http://www.methvin.org/ConstructionBlog/tabid/90/EntryID/20/Default.aspxThere are very few industries that have the risks and exposures of the construction industry. The ability for construction firms to effectively identify, quantify and control their risks and exposures is a formidable task on a daily basis. Particularly, with the increasing growth of design-build as a project delivery method, and participating in the administration of wrap-up insurance programs. Having a capable risk management consultant as a member of the project team to provide sound advice on how to analyze, mitigate and manage these risks and exposures has become a necessity for most construction industry clients.
C-Risk provides holistic risk management solutions that are based on a systematic methodology of identifying and analyzing all of a client's risks and exposures. The ultimate benefit of risk analysis is to plan for and mitigate risk, but before a risk can be mitigated, it must be identified, understood, and quantified. This is by far the most important step of the risk management process.
As part of the C-Risk holistic risk management method, we work with the client to develop a framework that is within the client's specific project and/or contract constraints, breaking down all risks and exposures into addressable and manageable components. Using this approach, C-Risk can provide the client with the assurance of a complete risk management assessment. To assist you with your initial risk management planning process, the following is a listing of many construction industry risks and exposures, delineated into the categories of: Financial, Contractual, Operational, Organizational and Insurable Risks.
Financial Risks & Exposures
Project Financing (Debt, Equity)
Labor and Material Costs (FTE's, Contract, Outsourced)
Earnings Volatility (Revenue Recognition, EPS Growth)
Currency Fluctuation (Foreign Exchange, Arbitrage)
Interest Rate Changes (Credit Risks, Bonding)
Commodity Price Fluctuations (Options, Derivatives)
Regulatory Exposures (IRS, FASB)
Funding Risks (Government Contract Funding, Allocations)
Employee Stock Options (Pension Funds, Dividends)
Contractual Risks & Exposures Contractual Liability (Breach, Third-Party Actions)
Indemnification (Hold Harmless Clauses)
Indemnification Forms (Limited, Intermediate and Broad)
Design Responsibility (Design Delegation, Assumption of Risk)
Warranties (Express, Implied)
Waivers of Subrogation
Liquidated, Consequential and Punitive Damages Clauses
Force Majeure Clauses (Schedule Delay)
Subcontractor Default
Operational Risks & Exposures
Operations Failure Risk
Construction Defect
Weather Volatility (Seasonality, Cat Risk)
Political Risk (Domestic, International)
Reputational Risk (Company, Product/Service Defamation)
Regulatory Risk
Operational Leverage Risk
Material / Labor Price Risk
Supplier Provisioning Risk
Organizational Risks & Exposures (Project Delivery Methods)
General Construction Contracts (Design-Bid-Build)
Design-Build Contracts (Self-Performed or Subcontracted Design)
EPC Contracts (Engineering, Procurement and Construction)
Construction Management Contracts (CM At-Risk or Agency CM)
Fast Track Contracts (Phased Design and Construction)
Joint Venture or JV / Design-Build Contracts
Insurable Risks & Exposures
Workers Compensation and Employers Liability
Commercial General Liability
Commercial Property and Builders Risk
Professional Liability (E&O Coverage)
Environmental Liability (Pollution Coverage)
Contractors Professional Liability
Directors and Officers Liability (D&O Coverage)
Employment Practices Liability (EPL)
Project Specific Coverages (OCP, RRP, PMPL)
Owners and Contractors Protective Liability (OCP)
Railroad Protective Liability (RRP)
Project Management Protective Liability (PMPL)
Subcontractor Default Liability (Bonding Alternative)
This above list of risks and exposures should assist you with your initial risk management planning. Keep in mind that risk management is a continuous process, and risk management assessments need to be done frequently. C-Risk can facilitate this process in order to determine the short-term and long-term impact of an identified risk or exposure, and help clients to integrate risk mitigation and control as part of the client's construction operations and project management procedures.
With the proliferation of design-build as a project delivery system and the exculpatory language used in the terms and conditions of many construction contracts and insurance agreements, contractors need to be extremely cautious in their assumption of risk through the delegation of design responsibility by contractual risk-transfer and/or indemnification provisions.
Please note that this information is provided by C-Risk for general information purposes only and is not intended or does not constitute the rendering of legal advice. Regulatory restrictions or prohibitions on the use of the design-build project delivery approach varies from State to State. Therefore, you should always consult with legal counsel to determine the specific laws or decisions that apply in your State, or in your specific circumstances. It is also recommended that you consult with a competent construction insurance and/or risk management professional in order to ensure that you have adequate coverage prior to the start of any construction project.
For additional information about C-Risk or how we can assist you with your construction risk management program, please contact us at 503-228-0884 or email consulting@c-risk.com.