Risk Management Framework

BEC Arabia – Aligned with KSA Construction Standards & Mega Projects Framework

---

1. Objectives of Risk Management in Contracts Administration

• Minimize financial, operational, and legal risks associated with contract execution.

• Ensure compliance with KSA procurement laws, FIDIC standards, and international best practices.

• Strengthen contract lifecycle management to prevent disputes, penalties, and claims.

• Improve contract visibility, monitoring, and proactive risk mitigation strategies.

---

2. Risk Categories in Contracts Administration

2.1 Legal & Regulatory Risks

• Non-Compliance with KSA Laws & Procurement Regulations

  • Risk of contract nullification or penalties due to non-compliance with KSA Public Procurement Law, Etimad/NUPP regulations, or PIF project requirements.

  • Mitigation:

    • Conduct pre-contract compliance audits.

    • Engage legal advisors for contract vetting before approval.

• Dispute Resolution & Arbitration Risks

  • Prolonged contract disputes leading to financial losses and project delays.

  • Mitigation:

    • Use FIDIC-based contracts with clearly defined dispute resolution clauses.

    • Establish a Dispute Avoidance Board (DAB) for early conflict resolution.

• Local Content & Saudization Non-Compliance

  • Failure to meet Nitaqat (Saudization) and IKTVA (Local Content) requirements may result in government penalties.

  • Mitigation:

    • Prequalify subcontractors based on Saudization compliance.

    • Incorporate local content clauses in contracts.

---

2.2 Financial Risks

• Payment Delays & Cash Flow Disruptions

  • Clients delaying payments may affect working capital and subcontractor payments.

  • Mitigation:

    • Ensure upfront advance payments and performance guarantees.

    • Implement late payment penalties in contracts.

• Underestimated Contract Costs

  • Poor estimation of project costs increases financial exposure.

  • Mitigation:

    • Align contract terms with Estimation & Finance departments.

    • Use historical cost analysis and forecasting tools.

• High Variation & Change Order Costs

  • Excessive contract variations increase project costs.

  • Mitigation:

    • Conduct strict scope definition before contract signing.

    • Implement variation order approval limits.

---

2.3 Performance & Execution Risks

• Subcontractor & Vendor Non-Performance

  • Failure to meet project timelines, safety standards, or quality requirements.

  • Mitigation:

    • Prequalify subcontractors based on performance history.

    • Impose performance bonds & liquidated damages clauses.

• Project Delays & Penalty Risks

  • Delays in project completion due to material shortages, workforce issues, or force majeure.

  • Mitigation:

    • Include extension of time (EOT) clauses for force majeure scenarios.

    • Establish penalty escalation measures for recurring delays.

---

3. Risk Management Process in Contracts Administration

3.1 Risk Identification

• Contracts Administration Team identifies risks at every stage of the contract lifecycle, including:

  • Pre-Contract Stage: Compliance & financial risks.

  • Execution Stage: Subcontractor performance & payment risks.

  • Closeout Stage: Warranty obligations & legal disputes.

• Risk Register:

  • Maintain a Contracts Risk Register in Aconex to track risks.

  • Categorize risks as Legal, Financial, Performance, or Compliance.

---

3.2 Risk Assessment & Analysis

• Risk Probability & Impact Scoring:

  • Assign a Risk Score (1-5) for Likelihood and Impact.

  • Multiply scores to determine overall Risk Exposure Level.

Risk Type	Likelihood (1-5)	Impact (1-5)	Risk Score (L × I)	Risk Level
Late Payments from Clients	4	5	20	High
Legal Dispute with Subcontractor	3	4	12	Medium
Non-Compliance with KSA Laws	5	5	25	Critical

---

3.3 Risk Mitigation Strategies

Risk Category	Mitigation Strategy
Legal & Regulatory Risks	Conduct contract compliance reviews before signing. Use legal-approved templates for all contracts.
Financial Risks	Include performance bonds and upfront payment clauses. Automate invoice tracking for early issue detection.
Execution & Performance Risks	Establish KPIs for subcontractor performance monitoring. Include penalty clauses for non-compliance.

---

3.4 Risk Monitoring & Reporting

• Quarterly Contract Risk Audits:

  • Conduct risk assessment every quarter to identify high-risk contracts.

  • Review contractual obligations and penalty exposure.

• Early Warning System for High-Risk Contracts:

  • Use Power BI dashboards for real-time risk tracking.

  • Set up automated alerts for contract breaches & disputes.

---

4. Contingency Planning & Risk Response Actions

Risk Scenario	Contingency Plan
Major Client Payment Delay	Trigger late payment penalty clause. Seek alternative financing for project continuity.
High-Value Contract Dispute	Initiate mediation or arbitration before legal escalation.
Government Regulatory Change	Update contract templates and compliance policies.

---

5. Conclusion

This Risk Management Framework ensures that BEC Arabia’s Contracts Administration Department proactively identifies, assesses, and mitigates risks, ensuring compliance, financial stability, and contractual integrity.

✅ Minimizes legal exposure & contract disputes ✅ Ensures financial stability by preventing payment delays ✅ Improves subcontractor & vendor performance monitoring

🚀 By integrating structured risk management practices, BEC Arabia enhances contract governance, reducing project risks and financial exposure.