May
22
Written by:
grantrog
5/22/2006 2:39 AM
Risk services focus on formulation of risk management strategies built around the client's construction business operations.
Risk services focus on formulation of risk management strategies built around the client's construction business operations. We understand construction risks and exposures, and through collaboration with the client's management team, and insurance agent or broker, we can develop a risk management strategy that will enable the client to effectively identify, quantify and control most construction risks and exposures.
As consultants, we recognize that we are not a substitute for management. Clients will use our services because they periodically require an independent peer review by experienced construction, insurance and risk management professionals. We are problem solvers whose primary role is to educate, advise and help construction industry professionals make more informed decisions in order to mitigate their risks and improve the performance of their construction business operations.
Helping clients to better understand the contracts they execute, and the types of project risk associated with these contracts, is the most important benefit we can provide a client. In many cases, construction contracts will assign responsibility for a particular project risk to other parties. Design responsibility transferred through design delegation, or the contractual assumption of design risk, has become very problematic for contractors. Particularly, with the increasing use of design-build as a project delivery method.
Sometimes the terms and conditions inserted into construction contracts are so ambiguous that it is questionable who bears the risk for an exposure. Some of these risks can be identified in the contract documents, but others are anybody's guess who will ultimately bear responsibility. Several of the more difficult risks to identify, or plan for, are; unforeseen site conditions, inclimate weather, labor or material shortages, and strikes.
Construction industry clients need to be very cautious when signing any contract. A comprehensive review of the terms and conditions is required, as well as performing a risk management assessment to identify any exculpatory language, indemnification, and/or risk transfer, risk allocation or risk shifting issues.
As an independent risk management consulting firm, C-Risk provides clients with an objective viewpoint on what risk management strategies are best suited for their individual risks and exposures. We educate clients on the strategies available, evaluate and assist with selecting the ones that are most appropriate, and offer sound advice on the implementation process.
Risk Management Strategies include the following:
Risk Avoidance
Risk Abatement
Risk Retention
Risk Transfer
Risk Allocation
Risk Avoidance is just that, avoiding the risk associated with a specific task, activity or project. Often, following the review of a contract, it is determined that a project is just too risky. The client may decide not to bid the work at all, or remove that element of the work from their bid, sometimes using an alternate deduct to delineate the exclusion. Risk avoidance is strictly a business decision, and sometimes a very good strategy if construction documents are unclear, ambiguous or incomplete.
Risk Abatement is the process of combining loss prevention or loss control to minimize a risk. This risk management strategy serves to reduce the loss potential and decrease the frequency or severity of the loss. Risk abatement is preferably used in conjunction with other risk management strategies, since using this risk management method alone will not totally eliminate the risk.
Risk Retention is a good strategy only when it is impossible to transfer the risk. Or, based on an evaluation of the economic loss exposure, it is determined that the diminutive value placed on the risk can be safely absorbed. Another consideration in retaining a risk is when the probability of loss is so high that to transfer the risk, it would cost almost as much as the cost of the worst loss that could ever occur, i.e., if there is a high probability of loss, it may be best to retain the risk in lieu of transferring it.
Risk Transfer is the shifting of the risk burden from one party to another. This can be done several ways, but is usually done through conventional insurance as a risk transfer mechanism, and through the use of contract indemnification provisions.
Risk Allocation is the sharing of the risk burden with other parties. This is usually based on a business decision when a client realizes that the cost of doing a project is too large and needs to spread the economic risk with another firm. Also, when a client lacks a specific competency that is a requirement of the contract, e.g., design capability for a design-build project. A typical example of using a risk allocation strategy is in the formation of a joint venture.
For additional information about C-Risk and how we can assist you with your company's construction risk management program requirements, please contact us at 503-228-0884 or email consulting@c-risk.com.
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