Running the risk

In August, three of the country's biggest project managers and quantity surveyors will be taking one of the greatest risks in their histories. It is then that the Olympic Delivery Authority will decide which of five shortlisted consortiums will be its development partner. It will work with the ODA from its Canary Wharf offices to run the estimated £5.2bn construction programme for the 2012 Games, which includes the Olympic stadium and Zaha Hadid's aquatic centre.

It is a prestigious, glamorous role, which will present the members of the private sector consortium with the fabulous PR opportunity of brandishing their letterheads with the advertising that they are building the Games. However, the contract is potentially onerous, it fails to make the transfer of risk clear, and its small print suggests that the consortium's professional indemnity insurance liability could be limitless (see Rachel Barnes' column, far right). The three project managers and QSs - Mace, EC Harris and Capita Symonds - that are partners in the five consortiums gunning for the contract might not have the financial muscle to come out of such an event without severe losses.

David Langdon, Franklin + Andrews, Faithful & Gould and Gleeds have all taken the hint and avoided signing up to a consortium directly. Rather they will act as advisers to consortiums, effectively making them subconsultants with limited roles - and limited liability. Others, such as Cyril Sweett and Gardiner & Theobald, have avoided the contract in either capacity.

The reasoning of these firms is that the terms of the delivery partner's contract are essentially unknown, and therefore so is the risk. It will be the first major contract to use the competitive dialogue procedure - an EU ruling introduced in January for large, complex projects.

Under the structure, the three shortlisted bidders - five have expressed an interest (see "On the starting blocks, right) - are asked to share their ideas and plans prior to the final pitch, so that each can have the best proposal possible. This might improve the quality of the competition, but it also meets with groans from bidders that their best ideas might be used by a rival, that might then win the appointment. More importantly, it is through this process that the consortiums will agree what form the contract - for example, design-and-build or PPP - with the ODA will take.

Some consultants believe that this would result in a fixed-price, design-and-build contract. Those are the ones that have avoided the role, as it would mean that the consortium would bear the cost of any project overruns. Davis Langdon will advise a consortium comprising Mace, Laing O'Rourke and US project manager CH2M HILL. Rob Smith, its senior partner, says that the pull to implement such a contract proves that the ODA has no interest in seeing a consultant take a lead role. He says: "Fundamentally, the ODA wants to appoint an organisation that can build buildings. We're not builders."

Fundamentally, the ODA wants to appoint an organisation that can build buildings. We are not builders

Rob Smith, Davis Langdon

The confusion over the result of competitive dialogue means that others are quite convinced that the ODA actually has no interest in seeing the private-sector partner risk its balance sheet. It just wants to get the job done. Jonathan Goring, executive director of Capita Symonds, which is part of a Bovis Lend Lease-led consortium, says: "Rather than passing on the risk, it's more likely that the ODA will be paying to have the best people from anywhere in the world."

What is certain is that the descriptive document for the role, published in March, states that the delivery partner will be in charge of managing all design and construction for the Games, including permanent, temporary and enabling projects, as well as the legacy work. Many consultants feel that this is too much to take on, especially as each member of the consortium is required to be "jointly and severally responsible for the due performance of the contract".

This means that consultants could have to pay enormous sums for mistakes made by either themselves or the other members of its consortium. The prequalification requirements for the delivery partner demand that every member of a consortium has minimum professional indemnity insurance cover of £10m for any single incident. To make matters worse, there is no limit on the number of incidents they are required to insure. It is not yet clear whether the consortium or the ODA would be liable for delays caused by subcontractors going bust or failing to complete work on time.

A leading QS described the requirement as "frightening", and Jon Coxeter-Smith, partner at Davis Langdon, said: "Those going for it will need to think about the liability they are exposing themselves to. People view it as high risk, particularly in terms of reputation."

Consortiums were also asked to nominate a "lead organisation" that will take primary responsibility for the contract: that one company will almost certainly be the contractor, and it would decide who is to blame for any problems. One cost consultant said: "Would you hand over power of attorney to another company, even if that company was a partner? I certainly wouldn't."

Rather than passing on risk, it’s more likely the ODA will be paying to have the best from anywhere in the world

Jonathan Goring, Capita Symonds

Other concerns have emerged that consortiums are bidding for a role that is, so far, ill-defined. The descriptive document refers, for instance, to a 100-year legacy for the works; it is possible that the winning consortium could be held liable for that whole period.

The delivery partner may also be called on to take on extra work, and therefore greater liability, within the Stratford City scheme, which is not part of the Olympic Park, but will host the athletes' village and the media centre and recently hit the headlines. Just two weeks ago a fight between three developers for control of the site was interrupted when the leaseholder, London & Continental Railways, began legal action to dismiss them all.

Clients, too, are increasingly concerned that their suppliers' chase for Olympic glory will cause them to lose the best teams from their own projects. One London developer is known to have demanded undertakings from consultants not to bid for large Olympic works if there is any chance of it affecting their own projects.

Those clients might not offer their consultant the opportunity to put the phrase "London 2012 Olympic Games" in their letterhead - but they won't give them the same headaches, either.