The Most Important Risk Management Measures for Contractors

In order to manage a construction project successfully, the contractor that is overseeing it should be well versed in managing project risks. From the moment the project enters the planning and preparation stage, identifying all possible exposures should be a top priority. Below are the best risk management strategies for contractors.

1. Allocation of Risks

One of the most important elements of successful construction project risk management is the allocation of risks at the beginning stages of the contract formation process. The project owner and the contractor should anticipate potential risks that may threaten the cost or completion of the project. Ideally each risk will be individually analyzed to determine which party is best equipped to bear said risk. The owner and contractor should then assign responsibility for those risks to the party or parties best situated to control them, and that information should be stated in the contract documents.

Most of the risk in a construction project is allocated to the contractor, since it is the responsibility of the contractor to maintain a safe and efficient jobsite. However, not all risks are within a contractor’s means to control. For example, the responsibility for design errors should be allocated to the owner, because they will typically have project design either done in house or contracted through an architect or engineer, and they would be in a better position to minimize the risk of those errors.

2. Indemnity Provisions

Indemnity provisions in a construction contract allocate the risk between the two parties by obligating one party to pay the expenses incurred by the other party, under certain circumstances. Typically, the contractor is required to indemnify the owner against claims for bodily injury or property damage arising out of the negligent performance of work by the contractor or their subcontractors. In contrast, the owner is often asked to indemnify the contractor against claims or losses arising from hazardous materials at the project site, or at least those that are found to have existed prior to the planning of the project.

3. Financial Loss Insurance

Comprehensive contractors liability insurance helps support indemnity provisions and ensures that the contractor can satisfy their indemnity obligations. The most common policies utilized to protect contractors from financial loss include commercial general liability, automobile liability and worker’s compensation/employers liability coverages. Commercial general liability insurance for contractors written through a reputable insurance MGA or wholesaler can often include additional coverage such as Identity Recovery, Inland Marine or Data Compromise. Most liability policies do not cover project improvements or construction materials for damage due to unknown site conditions, natural disasters and similar risks. However, these losses should be the responsibility of the owner, and can be mitigated through the owner’s builders risk policy.

 

About American Team Managers Insurance Services

Founded in 1998 by Chris C. Michaels, American Team Managers Insurance Services (ATM) has provided wholesale and MGA services to more than 5,000 independent insurance agents throughout the United States. Our goal is to establish close, long-term relationships with our agency partners and insurance carriers and provide competitive products for the Exclusive and Non-Exclusive markets that we serve. For more information on our products and services, give us a call at (714) 414-1200 to speak to a representative.

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