Jonathan Geissler November 25, 2019 No Comments

Construction RiskAll construction projects carry certain levels of risk. From labor shortage and safety issues to change orders and new government regulations, the construction industry faces risks on multiple fronts that need to be managed.  The ability to identify and address these risks during the initial stages of a project requires skill, careful planning, and swift decision-making.

Without construction risk management, you may not be able to deliver projects on time and within budget.  Here are some quick tips on managing construction risk:

  1. Use the construction contract to set clear guidelines on handling risk. 

A construction contract is a foundation for managing construction risk.  During the initial stages of a project, the project owner and the contractor should anticipate and evaluate potential risks and assign them to the respective parties that are best suited to control them.  For example, contractors should handle property damage or injuries arising from their operations.  Meanwhile, the owner should be responsible for design errors as they work closely with the project designer and are better equipped to mitigate the design risks.

  1. Include indemnity clauses in your construction contract. 

Aside from assigning risk management tasks to parties, a contract should also include indemnity clauses.  These provisions will require one party to pay for the losses incurred by another party resulting from the claims of third parties.  In our previous example of the contractor handling the risk of injuries and property damages, the contract will have a clause that indemnifies the owner against damages resulting from negligence on the part of the contractor.

  1. Use insurance to cover indemnity provisions.

Finally, each party in a construction contract should use insurance to support indemnity provisions.  For example, project owners may ask contractors to have general liability insurance and workers’ compensation coverage.  Requiring insurance coverage provides assurance to all parties that their counterparts can satisfy their indemnity obligations.

  1. Be careful when using waivers of subrogation.

Construction contracts should include waivers of subrogation wherever applicable to ensure the proper allocation of risks as intended by the parties within the contract.  However, the parties, especially the business owners, should understand how waivers of subrogation affect insurance coverage.  There has to be the same level of meticulousness here as is applied to financial issues like mechanics liens and accounts receivables.  Subrogation gives the insurer the ability to represent the party they insured to recover damages from a liable party.  Waiving this right prevents the insurer from seeking reimbursement from the amount they paid because of a negligent party.  Some insurance policies may penalize policyholders if they waive subrogation.

  1. Always read the insurance policy as soon as you get it. 

While you should always assume good faith when getting insurance for your construction project, there is still no better alternative to reading the policy itself. Instead of relying on just the insurance certificate, policyholders and other relevant parties need to review the policy as a whole.  This allows the parties to see if the terms are up to the specifications and requirements that the project needs and align with what was discussed when the insurance was purchased.

As construction projects increase in scope and complexity, so too do the risks that go with them. These risks make any project vulnerable to multiple issues, including cost overruns and project delays.  For a construction business to survive and grow within the industry, business owners need to be proactive in identifying risks and reduce them to a manageable level.

Always remember that we at Seely & Durland Insurance are here to assist you in risk management and help find you the right coverages that fit your individual needs.  Contact us at 845-988-1177 or send us an email today!  We are your business, home, auto, and life insurance solutions provider, partner, and adviser, serving Warwick, Greenwood Lake, Florida, Goshen, Pine Island, Middletown, Chester, Monroe, Newburgh, Orange County, and the Hudson Valley and Tri-State Area.

 

This article is provided by Patrick Hogan of Handle.com.

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