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.
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.
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.
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.
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:
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:
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 is the Content Manager at Handle.com, where they build software that helps contractors, subcontractors, and material suppliers with late payments. Handle.com also provides funding for construction businesses in the form of invoice factoring, material supply trade credit, and mechanics lien purchasing.
This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer
*Harborway Insurance policies are underwritten by Spinnaker Insurance Company and reinsured by Munich Re, an A+ (Superior) rated insurance carrier by AM Best. Harborway Insurance is a brand name of Harborway Insurance Agency, LLC, a licensed insurance producer in all 50 states and the District of Columbia. California license #6004217.