26 ANNUAL REPORT 2012 MANAGEMENTS DISCUSSION AND ANAL YSIS OF OPERA TING RESUL TS AND FINANCIAL CONDITION DECEMBER 31 2012 Although the Company believes that its current political risk insurance policy would provide suffcient coverage for any direct equity andor contingent equity exposure of the Company in respect of the Quiport JV or other ongoing international projects arising from any future political instability or change in government there can be no guarantee that the coverage would respond as anticipated to any future event ENVIRONMENTAL AND SAFETY FACTORS Unfavourable weather conditions represent one of the most signifcant uncontrollable risks for Aecon Construction projects are susceptible to delays as a result of extended periods of poor weather which can have an adverse effect on proftability arising from either late completion penalties imposed by the contract or from the incremental costs arising from loss of productivity compressed schedules or from overtime work utilized to offset the time lost due to adverse weather During its history Aecon has experienced a number of incidents emissions or spills of a nonmaterial nature in the course of its construction activities Although none of these environmental incidents to date have resulted in a material liability to the Company there can be no guarantee that any future incidents will also be of a nonmaterial nature Aecon is subject to and complies with federal provincial and municipal environmental legislation in all of its manufacturing and construction operations Aecon recognizes that it must conduct all of its business in such a manner as to both protect and preserve the environment in accordance with this legislation At each place where work is performed Aecon develops and implements a detailed quality control plan as the primary tool to demonstrate and maintain compliance with all environmental regulations and conditions of permits and approvals Given its more than one hundredyear history in the construction industry the large number of companies incorporated into its present structure and the fact that environmental regulations tend not to have a statute of limitations there can be no guarantee that a historical claim may not arise on a go forward basis Management is not aware of any pending environmental legislation that would be likely to have a material impact on any of its operations capital expenditure requirements or competitive position although there can be no guarantee that future legislation including without limitation the introduction of green legislation that may impact segments of Aecons business such as work in Albertas oil sands will not be proposed and if implemented might have an impact on the Company and its fnancial results Aecon is also subject to and complies with health and safety legislation in all of its operations in the jurisdictions in which it operates The Company recognizes that it must conduct all of its business in such a manner as to ensure the protection of its workforce and the general public Aecon has developed a comprehensive health and safety program Nevertheless given the nature of the industry accidents will inevitably occur from time to time Management is not aware of any pending health and safety legislation or prior incidents which would be likely to have a material impact taken as a whole on any of its operations capital expenditure requirements or competitive position Nevertheless there can be no guarantee with respect to the impact of future legislation or accidents Increasingly across the construction industry safety standards records and culture are an integral component of winning new work Should Aecon fail to maintain its safety standards such failure may impact future job awards or in a worst case scenario impact fnancial results LITIGATION RISK Disputes are common in the construction industry and as such in the normal course of business the Company is involved in various legal actions and proceedings which arise from time to time some of which may be substantial In view of the quantum of the amounts claimed and the insurance coverage maintained by the Company in respect of these matters management of the Company does not believe that any of the legal actions or proceedings that are presently known or anticipated by the Company are likely to have a material impact on the Companys fnancial position However there is no assurance that the Companys insurance arrangements will be suffcient to cover any particular claim or claims that may arise in the future Furthermore the Company is subject to the risk of claims and legal actions for various commercial and contractual matters primarily arising from construction disputes in respect of which insurance is not available Although as of the date hereof Aecon has not seen a material shift there can be no guarantee that one of the byproducts of the recent economic crisis will not be a rise in litigation which depending on the nature of the litigation could impact Aecons results RISK OF NONPAYMENT Credit risk of nonpayment with private owners under construction contracts is to a certain degree minimized by statutory lien rights which give contractors a high priority in the event of foreclosures as well as progress payments based on percentage completion However there is no guarantee that these measures will in all circumstances mitigate the risk of nonpayment from private owners and a signifcant default or bankruptcy by a private owner may impact results A greater incidence of default including cash fow problems or corporate bankruptcy amongst clients subcontractors or suppliers related to current or future economic conditions could also impact results Credit risk is typically less with public government owners who generally account for a signifcant portion of Aecons business as funds have generally been appropriated prior to the award or commencement of the project Please see Dependence on the Public Sector under Risk Factors herein for additional discussion of the risks associated with this type of contract INTERNAL AND DISCLOSURE CONTROLS Inadequate disclosure controls or ineffective internal controls over fnancial reporting could result in an increased risk of material misstatements in the fnancial reporting and public disclosure record of Aecon Inadequate controls could also result in system downtime give rise to litigation or regulatory investigation fraud or the inability of Aecon to continue its business as presently constituted Aecon has designed and implemented a system of internal controls and a variety of policies and procedures to provide reasonable assurance that material misstatements in the fnancial reporting and public disclosures are prevented and detected on a timely basis and other business risks are mitigated In accordance with the guidelines adopted in Canada Aecon assesses the effectiveness of its internal and disclosure controls using a topdown riskbased approach in which both qualitative and quantitative measures are considered An internal control system no matter how well conceived and operated can provide only