Give Us More Details About Olympics Risks
We’ve reached a teachable moment about risk when it comes to Boston’s bid to host the 2024 Summer Olympics, which is being promoted as a major driver of housing and infrastructure. To make its case, the Olympics bid committee's proposal includes a risk plan that is detailed—but not detailed enough. Will Boston win?
Such moments have arrived before with other Olympic hosting proposals, most notably Chicago’s bid, in 2009, to host the 2016 Summer Olympic Games. There, the proponents also showed they had covered all the risks with a detailed plan, but they failed to win the bid.
Construction costs and overruns and security issues have changed the way cities and voters view Olympics bids. Detailed risk assessment is now standard practice. For example, to deal with risk, insurers have come up with capital replacement insurance, an innovation that was largely a response to the failure of an Olympics development company responsible for Vancouver’s Olympics Village for the 2010 Winter Games.
There’s a lot of good information in the Boston committee’s published documents, released in June, and a lot of good ideas. And, to its credit, the Boston media injected a needed skepticism, quoting law professors about the limits of insured risks—much like Chicago's media did when covering its city's bid.
So far, though, regarding Boston, no one has pointed out that when large amounts of money rest on interpretations of words—in contracts and insurance policies—there will be conflicts and differences of opinion.
We need more transparency and a good agency or broker to explain thoroughly how the layers of coverage will be accessed, the difference between contractual risk transfer and insurance, and how surety works.
And, yes, I know that the Boston Olympic committee is selling the idea of sponsoring the games and must rotate its assessment in a positive direction.
The construction industry—and its insurance brokers and carriers—ought to be wary, too, of the perils of civic pride. It can quickly lead to audits and outrage in an age when the public holds government, business and media in comparatively high distrust. The name of the game isn’t just winning the bid to host the Olympic Games: You must leave the public with a warm glow of satisfaction, rather than a multimillion-dollar hangover.
If I were a Bostonian or a potential designer or contractor for Boston Olympics facilities, which will include a needed stadium and velodrome construction, I would want to know the payment terms and means for settling disputes in any design or construction contract. Brazil has impaneled dispute resolution boards for each of several dozen temporary contracts that will be let for the Rio games—seating, tents, etc.—in order to prevent relationships from blowing up during the work.
Perhaps the idea could be put to good use by Boston.
Finally, look at page 26 in Boston’s planning process risk and opportunities document, the page with the stack of risk measures, titled “Compare and Improve Upon Chicago 2016 Proposed Insurance Plan,” the sine qua non of Olympics insurance plans.
Down at the bottom, the document states that the capital replacement coverage, which insures against a developer going bust or failing to come through on its obligations, will be purchased by the contractors. Keep your eye on that clause because it's one of the coverages and risks assigned to contractors that often is seen in proposed P3s—and it’s a big one.