Contractors face innumerable risks on projects, and although good planning can help reduce many exposures, plans can’t prevent everything. Still, some risk experts say it’s possible to see issues brewing before they become serious problems, if the contractor knows how to spot the early warning signs.
Scott Rasor, president of the construction industry group at Zurich North America, says that site conditions are among the most common risks that contractors face, and therefore firms should not skimp on site inspections. “Getting solid reports before the project begins is often helpful in reducing disputes and delays down the road,” he says.
That includes water damage from the flooding of access roads. “When roads wash out, it’s a large undertaking to repair them,” Rasor says. “We’ve seen sites that are ready to be built, but the equipment can’t get to them because a levy overran. They have to be strong enough and have enough engineering around them when the water reaches flood stage. If not, it will significantly affect a project, causing all kinds of disputes, [such as] delay damages and contract penalties.”
Labor shortages also can lead to multiple problems with budget, schedule and quality, Rasor says. “We see a lot of claims for delays that have to do with manpower disputes,” he says. “General contractors and owners need to take a hard look at whether [subcontractors] will be able to staff the project correctly and finish on time so the project stays on a critical path. That affects all of the subcontractors that come on afterward. It’s a cumulative effect.”
Rasor notes that many subs are in growth mode, especially those that saw some of their competition go out of business during the recession. “We often see issues where a hungry subcontractor bids a project that is well beyond the scope they have done before,” he says.
John Hymel, principal at Sentinel Safety Consultants, Salt Lake City, says labor shortages are also a warning sign about potential safety issues. With high demand for manpower to support production, contractors are often forced to hire less-skilled and less-qualified workers. “The most qualified people are already working, but the contractor needs bodies out there, so they take what they can get,” Hymel says.
The problem is exacerbated when schedule and budget constraints prevent contractors from stepping up safety orientations and training for less-experienced workers. “If [workers] don’t know how to do the job right, they probably don’t know how to do it safely either,” he says. “If a project has three safety professionals on a job, we often see one get cut to meet budget. Safety is a place where people go first to cut budget, based on my experience.”
Robynne Parkinson, principal at Thaxton Parkinson, Seattle, says she sees the first signs of trouble when parties fail to communicate and collaborate, especially early on. “When one party starts to distrust the motives of the other party, you’re going to have a problem,” Parkinson says. “If they call their lawyer with a contract interpretation question that they can’t work through with the other party, that’s an indication of a problem. If you trust the other party, you won’t call your lawyer.”
- Reliable site-condition reports help avoid problems later on.
- Staffing a job appropriately can mitigate costly labor disputes.
- Early collaboration builds trust.