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Strategies for Managing Construction Risk

By July 13, 2017 No Comments

Here are some great strategies to manage construction risk

Every entrepreneur and business venture comes with its fair share of risk. Yet, arguably few managers are more weighed down by risks than that of a construction manager. Construction is an inherently dangerous business. The most minor flaws or mistakes in design, equipment use, and personnel safety can lead to massive issues leading to financial setbacks, wasted resources, and employee injuries.

How can these risk be mitigated and ultimately avoided? The best method of managing construction risk begins with the right preparation and thorough review of all contract documents at the start of any project. From there, risk responsibilities must be shared among the parties applicable to manage and minimize incidents within their spheres of influence. Following is a short guide on how to implement such a strategy:

Step 1: Allocate Risk

The contract negotiation and preparation phase is the best time for all project leaders, including the owner, contractors, architects, and building manager, to come together and anticipate all potential risks and assign responsibility of those risks to parties most apt to handle them should the unwanted arise. For example, the building owner and architect should be charged with ensuring design and environment issues are worked out and should draft a plan in case something arises. Meanwhile, contractors should be charged with ensuring personnel are equipped with all the necessary safety guidelines and understand how best to maneuver the environment with equipment in a safe and secure manner.

Step 2: Add Protection with Indemnity Policies and Provisions

Even the best of plans can go awry. To be more proactive in managing construction risk, it is essential to ensure professional indemnity insurance coverage is up-to-date and meets the needs of the current project. This might require talking to an attorney or insurance representative to ensure the following policies (either under your insurance or insurance of partners) are in place at or by the start time of construction:

  • Product liability insurance.  This type of coverage protects against liability for injuries to people or property damages that arise from products supplied by a business. The suppliers of common construction equipment, such as escalators and lifts, are often required to maintain this type of insurance.
  • Public liability insurance.  This type of coverage protects against liability arising from the death or personal injuries to third parties and for property damages belonging to third parties. While most construction projects should ensure some type of security measures, such as security fencing around around the perimeter of a project zone, this type of clause ensures that should something happen, it will be handled swiftly and with care.
  • Latent defects insurance.  This type of coverage is generally held by a building owner as it protects the owner against the cost of rectifying structural components of a building in the case of unknown or unforeseeable defects. In certain provisions, the contractor may be held responsible in arenas of material placement and known quality-of-work issues.

Step 3: Managing Funding Risks and Feasibility Risks

These two types of risks are commonly described as “invisible risks” as they are rarely apparent until they are, in which they change the entire game. Yet, with careful preparation and research, most undertaking construction tasks can avoid them.

The first, feasibility risks, arise most commonly out of environmental issues that were not fully addressed in the original plan proposal. They include things like:

  • Extreme weather-based delays
  • Unforeseen factors of a specific location
  • New issues with coding and zoning laws

Some of these, like issues related to coding and zoning, can be protected against with a more thorough, expert-led review process in the beginning. Other issues, like an onslaught of storms and varying water tables, cannot be so easily mitigated but may be protected against with some foresight.

The second, funding risks, are often an inevitable risk yet are one of the least risks prepared for. They include things like:

  • Subcontractors refusing to adhere to original quotes
  • Expenses associated with extended or altered service contracts
  • Unanticipated fines or zoning costs

Funding risks are an unavoidable aspect of construction. The best method of managing them is to set aside a discretionary budget for this and to ensure all contractors, subcontractors, and construction managers have strict and clear budget limits for the projects under their scope.

The ‘Management’ in Risk Management

Finally, it is important to note that this article is entitled with “managing construction risks” because the critical lesson here is not how to avoid all unwanted occupancies, but how to cope with the inevitable. Here, you research, prepare, and assign. Understand all of the potential issues with a construction project, consult with the available experts and professionals, set aside budgets to deal with funding risks, and ensure you have the right insurance in place before signing contracts. For more information about safe construction, contact us today.

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