IRMI construction experts reveal what keeps big builders awake at night
Source: http://www.propertycasualty360.com, November 11, 2016
By: Shawn Moynihan
Now that the building boom has presented a great deal of opportunity after years of limited activity, for construction companies and subcontractors looking to make the most of it more attention than ever must be paid to effective risk management practices that will not only save money but also save lives.
“There’s a lot of introspection that’s seen now in the construction industry that wasn’t there before,” says Bill McIntyre, chairman of American Contractors Insurance Group Inc. and founder of the International Risk Management Institute, which this week hosted its annual Construction Risk Conference in Orlando, Florida.
During the three-day conference, a great deal of discussion centered on the topic of creating value through effective project management that has deep roots in worker safety. Increased self-analysis, McIntyre says, is essential to remaining viable in an increasingly competitive industry.
When it comes to bidding on jobs, “Everything is done on a competitive-bid basis,” he explains. As a result, when a company wins a contract by offering to do the job at a competitive price, “the safety and quality is not always there. Unsafe contractors sometimes get the work, and the [project] owners aren’t always sophisticated enough to recognize that.”
While progress has been made in reducing losses, McIntyre says, the rate of serious injuries and fatalities remains high, with more than 1,000 killed on job sites in the U.S. each year — with smaller contractors and subcontractors accounting for four times the deaths than larger ones do. According to the U.S. Department of Labor, out of 4,386 worker fatalities in private industry in calendar year 2014, 899 (or 20.5 percent) of those deaths were in construction.
“Even if your people are safety-trained but your subcontractors are not, then you’ve got an issue there,” says McIntyre, who adds that a sea change in how people are trained must occur in order to lower that staggering number of construction-related fatalities. “The biggest contractors have to figure this out, and pass that on to the smaller general contractors and subcontractors.”
Bridging the talent gap
One part of the construction industry’s problem is having the right labor on job site — especially top talent, for which there is great demand. Maintaining a qualified workforce is one of the top concerns for construction company executives, says Jack Gibson, IRMI’s president and CEO. As many older, more seasoned construction workers exit the business, they’re taking with them a wealth of experience.
“We’re seeing more and more baby boomers retiring,” he says, “a lot of institutional knowledge leaving at the trade level and supervisor level. We have to fill that void.”
One way to do that is to reach out to the younger set to emphasize the career opportunities in the field of construction. More contractors are working with high schools to meet with young people and educate them about the industry. Then comes the process of training them, and then retaining them. Keeping them engaged.
While replacing a lot of seasoned people out of the workforce is by no means easy, Gibson is encouraged by the results of mentoring programs such as the ACE (Architecture Construction & Engineering) Mentor Program, which encourages students to pursue careers in those fields and financially supports each student’s journey through scholarships and grants.
Gibson, who serves on ACE’s national advisory board, says that the good news is, “Millennials want to learn, they want to be coached.”
Further challenges
Another issue that has construction-industry executives concerned: Onerous contracting conditions being put into contracts. Language for indemnity and transfer of liability is being passed downstream to the contractors below them; the owner passes the risk to the general contractor, who then passes it down to sub-contractors. Performance-oriented guarantees are being seen in agreements, as well as provisions in which the contractor may have to pay for delays or non-performance.
“Owners transfer risk down to the general contractors. Contractors pass risks to each other as well, usually down the line to subcontractors,” Gibson explains. “In theory, the party with the most control of the risk should manage that risk. But it’s really the party with the most bargaining power transfers the risk to the party with the least bargaining power.”
Having those subcontractors assuming a good deal of the potential liability gets even more dicey when considering how inconsistent they can be on two fronts: their financial strength (subcontractors can get stretched for cash flow by taking on too many jobs, and then risk defaults) and their safety protocols.
“If you’re a general contractor and you have lots of subcontractors, whatever safety and quality protocols they bring to the table, you’re stuck with that,” says Gibson. “Are they doing quality work safely, or cutting corners?”
How safe are your people?
The process of developing and engendering a culture of safety — one in which there is a genuine sense of responsibility for all the workers on your team and a clearly communicated and reinforced message — becomes paramount, McIntyre and Gibson say.
The key is top-executive-level buy-in, Gibson notes: If the CEO isn’t 100 percent committed to safety, it’s not going to happen. It has to be driven down the organization to all levels.
“Employees need to understand that they’re responsible, too: Employee buy-in is equally critical,” says Gibson. “Older baby boomers have been working in the industry for years and they’ve been doing things a certain way — perhaps not the safest way — for a long time, and you have newer ones who aren’t trained. Or often they have contractors who get complacent, who get lax on safety.
“What you want to strive for is a safety culture to the point where you have employees feeling comfortable enough to point out to each other that they do have to put on goggles or a helmet,” he adds. “They shoulddo that. You have to try and build that into the culture.”
Maintaining consistent safety protocols across subcontractors is a constant challenge, especially when profit margins become thinner as more contractors fiercely outbid each other to provide the lowest estimate for the job.
“It’s a buyer’s market,” says Gibson, and in that climate, “it reduces the room for error, which makes risk management and insurance more important. Paradoxically, they want to reduce their costs, and many risk management practices can sometimes get short shrift.”
One thing, however, is certain: For the foreseeable future, jobs will keep coming — and contractors will need to rise to the challenge of completing them. McIntyre, who has been around the construction industry for decades, knows that a finished project like a high-rise or a bridge is a living monument that workers can point to for years to come and say, “I helped build that.”
“If you really analyze the risks, you might wonder why one would get into this business,” adds McIntyre. “But when you know, you understand that it’s a great source of a lot of pride for these folks.”
