Client Risk Management

17 July 2014

What potential risks might clients present? What are the warning signs? What strategies and structures can architects use to reduce risk? A recent seminar in Brisbane drew on the expertise and experiences of members to develop knowledge and processes to assist all.

Caroline Treacy moderated the lunchtime event, which aimed to increase awareness of the need to evaluate risks posed by potential clients, their conditions of engagement, project type and financial capacity. Guest speakers were Mark Williams, Managing Director of Mark Williams and Associates Architects; Kevin Murphy, Practice Director of BVN Donovan Hill; and Malcolm Gay, National Sales Manager of EC Credit Control.

Caroline framed the event by commenting that communication is the single biggest complaint about architects. She reiterated the importance of process – both reporting and analytic processes – in providing the prompts to ensure consistency, minimum risk and maximum efficiency. She also discussed the value of proforma documents, especially for less experienced and/or smaller practices, where there is often less opportunity for discussions with colleagues or executive reporting.

Kevin Murphy urged architects to take risk management seriously rather than seeing it as “just one more thing to deal with” – and pointed out that if risk management is high on the agenda of the practice principals it will also be taken seriously by their employees. He pointed to the social complexities of risk management, to the importance of balancing risk and reward, and to architects’ optimistic streak and their tendency to be problem solvers. He acknowledged that the current economic climate means that many architects are not in a strong position to pick and choose clients, but pointed out that the wrong client can be very costly in the long term – the worse the economy, the more care needs to be taken.

Speaking from the perspective of a larger practice, where the contractual requirements of larger projects can pose higher risks, Kevin advised architects to seek legal advice on client-provided conditions of engagement and to have a thorough understanding of what you are committing to before signing.

Mark Williams addressed the issue from the viewpoint of a smaller practice. He also commented that architects tend to be very optimistic in response to every potential client. He told his own difficult client story, warned against assuming that everyone who contacts an architect wants to pay for their services, and advised architects to find ways to test how genuine potential clients are.

Malcolm Gay drew on his experience at one of Australia’s largest mercantile agents to small and medium businesses, which supplies terms and conditions of trade documentation and provides debt collection services.

He reinforced the importance of having up-to-date and relevant terms and conditions and suggested that the credit rating of potential clients can be checked using services such as Veda.

So what should an architect do?

Mark suggested architects do a risk assessment before submitting an Expression of Interest or Fee for Service. A Risk Assessment might include the following considerations:

• Verifying where the potential client obtained your contact details – was it word of mouth, the Internet, a recent project, a referral or are they a repeat client?
• For face-to-face meetings, understanding body language and what it can tell you about a client.
• Identifying the decision makers, and ensuring all the decision makers are present at meetings.
• Assessing the client’s ability to communicate clearly.
• Assessing if the client knows what they want.
• Determining your own suitability for the project.
• Understanding if the client wants architectural services or drafting services?
• Assessing whether the client has a good attitude.
• Determining the client’s goals and whether they’re realistic.

Determining whether the client has a total budget and whether it is realistic for the project.

Kevin underlined the importance of establishing risk management processes and sticking to them,
especially when busy. A risk management process could include the following:

• Establishing ‘go/no go’ procedures at enquiry stage.
• Setting questions to establish a ranking of potential projects and their relevance to the development of your practice. Is the project in your target sector? What is its scope? Is it profitable? Might it lead to future work?
• Having minimum criteria for a project to “go”. Don’t ignore these.
• Identifying cost and budget constraints. Have an annual BD budget and fixed bid costs.

The event also posed a set of eleven questions addressed to the audience – drawn in part from the speakers’ presentations. These included considering what kinds of risks clients can pose, what criteria might be used to assess the suitability of a new client, procedures to facilitate speculation on a project and how to assess if a project is worth pursuing, strategies for minimising the potential of non-payment, how to manage a client who never puts anything in writing, how to ensure the client is happy to pay their bills, how to prevent known risk factors from impacting revenue targets, how to verify a client’s financial position, and terms and conditions in client and architect agreement to help in the event that the client/architect relationship breaks down. Caroline Treacy identifies some of the key points as follows:

• Internal communication and regular reporting for all potential projects and clients is vital. This should include an assessment of the likelihood of a project proceeding on the basis of a series of standardised questions.
• Internal risk management procedures should consider, communicate and document regular risks and actions. This should include the review of the likely factors for non-payment.
• Allocate a ‘client relationship manager’ and ensure they maintain good communication throughout the process. Clients should be sent regular progress documentation and information. Ask numerous briefing queries early to establish what level of detail or decision-making they need to be involved in and ensure both parties are happy to proceed on that basis.
• Good communication is particularly important with clients who resist putting things in writing. Tips to manage this include the following: document all briefing conversations and send back to the client, asking to note if anything is not documented correctly or clearly; document all changes to the brief and send back; ensure sign-off is undertaken on any project stages before proceeding further; and, finally, seek references prior to proceeding!

As Caroline comments, paid work does not fall from the sky. Processes like these can help architects ensure that every hour is spent on productive work.