Overseas contracts

Do you have the expertise and knowledge to deliver the service?

This question is as crucial to managing risk on overseas contracts as it is when working in the UK. However, working overseas brings a unique set of challenges from managing local resources to understanding local building controls and regulations to dealing with legal, cultural and environmental differences. Entering a new area, whether it be a new line of work, a new territory or a new asset class should always be undertaken with caution as it remains the case that a lack of expertise is one of the most common causes of Professional Indemnity (PI) claims.

Is the local perception of the service you will be delivering accurate?

Whilst you may have a very clear idea of the service you are providing, local terminology and expectations can and will vary. As with any job it is vital to ensure that you and your client are in mutual agreement as to what is being provided, when it will be provided, and how much it will cost. Any communication in relation to the scope of the service and subsequent amendments should be retained on file.
 

Talk to your insurance broker

If you are opening an office or working overseas for the first time your insurance broker will need to notify your PII insurers. Your broker should also be able to advise you on whether your policy coverage is appropriately broad and whether a local PII policy is required to comply with local regulation. The UK’s impending exit from the European Union has thrown up additional challenges for the insurance market and you will need to ensure your broker is familiar with all your European offices and the income they generate. Special arrangements will need to be made with your insurers, as the European element of the risk will need to be placed with EEA regulated insurers.
 

Local PII Policies

‘Non-admitted Insurance’ is not permitted in some countries and if this is the case a local policy may need to be arranged through a licensed, admitted insurer in the country where your office is located. Non-admitted Insurance refers to the placing of insurance outside the regulatory system of the country in which the risk is located. You should seek clarification from your insurance broker on this point as a breach can result in fines being imposed by the regulator.
 

Excess Levels

As companies expand overseas and open regional offices, it may be the case that the self-insured excess applied to the Global PII policy is unaffordable for smaller offices. Smaller levels of excess could be negotiated or a separate ‘Deductible infill’ policy could offer a way for larger organisations to reduce the substantial self-insured excesses that are applied to smaller regional offices.

Sanction Clauses

These clauses have been designed to support contract certainty and are considered prudent for insurers in mitigating any risk arising from the international sanction rules to which they may otherwise become exposed too. If necessary local legal advice should be sought to ensure that you understand how the applicable law and jurisdiction of a contract may affect the interpretation of any sanctions clause applicable to your insurance policy.
 

Decennial Liability Exposure

Decennial liability is a strict form of liability imposed on construction contractors and design professionals for ten years after completion and handover. It covers the total or partial collapse of a building or the discovery of defects which impact the safety or stability of a building. In some countries such as France, decennial liability insurance is mandatory.
 

Remote management of overseas staff

Implementing effective risk management controls is challenging in any environment. However, the challenges are amplified when the workforce is based overseas, often without the support of a regional office. You must give consideration to a wide range of factors including:

• Is the delivery team effectively structured and appropriately managed?
• Do the qualifications of the delivery team comply with the local requirements?
• Are you fully conversant with local employment regulations?
• Establish effective communication chains to facilitate rapid problem solving and escalation processes.
• Do your risk management procedures work in the local business environment?
• How will work be monitored and signed off?

Insurance arrangements for other contractors

If you are using local contractors and requiring them to obtain their own insurance cover, it is vital that you ensure that the cover they purchase is appropriate to the demands of the contract and where possible, that it will remain in place after the project has completed.
 

Governing law & jurisdiction

Resolving disputes which arise under contract can be complicated where the parties to the contract are based in different countries. It is important to establish what law will apply to a contract before the parties enter into any binding agreement.

A governing law clause enables the parties to specify the system of law which will be used to interpret a contract and deal with any disputes arising. This should not be confused with a dispute resolution clause; it does not indicate how disputes will be resolved - rather, it determines the system of law which will be applied to decide what the parties' rights and obligations are.

If English law is not used, a lawyer qualified in the relevant jurisdiction will need to advise on how the chosen governing law will apply to the contract.

Legal advice should be sought to ensure a full understanding of the availability of dispute resolution mechanisms, the measure of a breach of contract/ professional duty and the local licensing requirements.
 

Summary

As with any business diversification, you should seek the advice of your insurance broker at the earliest possible stage in the process. A good insurance broker with a specialist knowledge of the sector in which you operate will be able to add tangible value to the process.