Boskalis_Annual_Report_2016

REPORT OF THE BOARD OF MANAGEMENT ANNUAL REPORT 2016 – BOSKALIS 50 critical point of attention in operational management and in its capital allocation decisions. As a consequence, individual investment proposals are subjected to a thorough evaluation and approval process. In the course of executing its strategy, Boskalis also regularly acquires companies. To achieve the anticipated results, Boskalis attaches great importance to integrating such acquisitions with care. Creating value for our stakeholders and retaining key personnel are important elements in this process. OPERATIONAL RISKS CONTRACTING AND EXECUTION RISKS The main operational risks for Boskalis are related to the contracting and execution of projects. For most of our contracting activities the most common type of contract is fixed price/lump sum. Under this type of contract the contractor’s price must take into account virtually all the operational risks as well as the (cost) risks associated with the procurement of materials and subcontractor services. In most cases, it is not possible to charge clients for any unforeseen costs. Furthermore, many contracts include milestones and associated penalty clauses for if the milestones are not achieved on time. That is why great emphasis is placed on identifying, analyzing and quantifying such delay risks and the associated operating costs during the tendering procedure and the preparation and execution phase of a project. Operational risks mainly relate to variable weather or working conditions, technical suitability and availability of the equipment, unexpected soil and settlement conditions, wear and tear of equipment (especially dredging equipment), damage to third-party equipment and property, the performance of subcontractors and suppliers, and the timely availability of cargo or services provided by the client in case of heavy marine transport and/or installation activities. Construction of a terminal in Lazaro Cardenas, Mexico.

The following measures are taken systematically to manage the aforementioned risks in the tender, preparation and/or execution phase of a contract: ‚ During the tendering procedure and the contracting phase of projects much emphasis is placed on identifying, analyzing and quantifying execution, costs and delay risks. Contracts are classified based on their size and risk profile. This classification determines the subsequent course of the tender procedure and the requirements for authorization of the tender price and conditions. Above a certain level of risk, tender commitments require authorization at Board of Management/Group Management level. ‚ In the preparation phase of a project tender and depending on the nature and risk classification of the project, we gain insight by conducting surveys and soil investigations, by consulting readily accessible databases containing historical data and by applying extensive risk analysis techniques. The results of the risk analysis are then used in the process of costing the project and in setting the commercial and contractual terms and conditions for the offer to be issued to the client. ‚ Risks related to price developments on the procurement elements of a project, such as costs of materials and services, sub- contracting costs and fuel prices, as well as the cost of labor, are all taken into account in calculating cost prices. Wherever possible, and especially on projects with a long execution time, cost indexation clauses are included in the contract terms and conditions, particularly regarding labor and fuel costs. ‚ When a contract is awarded, an updated risk analysis is part of the project preparation phase, based upon which measures are taken to mitigate the risks identified. ‚ In addition, much attention is devoted to the education and training of staff, appropriate project planning and project management, the execution and implementation of certified quality, safety and environmental systems, and the optimal maintenance of equipment.