April 15, 2020
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Building contractors’ top risks in 2020
Every project comes with an element of risk. Whether that project involves building a shopping centre, constructing a bridge, or renovating a listed property, there is always going to be some kind of risk involved in getting the job done.

It’s not a question of how to avoid that risk (it’s impossible, by the way), but rather about understanding those risks and working out ways to reduce them.
Every construction project is unique and always involves a variety of stakeholders. One project can throw up different risks for different stakeholders involved.

Contractors need to understand the risks involved in a project and make smart decisions accordingly. They also need to protect themselves with the right commercial insurance for the job at hand.
 

Top risks for building contractors

One thing to remember is that the majority of contractors are eternal optimists, forever expecting a project to turn out well – even when it is fraught with risk. And while that’s not a criticism, that optimism does create some issues surrounding risk.

Risks for building contractors generally fall into one of four categories: money, schedule, planning and external risks. Here are the top risks faced by building contractors and how to minimise (or even avoid) them.
 

Money
 

1 Clients who fail to pay up

Let’s start with the bane of contractors’ lives – clients who don’t pay for work that has been done. Nobody wants to work for free, but this can often be the case when clients refuse to pay up. Of course, this isn’t just an issue for contractors, it can also have a knock-on effect on shareholders, employees, suppliers, and subcontractors, too. With so many people potentially out of pocket, the contractor has their work cut out trying to appease everyone.

There are a number of reasons for non-payment by clients, these include:

·         Dishonest clients who had no intention of paying for the work from the get-go
·         Clients who run out of money during the course of the project
·         A project that goes over the client’s budget
·         A dispute between the client and contractor over costs and invoices

A building contractor with an angry expression standing in-front of a project


2 Projects that lose money or go over budget

Projects that exceed their budget are not uncommon, but any project that goes even fractionally over budget can spell serious problems. Building projects lose money for a number of reasons. It could be because the project was priced unrealistically from the start, that money was wasted due to poor project management, or that additional costs were incurred because projects were completed late.

Other reasons projects lose money include poor quality work that needs to be redone or the contractor failing to claim for work that has been done. When a project loses money, this places a huge amount of stress on the contractor. Issues with cash flow, late payments to subcontractors and suppliers and even bankruptcy are all potential challenges contractors need to overcome.
 

3 Negative cash flow

Negative cash flow happens when contractors do not have the money needed to pay their bills. Negative cash flow can occur on projects of all sizes; even highly profitable projects can be cash negative for periods of the project.

Late payment by clients, contractors failing to invoice for work that’s been completed, late completion of the project, and disputes with the clients can all cause negative cash flow.
 

Schedule

A half finished thatch roof project


4 Projects running behind schedule

In the same way construction projects exceeding their budget are not uncommon, the same can be said of projects running behind schedule. Projects that finish late mean a contractor’s resources are tied up, which can impact other tasks and projects before they’ve even started. Just one small error or miscommunication could set your schedule back by days, weeks or even months.

Not only does a project that runs behind schedule cost more in management time and additional costs such as commercial insurance, security and equipment, it is also not great for reputation. If a contractor is really unlucky, it can even lead to penalties being enforced by the client.

Projects tend to run behind schedule when:

·         The construction schedule was rushed or incorrect
·         The schedule was not understood or followed by the team
·         The project is under-resourced or poorly managed
·         The client causes a delay to the project

 

Planning

 

5 Insufficient resources

Insufficient resources on a project can be the result of skilled people leaving the company, having the wrong skills on a project, or simply under-resourcing a project from the start. The less resource available means the greater the risk of resignations, a drop in productivity and poor quality of workmanship. Get the right resources in place early and you can avoid a lot of headaches down the line.
 

6 Lack of safety

Bad safety on a project can lead to poor worker morale, injury to workers and an increase in insurance premiums. Poor safety can also lead to damage to a contractor’s reputation – especially if a fine has been issued or a project shut down. Some clients will avoid using contractors with a poor safety record.
A man's work boot about to step on a nail


External

 

7 Adverse weather conditions

Sometimes projects get delayed for reasons entirely out of your control. Bad weather can have a negative impact on any construction project – from paying people to do nothing to removing water from flooded areas and repairing completed work damaged by the weather.

Strong winds, excessive rainfall, extreme heat or freezing conditions can all play a part in increasing the risk of a project and apart from being prepared and having comprehensive commercial insurance in place, there’s not much more you can do.
 

8 Theft

Theft from a construction project doesn’t just mean loss of an item or money, it can also mean indirect losses such as loss of productivity (when tools and materials are stolen, they may not be replaced immediately) and disruption to cash flow.

By their very nature, construction projects can be a risky business and no contractor can ever expect to work on an entirely risk-free project. The British weather can be highly unpredictable, suppliers can let you down at the last minute, and projects can run over budget and schedule, but by understanding the risks and taking action to limit and protect against those risks, contractors can remove unnecessary stress.

At Insurance Choice, insurance policies can be tailored to suit your needs, protecting you from the unexpected and giving contractors an added layer of protection against risk.

Commercial insurance may not prevent risk, but it can cover you for it. Get in touch with the team today to find out more and get a quote.
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