

Among others, this may take the form of physical damage to natural habitats, damage to protected species arising out of a earthwork operations at a job site, and risks stemming from construction materials native to a particular country, materials brought onto the site, and transportation of construction materials and waste. These issues or concerns, they say, remain a consistent risk or threat.

Still, opportunity remains. “The growth of these construction opportunities provides a significant contribution to global trade. World construction exports rose 4.5% to US$115 billion in 2012, as reported by the World Trade Organization (WTO),” Richardson and Robertson report.

Citing the WTO, International Trade Statistics 2013, they add that major importers of construction services include the European Union and Russia; China, South Korea and Japan in East Asia; Saudi Arabia in the Middle East; and Angola and Algeria in Africa.

“Contractors should consider working with an insurer that can provide both global and locally issued insurance policies, along with local claims-handling capabilities and engineering services,” Richardson and Robertson recommend. “The insurer should have local affiliated companies or established relationships with local insurer partners, and understand the country’s culture,” they emphasize.

“If the program is structured properly, the potential for coverage gaps can often be successfully managed,” they contend.

The RIMS 2015 Annual Conference & Exhibition is being held Apr. 26-29 in New Orleans.