Risk

Emphasis on Infrastructure Creates New Opportunities, New Risks for Construction Professionals

With great opportunity for construction projects comes great responsibility for mitigating risk. Here's how to avoid increasing business costs and liabilities.
By Colleen M. Kennedy
February 20, 2024
Topics
Risk

There is no shortage of opportunities or demand for construction professionals right now.

The need for new housing is at an all-time high while established industrial and commercial property owners tackle long overdue upgrades to improve the efficiency and resiliency of current structures. At the same time, significant investments are being made by local and state municipalities and the federal government to improve the nation’s aging infrastructure.

All of this has opened the door to plenty of long-term construction projects and a steady stream of work and revenue for contractors. Before jumping into new or more complex projects, construction professionals should ensure they are properly prepared and protected against emerging construction risks that could increase their business costs and liabilities.

EMBRACING INFRASTRUCTURE INNOVATION

The Infrastructure Investment and JOBS Act, which was passed in 2021, allocates more than $550 billion in federal funding to improve the country’s roads and bridges, water infrastructure and overall resilience.

According to official information about the IIJA, the funding is being distributed in several ways, including:

  • $110 billion to rebuild and repair roads and bridges.
  • $11 billion in transportation safety programs, which includes grant money for communities to replace or rebuild gas pipelines.
  • $39 billion to modernize transit, including repairing and upgrading aging transit infrastructure, and expanding transit services to new communities.
  • $66 billion to address deferred rail maintenance.
  • $7.5 billion to “build out the first-ever national network of EV [electric vehicle] chargers in the United States.”

The private sector can capitalize on these infrastructure investments.

CHANGING RISKS

What construction professionals may not realize is how their exposure is increasing. Claims frequency and cost of claims are already steadily rising in the construction space, thanks in large part to something known as social inflation.

The insurance industry knows the term, and what business owners know is that their insurance costs are going up. U.S. commercial insurance rates were up 4% in the second quarter of 2023, after rising by the same amount in the first quarter, a recent pricing update from insurance broker Marsh & McLennan indicates.

According to the National Association of Insurance Commissioners, social inflation refers to “how insurers’ claims costs are increasing above general economic inflation” and is caused by “a trend in increasing litigation costs brought by plaintiffs seeking large monetary relief for their injuries.”

These claims are related to a variety of scenarios, ranging from bodily injury to professional negligence and insurers are responding by raising rates and cutting insurance capacity.

Many construction professionals believe they do not have a professional liability exposure. However, contractors and design professionals do face a high degree of risk related to design/build projects because they increase the opportunity for error, as design/build is becoming the preferred project-delivery method by many major transportation departments.

Construction professionals and design firms are also being asked to diversify their services beyond general construction, including integrating new technology into the project design, which can increase professional liability exposures. Professional liability policies may also be bundled with pollution liability coverage, which protects contractors against pollution events on a jobsite and are not covered by a general liability policy.

EMBRACING OPPORTUNITIES, AVOIDING RISK

There are a number of simple ways construction professionals can take advantage of these exciting and innovative opportunities and mitigate their risk:

  1. Know the project delivery method. Before bidding on a project, it is important to know what the project delivery method is and what risks that method creates. More creative delivery methods are arising that can increase a contractor’s risk.
  2. Thoroughly review contracts and ask questions. Read all the terms and conditions of a job contract or subcontract to find out what the liabilities and obligations would be in the event of a claim, and review all contracts with your legal counsel. Find out what professional liability policy limits—if any—are required by the project owner.
  3. Sharpen your strengths. From a liability perspective, it’s always best that contractors take on projects within their area of expertise. If you do want to expand into new areas, be strategic and smart about doing so. Evaluate if you have the right training and people in place to take on different work and don’t rush into doing anything.
  4. Find the right people and provide proper training. Attracting and retaining experienced workers is key to avoiding mistakes on the job and successfully participating in any project, infrastructure or otherwise. Offer ongoing safety and risk-management training to all employees to ensure they know how to handle any issues that may come up.
  5. Work with a construction insurance specialist. Construction insurance policies differ significantly between carriers. An agent or broker with construction segment expertise can help you navigate evolving exposures and identify the best coverage and limit options to protect your business. Your agent or broker should also have access to risk management resources and construction best practices that can help reduce risk and potentially offer premium savings.

The construction field is continuing to evolve and grow, and the potential for risk along with it. Construction professionals who set themselves up for success now will be perfectly positioned to grow, too, while minimizing their vulnerability to risk.

by Colleen M. Kennedy
Colleen M. Kennedy is vice president at Berkley Construction Professional, a Berkley company. She has been a professional liability underwriter for the past 15 years, representing both small specialty and large global carriers. She can be reached at ckennedy@berkleycp.com.

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