BAM Abbreviated Annual Report 2011 - Siteseeing in the world of ...

ensure that it consistently and effectively attracts
talented employees and continues to provide them with
challenges and development opportunities.
In order to limit legal risks, the legal documentation
required for the projects is based on standard documents
as much as possible. Where a non-standard contract is
used, Royal BAM Group lawyers will assess the contract
beforehand. Standard contracts include clauses stating
that any increase in wage and plant and equipment costs
during the construction period can be passed on to the
client. Clients can also buy off these risks.
In the construction sector it is usual for the operating
company of the construction company that has won the
contract to have to issue a guarantee as collateral for
proper execution of the project. This guarantee may be
provided by the parent company, or alternatively by
external parties such as banks or surety institutions.
Royal BAM Group has stringent procedures to guarantee
that the contractual terms and conditions of guarantees
comply with the company’s specific guidelines.
Over 75 percent of Royal BAM Group’s annual turnover
comes from work done by suppliers and subcontractors.
These parties have a major impact on the projects, both
in financial and technical terms. The Group aims to
maintain good relations with suppliers and
subcontractors in order to ensure that the construction
process runs smoothly.
Cooperation should also minimise the overall costs and
at the same time produce a high quality product. For
cooperation and management of price risks to work well,
suppliers need to be involved in the project from an early
stage. This cooperation is set out in framework contracts,
which contain agreements about fees and conditions
(such as delivery times, invoicing, risks and bonus
discounts).
Project-specific orders can then be placed under the
framework contracts. The operating companies’ broad
range of expertise and experience allows Royal BAM
Group to independently and successfully carry out
large-scale projects. Nonetheless, it can be
advantageous – also from the point of view of spreading
the risks – to work in a joint venture when dealing with
larger projects. In the Netherlands this usually involves
establishing a general partnership (a legal form in which
all parties are jointly and severally liable for mutual
commitments connected with the performance of the
project). Royal BAM Group mitigates the resulting risk
associated with construction partners by only entering
into joint ventures with solid and solvent partners.
However, if the risk presented by the partner is still
considered too great, either before or during the
construction phase, the Royal BAM Group operating
company will require other guarantees which can take
the form of a bank guarantee or of the partner leaving
sufficient cash invested in the joint venture.
Operating companies minimise the payment risks
associated with the execution of projects by means of
payment schedules that are contractually agreed in
advance. These contracts ensure as much as possible that
payments made by the client at least match the cost
incurred on the completed portion of the work. In the
case of projects carried out in emerging markets and
developing countries, adequate security is agreed or
export credit insurance is taken out before the start of
the project to cover the political and payment risk.
BAM investigates its customers’ creditworthiness before
entering into financing arrangements. The Group also
focuses in particular on the security provided by banks
and the payment systems used by government bodies.
Acceptance of project development risks requires the
prior approval of the Executive Board. The Executive
Board takes a decision regarding these risks, based on
project proposals from the operating company
concerned and an analysis by the Group’s Property
Investment Director. For projects in the Netherlands, the
general rule is that construction does not start on
residential or other projects until a substantial number of
units have been sold or a large part of the project has
been let. The AM order book, however, still includes a
number of residential construction projects from the
past where there is an unconditional obligation to build.
The general rules before starting construction work in
the Netherlands also apply in Belgium and Ireland. In the
United Kingdom – where BAM is only active in
commercial property – pre-letting is not common
practice. Instead, the inventory risk is minimised by
implementing a system of phased project execution.
Given the date when work will begin on the project, the
book value of purchased land reflects no more than the
current market value.
No PPP or concession contracts may be accepted without
the prior approval of the Executive Board. In its
assessment of the risks attached to PPP and concession
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