The potential risks that arise in the day-to-day operations of a construction business are substantial. Some are related to in-progress projects, while others may have to do with the fundamental structure of your business operations and accounting practices. Regardless of the specific risk, however, it’s important to take steps to mitigate and manage it in order to properly protect your company throughout the course of doing business.
Understand the Sources of Risk
When you think about risk on a construction project, injury and accidents may come to mind first. However, these are only a few of the multiple sources of risk that your company may be subject to. Other types of risk include:
- Financial – any increase in the costs of materials or fuel, as well as overall economic instability, may change the cost of the project and impact your bottom line.
- Project-related – improperly managing the project, miscalculating cost and number of materials required, or inadequately communicating and applying company practices can lead to avoidable errors.
- Natural – anything from a flood to an earthquake could damage your worksite, interrupt your supply chain, or otherwise compromise your timeline.
- Contractual – your contract may include penalties for failing to complete work on schedule.
- Competition – pressure from competitors to match price points or terms of delivery can cause you to take on greater risk in terms of profitability or safety.
Of course, not all of these risks will apply to you at any given point, but you need to be aware that they exist and know how to recognize them before you can put together a plan for managing them or avoiding them all together.
Determine Which Risks Apply
Each individual project comes with its own particulars and set of circumstances. These, in turn, determine which risks apply to each individual case. Once you’ve identified the risks for each project and ordered them by severity and likelihood, you can begin making a plan for mitigating them.
Read Your Policy
There are quite a few types of construction insurance, including Builder’s Risk Insurance, Professional Liability Insurance, Contractor Controlled Insurance, and Subcontractor Default Insurance. They each cover specific types of situations, and all can contain plenty of exclusions as well, so it’s vital that your read the policy carefully and make sure you have all the coverage you need while not paying for anything unnecessary.
Pay Attention to Contracts
Like insurance policies, contracts can contain all types of clauses that specify who is responsible for failures in different types of situations. The details of a contract will in many cases determine what type of insurance you need, as well as what other mitigation procedures you should follow to protect yourself as the project proceeds.
Coordinate Contracts and Insurance
Because contracts and insurance are so closely linked, it’s important to ensure they align properly to avoid losses caused by a gap in coverage. This may apply, for instance, if the contract specifies that you take responsibility for goods at a certain location, but your insurance doesn’t cover them until they arrive at the job site. Similarly work done at an alternate location and then delivered to the jobsite may not be covered, and so could expose you to unnecessary risk if you don’t recognize it ahead of time and take appropriate precautions.
Stay Up to Date
Keeping abreast of current building codes and regulations will help you avoid liability for violations or other situations. New techniques and technologies are also emerging regularly, and many of these can reduce or eliminate risks that used to be seen as acceptable or unavoidable.
No matter how many precautions you take, there is always a chance that something will go wrong. That’s why it’s crucial that you properly and thoroughly document every step you take for the duration of a project. These records will give you something to refer back to to show that you followed all proper procedures, and without them, you could be improperly held liable for mistakes or problems.
Whether you’re looking to purchase a specific type of construction insurance or you need help putting together a strategy to help manage your construction risk, our team is ready to help. Contact our office today to learn more about the policies and other services we offer.