Risky Business

Last week NCE published a report written by myself on professional indemnity (PI) insurance and risk management in conjunction with insurance broker Marsh. This involved reporting on a survey undertaken by construction industry professionals, interviewing senior people at Marsh and attending a round table discussion on key issues for the industry when it comes to professional indemnity. It was an interesting exercise as despite the soft insurance market conditions it seems that engineering firms may not always be getting the best deal when it comes to cover. The pieces appear here:

http://www.nce.co.uk/features/risk-management-special-in-the-round/5217377.article?query=0

There were some interesting differences of opinion at the round table event. Consultants bemoaned a lack of appetite for project specific insurance and said the cover that does exist is too expensive, but Marsh said this type of cover was readily available and new entrants were coming to market.

According to the online survey results consultants are better placed to manage risk having strengthened their internal processes since Marsh and NCE conducted the 2009 questionnaire, but the biggest area of uncertainty seemed to be in overseas markets. Marsh warned about gaps in cover where firms may not be aware that local insurance is a pre-requisite. Another element putting pressure on firms is the UK Bribery Act which was ratified in April. This strengthens UK law in terms of corruption, particularly where this occurs in overseas markets. It outlines four key criminal offences and increases the penalties for individuals and firms engaged in acts of bribery in the UK or overseas including a corporate strict liability offence of failing to prevent bribes being paid. This means there is no requirement to prove corrupt intent. This is probably the most significant of the changes to the law introduced by the Act. All offences carry the prospect of unlimited fines and for individuals there is a potential 10 year prison sentence.

The main area of contention for most firms concerns a transaction referred to as a “facilitiation payment”. Facilitation payments exist in a range of formats in many countries. For some places it is an established part of the business cycle, for example an officer at a local authority requiring a fixed payment to issue a permit. This in turn may be sanctioned by state government.

The new act does not differentiate between making facilitation payments and paying bribes, so any UK firm making such a payment in international markets, even if those payments are legal in that country, is still breaking the law. Unlike in the UK, the United States has decided to allow certain types of facilitation payments under the Foreign & Corrupt Practices Act (FCPA) of 1977. Under FCPA they are allowed in circumstances where a person is being paid to do something they are already bound to perform.

Delegates at the round table event had some interesting thoughts on these from the uncompromising with one delegate referring to all such payments as “evil” to accepting that they are a natural part of the business environment. However the overwhelming view was that certain markets would now be off limits to UK firms and if you are wondering where these markets are have a look at the Transparency International Corrupt Practices Index http://www.transparency.org/policy_research/surveys_indices/cpi/2009

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