Mitigating Four Major Risk Factors in the Construction Industry

ESG, inflation, the supply chain and weather pose major risks to the construction industry. Knowing them is the key to understanding and mitigating them.
By Julia Holden Davis
March 19, 2024

The construction industry is impacted by regulatory and legal changes at the national, state and local levels. These changes are not always consistent, and at times the regulations issued at the federal, state and local levels are contradictory. Staying current with these requirements—and at times ahead of them—is key to running a successful company in this sector. And, making this industry even more complex, the requirements are not only geographically disparate but can change based on ownership, project type, funding and other factors, not to mention the language of contracts themselves.

Environmental, social and governance; inflation; supply chain; and weather have been identified as four of the key challenges facing the industry in Arcadis’ 13th Annual Construction Disputes Report for 2023. Similarly, KPMG’s 2023 Global Construction Survey, while self-styled as “cautiously optimistic,” also identified ESG, supply chain and inflation as driving factors in a “volatile environment.”

There are regulatory and legal aspects to each of these risks, as well as a developing environment, which requires savvy companies to look ahead, making determinations of their own company’s values, prior to seeing how final laws establish those requirements.

Take the challenge of weather. Record heat in many parts of the United States (and across the globe) has increased attention on worker safety and worker conditions. Companies cannot simply rely on a given legal requirement—it needs to be reviewed in the framework of all potentially applicable requirements as well as common sense with an eye to risk mitigation. While OSHA may not have issued a heat-specific standard yet, companies need to evaluate their own projects and locations to determine how best to manage these risks and their workers’ safety.


Similarly, ESG requirements continue to develop. The Securities and Exchange Commission has been working on climate-disclosure requirements, driven by investor interests pushing for consistent and reliable disclosures. In conjunction with the requirements will come additional investigation and enforcement, to ensure the validity of the disclosures.

While these requirements will only apply to publicly traded companies, they are an example of how ESG requirements are developing at a legal and regulatory level and perhaps foreshadow what private companies can expect to see over time. And ESG is another area where companies face increasing pressure to not only establish and follow their own strategies but to also participate in meaningful ways with their client’s programs—whether that means building a structure intended to support ESG practices, considering building certifications that demonstrate commitment to ESG-related initiatives, or demonstrating workforce commitments that align with ESG considerations.


The supply chain is also impacted by varying requirements. President Biden issued Executive Order 14104 to try to encourage domestic manufacturing. Challenges related to the construction workforce continue, with differing opinions on whether legal changes are frustrating those challenges even more.

For example, Executive Order #14063 (issued Feb. 4, 2022) requires project labor agreements on federal construction projects valued above $35 million (with certain rights given to agencies to accept projects).The Committee on Oversight and Accountability (among other groups) asserts that this executive order has negative impacts on the construction industry, stating that it “threatens to raise taxpayer costs, cuts non-union workers out of federal projects and forces right-to-work states to freeze local workers out of cooperative federal projects.”


While not identified in the top three risks, other regulatory and legal changes over the last year also affect the construction industry. In the summer of 2022, the American Society of Civil Engineers issued a policy statement in favor of tort reform with a stated goal of reducing or eliminating “frivolous lawsuits against licensed and/or accredited engineering professionals.” The American Tort Reform Association, which tracks tort reform related bills throughout the country, identified tort reform related bills in multiple states, including Florida, Georgia, Iowa, Kansas, Montana, Utah and West Virginia.

As well, regulations related to technology and social media continue to develop. The use of artificial intelligence not just to collect information but also create information is still being evaluated but is undoubtedly here to stay.

Risk in construction has been with us since before the pyramids of Egypt. But each year brings with it new and different risks. Knowing these new risks is the key to understanding and mitigating them.

by Julia Holden Davis
Julia Holden Davis is a trial attorney at Gunster Law Firm.

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