The federal government has conducted stress tests of financial institutions after lending billions of dollars in the Temporary Assistance Recovery Program (TARP). The main aim of the tests is to determine if banks can survive the economic downturn without additional capital. The idea is to avoid a repeat of the financial crisis that occurred last year when Lehman Brothers, Bear Stearns and other lenders went bust as a result of miscalculating their risk.
What is the impact from misjudging risk on the design and building industry? During a slow economy claims and litigation increase. The economic climate also is forcing companies to consider budget-cutting measures including layoffs, changing business decisions, operations and practices. It also increases a firm’s risk. Losses develop due to alleged negligence, error, omission and fraud thereby increasing professional lawsuits. Based on the heightened litigation, could your firm pass a stress test? Just to survive and obtain work, many firms are changing practices, services, even lowering standards and bids. These decisions also are placing companies at higher risk. It is important firms realize where their risk lies. Architects, engineers, contractors and builders/developers should being asking themselves some targeted stress test questions.