Taking advantage of risk management will allow heavy construction operators to take advantage of opportunities
Much has changed in the heavy construction industry in the last few decades, including new technology, improved work practices and the advent of social media. Although these changes are readily acknowledged, there is less focus on another changing aspect of the industry – the need for new risk management strategies.
“The opportunities and the risks have changed over time,” said Greg van Ginkel, a managing partner and the construction leader at EQUA Specialty Risk Partners Corporation (EQUA). “There has to be an assessment of those opportunities in order to mitigate risk. Taking advantage of risk management will allow heavy construction operators to take advantage of opportunities.”
Risk management is important for clients, insurance companies and employees. Clients want to know their contractor is aware of all the safety and risk management factors. Insurance companies want to know that operators have utilized risk management strategies, which in turn, will enable the companies to take advantage of new business opportunities and remain competitive. Employees overall want their companies to properly manage risk because it impacts their safety and the viability of the business.
“It’s really a question of surviving as a business or not – you have to be agile, thoughtful and consistent with your use of risk management tools and standards to stay afloat, let alone compete,” said van Ginkel.
Nearly every industry has been impacted by environmental and social developments and the heavy construction industry is no exception. The introduction of new technologies has enabled companies to become more efficient, safer and more transparent with stakeholders.
For example, GPS tracking and cameras are now available that assist companies in reducing equipment theft. If equipment gets stolen, the GPS unit will locate it. Underground construction once represented a significant risk to the industry, but new scanning tools which help identify geological structures have helped mitigate that risk.
Contracts have also evolved over time, allowing businesses and project owners to avoid assuming risk that is not appropriate for them. If a company is conducting testing and assessment work for a specific project, the associated risk should be passed on to them. In other words, if a government department or engineering firm is doing the testing, then the contract should stipulate that they are responsible for the associated risk and the efficacy of the results they produce, not the business or project owner.
“Owners must be aware of what’s in these contracts,” said van Ginkel. “They have to consider how a court will assess the contract wording.”
If an owner contracts a design firm and that firm provides an industry-standard contract, the owner may not be aware that the contract may exclude any risk for the design firm. The owner may then pass that risk onto the contractor.
“It’s a matter of being aware of where liability gets allocated and to which parties as part of the project process. This is best discussed at the beginning of a project between a contractor and the ultimate owner,” advises van Ginkel.
These issues are all part of the changing landscape within the industry. All stakeholders are now assessing who is going to accept the risk on construction projects. Decisions must be made about whether the risk should be allocated back to the party that is most capable of accepting that risk, or if it should be passed to individual contractors, some of whom may not have the financial capacity to accept the risk.
Van Ginkel recommends that before embarking on a project, you review your vendors and partners to ensure they’re capable of assessing risk and understanding what risk should be passed along to insurance and what aspects cannot be. Some partners may have different contracts within their own organizations, which can also lead to uncertainty.
“It can be helpful to have a risk expert, someone who understands risk and insurance, to join these discussions, to explain where risk lies, what needs to be assumed, and what can be passed onto insurance companies. It may also be useful to consolidate your contract structures.”
A risk expert would complement an existing team of lawyers and tax experts when reviewing contracts. Organizations shouldn’t assume that lawyers, who often draft and review contracts, have the proper depth of industry-specific knowledge for understanding risk management. Lawyers may use standard contracts without considering how the language may be applied in context due to the constantly changing landscape of insurance and risk management.
“You need to bring the expertise together so your legal counsel can get the opinions of everyone and craft the contract language according to the intent of the risk mitigation within your specific industry.”
Van Ginkel said there are strategies that you can employ to mitigate your risk. One of the main tools is education and the proper employee training programs can have a significant positive impact. With online reviews and social media, it is becoming increasingly important to ensure workplaces have zero tolerance for abuse and discrimination and that this standard is incorporated into employee education and training. Failure to do so could lead to some unflattering comments on the internet that create red flags around your organization.
Insurance is directly tied to modern risk management processes and that’s why items such as abuse coverage must be purchased separately – it is no longer part of a general insurance policy. If you can’t show an insurance company how you are mitigating the potential for abuse, insurance companies may not provide that coverage.
“Your insurance broker and risk management team are incredibly important in this process – you need to work with individuals who understand this landscape and who are dedicated to remaining apprised of developments,” concluded van Ginkel. “It’s not static. Risk management is dynamic and constantly evolving. Your team of advisers is key to ensuring your business will succeed.”