Operational risk

Operational risks are risks caused by inadequate or failing processes, people, equipment, systems or external events. The main goal of operational risk management is to reduce the impact of adverse events. To achieve this goal, the Group keeps developing its internal processes and control systems. We constantly train project teams, improve business processes and monitor results to ensure a high-level of project management in the Group.

Considering the Group’s line of business, continuous improvement and implementation of safety standards and regulations, as well as increased supervision over compliance with environmental requirements, are extremely important in managing operational risks. One of the tools for operational risk management is the introduction of quality and environmental management systems. The occupational safety and environmental risks in our construction operations are assessed and managed in all units of the Group and in all process phases. The Group’s largest construction companies – Merko Ehitus Eesti AS, Tallinna Teede AS, Merks SIA, Merko Statyba UAB and Peritus Entreprenør AS – have implemented the ISO 9001 quality management system and ISO 14001 environmental management system, as well as the ISO 45001 occupational health and safety management system. All these management systems are certified. The task of the Group’s quality specialists is to develop quality, occupational safety and management systems and to ensure their functionality.

We use insurance to further mitigate operational risks, especially those that cannot be mitigated in other ways. We have all-risk insurance contracts with insurance companies against any unexpected loss events in the construction process. The general policy concluded for one year indemnifies the customer, subcontractors and third parties for damages caused by a Group company or any of its subcontractors. For projects not covered by the annual policy (hydraulic engineering, railway construction, bridges etc.), the risks are additionally mapped and a specific insurance contract is signed for each project. When concluding design contracts, subcontractors are required to have a professional liability insurance contract or an insurance contract is signed to cover losses arising from design and from erroneous measurements, advice and instructions. We use the services of an insurance broker when mapping risks, concluding insurance contracts and handling loss events.

A financial warranty provision has been made to cover the cost of eliminating construction defects that occur during the warranty period. Defects detected during the warranty period in the work done by subcontractors are eliminated by the subcontractors. In the case of critical contracts, the fulfilment of the contractor’s contractual obligations is secured by bank guarantees payable on first demand.