| Risk identification |
Risk management procedures |
Risk identificationBefore the contract is signed
- Poor evaluation of the project, customer or country
- Errors in design and cost estimates; inadequate calibration of price adjustment formulas
- Errors in interpreting contract clauses
- Overestimation of available internal resources
- Poor evaluation of partners, subcontractors and critical supplies
- Poor technical evaluation of land contamination and pollution risks
Possible consequences:
- Organisational, technical, contractual, logistical, administrative or regulatory difficulties affecting performance under the contract that could impact lead times, costs, cash flow, quality or the Group’s reputation
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Risk management procedures
- Prior analysis as part of a project selection meeting
- Presentation to the VINCI Risk Committee before a bid is submitted (see paragraph 2.4.3, page 186) with risk scorecards
- Checking of contractual price adjustment formulas and compensation of the impact of price fluctuations not covered by these formulas
- Negotiation with the customer for a balanced sharing of risk
- Assessment of the proper size and the profile of the teams in charge
- Taking into account of feedback from previous projects during the design phase
- Evaluation of the financial stability of partners, subcontractors and key suppliers
- Analysis and qualification of land contamination and pollution risks
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Risk identificationAfter the contract is signed
- Insufficient preparation time
- Errors in the selection of equipment and methods
- Insufficient or poorly adapted human resources or supplies
- Difficulty retaining employees (high turnover rates) and labour shortages
- Difficult relationship with the customer, challenges to project acceptance by the customer, unfair calling of bonds
- Communication problems between the various parties active on a worksite (contractor, partners, subcontractors, etc.)
- Unexpected events and obstacles
- Pollution or environmental accidents
- Changes imposed by the customer during construction
- Poor contract management
- Variation in materials and supply costs
- Disruption in the supply chain and raw material shortages
- Default of partners (co-contractors, suppliers, subcontractors) or customers
- Customer disagreement on invoicing and the final breakdown of expenses
- Lower-than-expected wholesale electricity prices for renewable energy production projects
- Risk of natural disasters and damage to renewable energy production assets and associated business interruption loss
Possible consequences:
- Organisational, technical, contractual, logistical, administrative or regulatory difficulties affecting performance under the contract that could impact lead times, costs, cash flow, quality or the Group’s reputation
- Damage caused to third parties
- Damage to the Group’s reputation
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Risk management procedures
- Detailed worksite preparation
- Specific risk management systems tailored to the business line (Codex at VINCI Energies, E-Cube and Orchestra at VINCI Construction)
- Remuneration policy in line with labour market constraints, depending on the sector and the region
- Application of contractual price adjustment clauses
- Transfer of risk to subcontractors and suppliers; contingency plans in the event of default
- Campaigns to raise awareness about environmental risks, monitoring and follow-up of environmental performance indicators
- Upstream supply chain secured when the bid is submitted and advances paid to subcontractors and suppliers to ensure the availability of materials
- Prior selection of robust solutions or equipment to deal with uncertainties
- Discussions with the customer, amicable settlement committees and legal action if necessary
- Contract management
- Payment guarantees, contract clauses
- Suitable insurance policies (see paragraph 2.5, pages 188 to 189)
- Regarding renewable energy production: securing the price set in the financial model through various contract types and combinations (long- or medium-term fixed-price contracts in the form of power purchase agreements, or PPAs)
- Insurance policies to cover the specific risks of renewable energy production assets
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CONCESSIONS
The risks of a concession contract, whose duration can vary from a few years to several decades, are carefully evaluated before bid submission during the design phase, which is generally much longer than it is in the Energy and Construction businesses, and through the competitive bidding process with the contracting authority.
The main risks relating to the operation of concession assets involve changes in motorway traffic levels or airport passenger numbers, the level of toll charges and collection, as well as operating, maintenance and repair costs.
Traffic levels on motorway concessions are correlated to economic activity and are generally affected by changing fuel prices and/or potential fuel shortages. Experience has shown that social incidents can also disrupt concession operation and lead to acts of vandalism, as was the case in France at the end of 2018 and the start of 2019 with the “yellow vests” movement or, more recently, with the road blockades by farmers in January 2024. Price increases are determined by contractual formulas, the main aim of which is to offset at least some of the inflation risk.
For airport concessions, passenger numbers may be impacted by the macroeconomic situation or by a variety of other events, including natural disasters or severe weather, as well as terrorist attacks or threats. Rates are set in accordance with the regulation applicable to the contract, which may or may not make reference to a return on invested capital.
Lastly, a health crisis like the one caused by Covid-19 could also have a very significant impact on traffic levels for transport infrastructure concessions, due to travel restrictions. Similarly, a major geopolitical crisis could cause flights to and from countries on which sanctions have been imposed to be prohibited. This is currently the case with respect to Russia.
For all concession infrastructure under operation, provisions are taken to cover the cost of renovating installations particularly motorway road surfaces and airport runways as well as the cost of building maintenance, based on maintenance expense plans (see Note H.19.3 to the consolidated financial statements, pages 345 to 346).
