Managing Risk Amidst Rising Opportunities in the Construction Industry

By AIA Contract Documents

November 4, 2021

Despite continued concerns about skilled labor shortages and supply chain issues, leading economic indicators point to strong growth and increasing confidence in the construction space. A recent risk management report from the International Risk Management Institute, Inc. noted that confidence levels among construction financial professionals continues to surge and many contractors have seen backlogs grow over the past year, and almost a third of survey participants expect profits to rise.

As backlogs build and opportunities grow, construction professionals should take the time to assess how their organizations are equipped to handle the industry’s top risks, to assure the highest possible performance.

Here’s a few to consider:

Workforce & Safety

Construction organizations are finding ways to attract new people to industry to meet labor demands with help from career-building programs and workforce development programs. That quest could also mean that your organization has a higher number of less skilled employees.

Are your training and safety practices sufficient to assure quality work and a safe working environment for all?

With the influx of new personnel to the industry, construction firms must also up their safety protocols. Facilitated in part by industry emphasis and investment in education and training, nonfatal incidence rates in the construction industry have dropped from 8.3 in 2000 to 2.8 in 2019, according to the Bureau of Labor Statistics records. That number can be zero!

TJ Lyons, Safety Professional for DPR Construction recently noted in a column, that if contractors want to increase jobsite safety protocols, they should move toward independent and comprehensive inspections by someone unrelated to that site. That perspective along with his point about correcting problems (versus just counting issues) could go a long way to reducing incidents in the industry. He states in the story: “When you have data that shows 43 percent of fatal falls in the last decade have involved a ladder, you don’t inspect the ladders more closely or choose another type of ladder; you eliminate ladders.”

Contractual Risk

Construction projects typically require hundreds of documents, each with a requirement or specification about timeline, quality and deliverables.

In the excitement to win new projects and build backlog, be sure to read the contracts. Look at your payment terms and re-read the owner specifications for project delivery. Avoid ambiguous language with regard to liquidated damages, dispute resolution and communication protocols.

Contracts in today’s environment are often one-sided, designed to transfer risk to contractors, risk that these firms are not equipped to handle. AIA Contract Documents, the industry-standard in contract document templates, are crafted to meet the needs of all parties involved and designed to reflect current legal rulings and building practices. See the most-used AIA Contract Documents contractor/subcontractor agreements here.

Project Risk

Labor shortages, material shortages, rising costs, project delays, and unexpected changes to a project are just a few of the top potential hazards that nearly every contractor will likely face in the coming year.

You can manage the various construction project risks by ensuring that roles and responsibilities of the project team are properly allocated within the contract documents.  Contractors and subcontractors choose AIA Contract Documents because our agreements and forms are time-tested and proven to minimize the risk of potentially ruinous consequential damages that may arise during a project.

In these times of opportunity, take the time to assess all of your risks…and develop plans for ways to avoid, transfer, mitigate or accept to achieve success, deliver projects efficiently and effectively and build a satisfied customer base. A solid contract document can help you to reduce your risk and protect your project and your business.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.