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

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2011
contracts, the Executive Board is assisted by the
management of BAM PPP. This operating company was
incorporated in 2004 to optimise the utilisation of the
know-how and experience available within the Group,
both for acquiring new projects and for properly
assessing the specific risks connected with concessions.
Insurance
Insurance is an important part of Royal BAM Group’s risk
management strategy. A department of specialists
ensures that all construction-phase risks that can be
included in the central insurance policies are actually
covered in those policies and that adequate liability cover
is also taken out. Royal BAM Group’s insurance coverage
is a frequent subject of discussion with professional
insurance brokers.
Specific risks
Companies working in the construction industry are
involved in discussions about the financial arrangements
for construction projects, e.g. less/more work, the
completion date and the required quality level for the
work. Most of these discussions are concluded to the
satisfaction of all concerned. However, in some cases it is
impossible to avoid a discussion ending in legal
proceedings. Royal BAM Group, too, is involved in a
number of legal proceedings. A provision is usually taken
in the case of legal proceedings where a financial claim is
made against the Group, unless the claim in question is
completely lacking in substance. Financial claims that the
Group has pending against third parties are in principle
not capitalised unless it is reasonably certain that the
amount in question will be paid. The Group devotes a lot
of effort towards avoiding such legal proceedings by
implementing quality programmes and providing
training for its employees. Some examples of major legal
proceedings involving Royal BAM Group are given briefly
below.
At the end of 1996 AGIV Real Estate sold the German
construction company Wayss & Freytag to HBG. Part of
the sale involved AGIV taking over rental guarantees
given by Wayss & Freytag. These guarantees concerned
Wayss & Freytag development projects from before 1997
where the buyers had been guaranteed a certain rental
income. AGIV failed to fulfil its obligations towards
Wayss & Freytag after 2003. In legal proceedings before
the German court, Royal BAM Group – having owned
HBG since November 2002 – successfully claimed
fulfilment by AGIV of its commitments in respect of
Wayss & Freytag. Early in 2005, AGIV was declared
bankrupt. As a result, the legal proceedings pending
against AGIV have been suspended. The receiver has
commenced a number of legal actions, including one
against a former AGIV shareholder. The settlement of
these proceedings and of AGIV’s bankruptcy is expected
to take several years. Based on current information, the
Group believes that there will be no substantial negative
financial consequences in the future.
In 2005, during the construction of a bored tunnel for the
SMART North Tunnel in Kuala Lumpur, Wayss & Freytag
Ingenieurbau was faced with ground conditions at
variance with the information supplied by the client.
Wayss & Freytag terminated the contract at the start of
2006 as a result of the client’s failure to fulfil its payment
obligations and refusal to deal with Wayss & Freytag’s
claims for an extension of the construction period and
reimbursement of costs. The client in turn also
terminated the contract in January 2006. Wayss &
Freytag lodged a claim against the client for more than
€20 million as compensation for costs incurred. The
client lodged provisional counterclaims amounting to €5
million. The independent dispute adjudicator, in the
contractually prescribed procedure, has now held that
Wayss & Freytag was entitled to terminate the contract.
The proceedings are ongoing. Based on the present state
of knowledge, the Group considers that the provision
that has been made is adequate.
Two of the Group’s operating companies, partly in
combination with third parties, are claiming payment
from the client, the State of the Netherlands, of invoices
for insulating homes around Schiphol Airport. A dispute
has arisen between the construction companies and the
client in relation to the final settlement in the amount of
more than €10 million. The construction companies are
also claiming compensation for loss sustained as a
consequence of reduced construction volume and
increased construction site costs due to disruption of the
construction process. The State is making a counterclaim
of approximately the same amount. The dispute
regarding the final settlement is in arbitration. The
Group is assuming, as matters currently stand, that no
substantial adverse financial consequences will result
from these legal proceedings.
On 3 March 2009, during construction work on part of
the metro system in Cologne, several adjacent buildings
– including Cologne’s municipal archives building –
collapsed. Two residents were killed. Wayss & Freytag
Ingenieurbau is a one-third partner in the consortium