5 Risk Management Tools for New York City Contractors
Construction is a risky business. Nowhere is that more evident than in New York City, where an ultra-competitive landscape and plaintiff-friendly labor laws cut margins to razor thin levels and expose contractors to higher levels of risk than anywhere else in the country. In fact, it is so risky, the cost to insure a construction project in New York is 10 times higher than in any other state.
That is why it is so important to have a well thought out risk management plan to mitigate as much of that risk as possible. Simply identifying many of the risks inherent in your project and prioritizing them according to the impact they will have and the likelihood they will occur can go a long way.
Once you have identified the risks that pose the biggest threat to your project (and your company), you can create contingency plans to deal with those problems as they arise and keep your project on track. Following are 5 risk management tools to help you do just that.
Insurance
It should go without saying that you need insurance to operate as a contractor in New York City. However, not all insurance policies offer equal protection, and the cheapest policies can have high deductibles, insufficient coverage, and include tricky action over and scaffold law exclusions that leave you exposed to losses and threaten your business.
The advice of an experienced professional that can help you navigate through New York City’s complicated and risky construction landscape is invaluable.
Surety Bonds
Contractors go out of business at an alarming rate. And believe it or not, the most common reasons contractors go out of business have nothing to do with quality of work.
Most common reasons for business failure include:
Unrealistic growth – 37%
Performance issues – 36%
Character issues – 29%
Accounting issues – 29%
Management issues – 29%
It is extremely important to ensure that the subcontractors you hire have sufficient insurance coverage and are in sound financial condition. Surety bonds mitigate the financial risk of a subcontractor defaulting on their obligations by first verifying their financial and overall business condition, and then covering your losses in the event a subcontractor fails to meet their contractual obligations.
Risk/Project Management Software
Risk management isn’t something that is done once at the beginning of the project and forgotten about. It’s an ongoing process. Risks must be continually assessed and problems must be dealt with efficiently to ensure your project stays on track and your profits are protected.
Software such as Sage 300 and Procore help you manage your entire project from the bid to the close. Good construction management software will allow you to:
View real-time financial data
Manage labor costs
Keep track of subcontractor compliance
Real time collaboration with your entire team
Risk Transfer through Contracts
If not expressly written into a contract, general contractors and property owners can be held liable for losses or damages caused by a subcontractor in a “lower tier.”
“Risk transfer entails shifting the risk of loss for injury or damage among the parties of a contract. General contractors transfer risk to subcontractors they use on a particular construction project by including indemnification and hold harmless provisions as well as additional insured requirements in their construction contracts.” (Contractors’ Risk Management Guide)
Financing
Business lines of credit may not be necessary, but could serve as a great risk management tool to cushion the blow of late payments from clients and subcontractor defaults. Backup financing can help you make payroll, and pay vendors to help keep your project afloat during payment gaps such as contract disputes and defaults. (Captera)
These are just a few tools that you can use in your overall risk management strategy as a New York City contractor. The advice of experienced risk management professionals can help guide through New York’s risky construction atmosphere to ensure your projects stay on track from the first bid all the way to the ribbon cutting ceremony.