Boskalis Annual Report 2018

report of the board of management ANNUAL REPORT 2018 – BOSKALIS 56 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. 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, cost and delay risks. Contracts are classified based on their size and risk profile. This classification determines the subsequent course of the tender process 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, subcontracting costs and fuel prices, as well as the cost of labor, are all considered when 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 continuous 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. Within the Towage & Salvage division, the towage activities are characterized by a broad geographical spread of the activities, which are conducted by autonomous strategic joint ventures with third party partners. Towage contracts are often carried out under long-term contracts, with fees that are reviewed annually. This means that the risks in terms of local wage cost developments, fuel price developments and the available capacity of the equipment must be considered. Terminal services, which have been incorporated in the Smit Lamnalco strategic joint venture, are to a substantial extent performed under long-term contracts corresponding to the client’s requirements and specifcations. Most of these contracts include some form of price indexation. Salvage activities relating to vessels in distress – Emergency Response – are often carried out under great time pressure and without an extensive tendering procedure and associated preparation activities. Such contracts are regularly concluded based on the standard Lloyd’s Open Form (LOF). This means that compensation is based on a valuation mechanism related to various factors, including the salvage value of the vessel and its cargo, the technical complexity of the salvage operation, environmental risks and the use of own equipment and subcontractors. This valuation results in a lump sum, which is fnalized through negotiations with the client or through an arbitration process. Experience shows that the company is usually able to make a reasonably accurate estimate of this income. Should it transpire during a salvage operation that the fnal salvage fee may not be suffcient to cover the costs