Entering the construction industry can be lucrative and rewarding in multiple ways, but there are also several construction risks to consider. These risks can be resolved financially with a mix of general liability insurance and special coverage. Here are some of the biggest risks facing building contractors.
One of the most costly construction risks is when a project is delayed for any reason. Delays can result from order changes, bad weather, accidents, material shortages, or just poor project management.
- Missing paperwork
Any given construction job is going to have a mountain of paperwork to go with it. Ideally, the documentation is available digitally, which allows for better organization and more seamless integration. You cannot afford to lose track of certain documentation, such as preliminary notices, lien waivers, and stop-work orders.
- Fluctuating pricing of materials and variations in their availability
Material prices fluctuate regularly depending on supply and demand. There’s a risk of purchasing materials too high, which can cut into profit margins. Material availability can be limited by labor shortages in supply chains and natural disasters.
- Poor project management
Miscalculations can push back deadlines of building projects. Miscommunication can lead to misunderstandings, which lead to a possible project cancellation. Unclear planning is a recipe for disaster, as it can lead to improper selection of materials and other resources.
- Labor shortages
The cost of labor and the shortage of qualified talent are two other key factors a construction company faces that can reduce profits. Certain types of automation can be a solution, but a construction company still needs a traditional crew. When the project involves a labor union, another risk to think about is a worker strike.
- Poorly or improperly defined scope of work
When the scope of work isn’t clearly defined, the results can be much more costly than expected. The key is to insist on clear instructions from the beginning of the project.
- Confusion around change orders
If your company doesn’t pay close attention to change orders, it can lose money and future opportunities or repeat customers. Change orders can affect payment amounts, leading to disputes if not managed properly.
- Health and safety hazards
As one of the most dangerous industries, construction work requires plenty of insurance coverage. A crew member can get hurt operating machinery such as a crane, or they can fall from a high elevation. Dealing with hazardous substances can pose health risks. It’s also high-stress work, which can take its toll on physical and mental health over time.
Due to the high costs of construction, it’s possible for a project to fall apart, leading to the entire firm collapsing. Sometimes the best solution for a business when debt skyrockets is to file bankruptcy.
- Payment disputes
Another problem a contractor may face is a payment dispute with a client who complains they didn’t get what they paid for. The payment process is already slow in the construction business. It gives clients time to evaluate their progress. Clients that fall into financial trouble may stall paying until they build sufficient funds.
Consult with Pittman Insurance Group, LLC
The construction industry is one of the most high-risk industries in the world regarding human safety, so it requires a robust insurance strategy. If you have any questions regarding business and construction insurance, contact our team at Pittman Insurance Group, LLC, and we will help you find the right policy.