How to Protect Your Construction Business

All construction projects face risks on multiple fronts—from health and safety risks to necessary changes from the initial plan.

And on top of these are new government rules and regulations to follow and the persistent payment issues that limit a construction business’s ability to meet demands and continue operations. All of these risks can affect the way a construction business operates and thus need to be carefully managed.

As construction businesses take on new projects, business owners need to put several systems in place to mitigate these risks and safeguard business operations.

4 Ways to Protect Your Construction Business from Risks

Managing these risks requires skills in identifying threats, careful planning, and decisiveness on the part of the business owner. Here are some ways you can safeguard your construction business.

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1. Allocate risk management tasks by using the construction contract as the foundation.

      A construction contract is the foundation of virtually everything there is in any construction project, including the management of construction risk. That is why during the initial stages of a construction project, it is important that stakeholders identify and evaluate potential risks to the project and allocate their management to the respective parties that are well-equipped to handle them. For instance, in residential construction work, you as a contractor should handle the risks related to property damage or third-party injuries resulting from your operations.

      2. Mitigate risks by using construction insurance.

      There are many types of construction insurance that can safeguard your business through the different phases of a construction project. Many factors affect what type of insurance you actually need for a given project. The types of insurance vary depending on what your role in the project is—if you are a contractor, a subcontractor, or supplier—and what type of property needs coverage. Here are some of the various types of construction insurance available to you.

      • Builder’s risk insurance Also known as course of construction insurance, builder’s risk insurance provides coverage specifically for on-site property damage. This typically covers building materials, the foundation, temporary structures, and outdoor fixtures.
      • General liability insurance General liability insurance covers your financial risk in case of bodily harm or property damage to third parties during the course of your operation. Some states require contractors to have a minimum level of liability insurance to win certain contracts.
      • Workers compensation Workers compensation insurance covers your employees’ risk of injuries. It covers medical expenses, missed wages, recovery costs, and legal fees should an injured person sue the policyholder.

      3. Put systems in place to protect from unforeseen circumstances.

      There are some risks to any construction project that are far beyond any of the stakeholders’ control. Construction sites are particularly susceptible to damage from fire due to natural causes, flooding, and inclement weather, as some portions of them are unprotected. For this reason, it is crucial that you have several control systems in place to mitigate these risks. These include:

      • Installing fire suppression systems during the early stages of the project
      • Prohibiting smoking within the construction site, especially in the vicinity of combustible materials
      • Inspecting and maintaining temporary wiring and lighting regularly
      • Inspecting possible sources of water damage including plumbing and HVAC systems
      • Installing physical barriers to prevent trespassers from entering the site
      • Connecting surveillance systems to alarm systems
      • Employing qualified and insured security guards
      • Bracing building components and equipment to reduce damage during inclement weather
      • Developing a disaster preparedness checklist and relocation plan

      4. Set clear terms to address late payments.

      Late payments are some of the most pressing issues in the industry today. Small construction businesses are greatly affected by payment delays and nonpayment as the cash flow issues they bring hamper their ability to continue operations and fund growth. While you can never fully prevent payment delays and nonpayment, you can still safeguard your business by:

      • Setting clear payment guidelines in the construction contract
      • Encouraging early payment by imposing late payment penalties
      • Following-up with clients for invoices that are near payment deadlines
      • Sending preliminary notices to protect your lien rights
      • Enforcing lien rights in case there is no resolution to the payment issue

      There are many threats that can affect the growth and survival of your construction business. With the rising economic uncertainty and increased risk factors, it is important that you as a business owner be proactive in putting clear systems in place to safeguard your business.

      Aki Merced

      Aki Merced is the Content Manager at, where they build software that helps contractors, subcontractors, and material suppliers with late payments. also provides funding for construction businesses in the form of invoice factoring, material supply trade credit, and mechanics lien purchasing.