7 Essentials of Contractor Risk Management

Risks are a common element in the construction business. You might not be able to eliminate them, but you can reduce their probability and minimize the impact of specific risks on companies. Contractor risk management is essential for reducing safety risks to your construction team. With a construction risk management plan and effective analytics, you can reduce costs associated with construction risks, manage construction risks, and grow your company’s profits.

What is Contractor Risk Management?

Construction requires several parties to see a project through to completion. Each plays a specific role, from a general contractor (GC) to subcontractors and third-party vendors. Contractor risk management is the process of assigning responsibility for potential risks that are assumed in a construction project, ensuring that all involved parties carry their appropriate share of the risks.

Importance of Contractor Risk Management

Risk management is essential in any undertaking. Construction companies typically bring in third-party subcontractors to handle specialty work. Effective contractor risk management fairly distributes the responsibility for mishaps or failures, ensuring that each party is responsible for their own project’s risks. For example, if a junction box shorts out and causes damage, it would be up to the electrical contractor to replace the box and pay for any necessary repairs resulting from the junction box failure.

Types of Risks in Contractor Management

In every construction project, there are four primary types of construction risk management that companies and GCs should conduct for maximum protection.

• Financial risk management: Companies ensure they receive proper value for their investments and avoid unexpected costs.
• Operational risk management: Mistakes and accidents usually increase financial risk and can damage a company’s reputation.
• Compliance risk management: Companies ensure that all contractors follow proper building codes and operate within OSHA (Occupational Safety and Health Administration) regulations.
• Strategic risk management: Companies prepare for the unexpected, such as a vendor interruption or a subcontractor’s non-fulfillment of obligations.

Essential #1: Automated Documentation and Verification Processes

A robust platform streamlines business planning, scheduling, and contractor risk management. Software solutions like ServiceChannel automate documentation and verification processes. With the powerful data analytics such a solution provides, you can identify gaps in your risk management policies, reduce construction risk, and minimize unexpected company costs.

Risk Management

High-risk projects are common in the construction industry. Therefore, it’s crucial that companies consistently enforce risk-management policies to eliminate accidents and minimize liability for unexpected incidents. Safety training and dress policies that require workers to wear proper safety gear reduce the risk of workplace injuries. Additionally, hiring certified subcontractors helps to ensure competent builders and quality work.

Essential #2: Contractual Agreements

Contracts play a crucial role in construction risk management. They provide a legally binding agreement that outlines the responsibilities of all involved parties when it comes to completing the construction project, risk mitigation, and addressing issues that arise.

Contract Clauses

Contracts are typically laid out in sections called clauses. A clause is a paragraph or passage addressing a specific item of concern within the larger body of the contract, such as which party covers which responsibilities if certain incidents occur. Clauses provide a way to navigate a contractual document more easily. More lengthy contracts often contain a table of contents that points to specific articles and clauses in the document.

Essential #3: Contractor Credential Management

Knowing your subcontractors’ credential status is essential in construction risk management. Construction projects involve several service providers, each with a specific purpose within the operation. Tracking the contractor credentialing, licensing, and insurance of everyone involved can be quite a task. A powerful software solution like ServiceChannel automates provider credential tracking, keeping the company updated on contractor compliance and managing contractor insurance. 

Essential #4: Insurance and Liability

Ensuring all contractors on a job site have up-to-date insurance is crucial to any construction risk management plan. Proper contractor insurance coverage mitigates several risk factors. Not the least of which is ensuring that any mistakes or accidents don’t unduly fall back on the GC or the construction company. 

Contractor insurance protects a contractor from many potential risks while completing construction projects. Many states require contractors to carry minimum insurance. Without it, contractors are ineligible for many potential job bids. Not to mention, if an accident occurs, the contractor could be held personally liable for thousands of dollars to the victim.

Liability Coverage

General liability insurance covers a company or contractor found to be legally responsible for bodily injuries or damages to client property while engaged in a construction project. Workers’ compensation protects the contractor from paying out hefty costs if a contractor employee is injured on the job site.

Essential #5: Proactive Risk Prevention

While it’s crucial to have back-end risk mitigation with insurance, risk management plans work best when they prevent risk in the first place. Facilities managers typically manage risk prevention before assets leave the home base for a job site. ServiceChannel simplifies risk prevention through routine inspection and maintenance scheduling, helping to ensure that equipment and assets are safe to work with, reduce safety hazards, and avoid risk altogether.

Planned Maintenance

Preventive maintenance is the backbone of a risk management plan. Keeping equipment in good condition improves overall safety by preventing breakdowns at critical moments. Planned maintenance also increases the life cycle of assets, reducing construction costs for current and future projects.

Essential #6: Emergency Preparedness

Proactive construction risk management covers many bases, but the unexpected can always occur. Construction companies, project managers, and general contractors can benefit from implementing emergency protocols that lay out the responsibilities and procedures in the event of a critical incident, such as a fire or a job-site accident.

Crisis Management Plan

A crisis management plan (CMP) or emergency action plan (EAP) ensures that everyone on-site knows their role in the event of an emergency. Write down emergency phone numbers for the location in which you’re working and put them on crucial team members’ speed dial. Go over evacuation procedures and routes at each job site, and keep a headcount to ensure everyone has escaped harm in the event of a catastrophic event.

Essential #7: Data-Driven Analytics

Project tracking and analytical software like ServiceChannel provide transparency and data-driven analytics to construction management teams. Onboard tools enable personnel to conduct an accurate risk assessment and quickly address identified risks. By mitigating risk-related costs, robust software solutions provide an equitable return on investment while offering general contractors and construction company management peace of mind.

Performance Monitoring

It’s important to know what your contractors are capable of. While most contractors are sufficient for most construction jobs, time-critical and major-risk projects require more specialized crews with solid track records. With an analytical software solution, GCs and construction management staff can measure and track contractor performance and ensure they’re getting the right people for the job.

Effective Contractor Risk Management with ServiceChannel

Risk assessment and a risk management plan are critical elements of all construction projects, big and small. Knowing the risks of every project helps prevent unplanned incidents, and planning for the unexpected helps minimize potential harm.

A powerful software solution enables you to minimize and manage construction and facility risk management issues while tracking the labor productivity of workers and subcontractors. Include the ServiceChannel platform in your construction risk management plan, and begin reducing potential risks for your construction projects. Request a demo today.