Risk Management Basics for Construction Firms

Construction projects vary widely in scope and complexity, and a well-planned project will include a construction risk management plan equal to the job. Experienced managers know it is impossible to have total control over all facets of the work being performed, and that risk allocation is fundamental to good planning.

As the point person on a job, a manager is responsible for the work performed by contractors. This does not mean, however, that all responsibility must accrue to the managing firm for problems that occur as a result work performed by the contractors it hires. For example, a workers compensation claim that results from an injury to a flooring installer should be paid by the flooring companys insurer. Likewise, a bodily injury claim due to a design error should be the responsibility of the architect. The key measure in a construction risk management plan that adequately addresses the problems presented in both of these instances is to require subcontractors to carry the appropriate liability insurance before they are added to the project. Additionally, because it is impossible to know the extent of any claim that may arise as result of the work being done, a managing firm should further protect itself with insurance to cover errors and omissions made by its own employees and to supplement potential shortfalls in contractors insurance coverage.

Construction always entails a degree of risk to end users, to the property owner, and to the professionals managing and performing the work. Successful and profitable projects account for liability risks through proper vetting of contractors coverage and the purchase of insurance to protect management firms against potential claims.