In medicine, the best surgical outcomes are associated with physicians who repeatedly perform the same procedures. Construction firms do not have that luxury. While certain projects may be similar to others, there are bound to be differences. While the diversity of construction projects provides America with a variety of architectural styles and structures with different capacities, it also adds to the industry’s risk factor.

Except under extreme circumstances, surgeons and other professionals do not need to consider weather, hidden toxic waste or solid rock among the variables with which they must contend. In contrast, construction firms inherit a great deal of uncertainty that is difficult, if not impossible, to abate.  

And while surgeons may have an opportunity to work with the same set of nurses and technicians on an ongoing basis, construction firms frequently are required to work with partners they have never encountered before. General contractors face the risk that some fraction of subcontractors will falter financially or otherwise during a project. Meanwhile, some subcontractors may wonder when payment is coming.

Supply chain issues also may arise. Many of the materials with which the construction industry works arrive from abroad. Port slowdowns, geopolitical events, or elevated levels of Chinese demand for productive inputs have been known to interrupt America’s construction supply chain, leading to delays, cost overruns and frustrated stakeholders.

In construction, every customer wants the job done well, but the definition of what passes muster varies from project owner to project owner. That also adds to economic risk because owners may insist that certain portions of projects be redone or somehow adjusted, potentially wiping away profit margins. Scope creep adds to the potential for owner-driven risk.

There is also physical risk. Out of 4,679 worker fatalities in private industry in 2014, OSHA reports 874—more than 20 percent—were in construction. The leading causes of fatal injuries were falls, strikes by objects, electrocution and being crushed. The so-called “fatal four” were responsible for 58 percent of construction workers deaths in 2014.

The construction industry has various tools at its disposal to limit these risks, perhaps the most important of which is worker training. For example, Associated Builders and Contractors recognizes firms with stellar safety records through its annual National Safety Excellence Awards. The Construction Users Roundtable does the same with its Construction Industry Safety Excellence awards. These programs recognize more than good EMR and TRIR numbers; they dig deep into the culture of contractors that truly weave safety training and the goal of zero incidents into their corporate culture.

Surety bonds represent another way to manage risk and protect both project owners and contractors from the emergence of negative outcomes that can arise during the course of a project. As it turns out, issuing surety bonds enhances physical safety as well. Firms with better safety records tend to have lower insurance rates, resulting in cost and operational advantages. They also are eligible to participate on larger projects and are positioned to gain market share.

In contrast, firms with troubling safety records have to cope with smaller bonds and higher pricing, limiting their presence in the market. In addition to the reputational impacts of poor safety records, the surety market provides another disciplining mechanism ensuring that the firms best able to support worker and project safety are also the firms that will expand into the future.  

Surety companies are as likely to be as concerned with financial strength as they are with safety records. Indeed, firms with solid balance sheets are also more likely to invest appropriate levels of resources into worker training, equipment maintenance, new safety-enhancing technologies and experienced managers.

As those who operate successful construction firms know, the reward for completing projects safely, on time and on budget can be immense, particularly during busy economic times. 


Anirban Basu is chief economist of Associated Builders and Contractors. For more information, visit abc.org.