Short and Long-Term Risk Management: COVID-19 and the Construction Pipeline

The pandemic has demonstrated the importance of a risk management plan to prepare for the unexpected. Now contractors should prepare to build their future workforce to manage an increase in work.
By Douglas L. Rieder
September 3, 2020

Construction is one industry that’s showing the promise of a comeback during the COVID-19 pandemic. The second quarter saw a dramatic drop in the Commercial Construction Index—falling from 74 in Q1 to 56 in Q2. However, entering the third quarter, contractors are working again, albeit with a lot of on and off-site changes to create a safe environment.

Construction employment saw an increase between May and June in 31 states. But the good news is not expected to continue as many of the states hiring in Q2 are now considered COVID-19 hot spots. Productivity is being affected again and more contracts are expected to be cancelled. The pandemic is not providing a lot of guarantees but it is demonstrating that contractors need to be prepared with short- and long-term plans to cover all issues.

One lesson over the past few months is the importance of having real risk management plans in place to prepare for the unexpected. In a recent Sterling Seacrest Construction Risk Index (2019), almost 60% of companies didn’t have risk management plans in place because they said it was “too time consuming.” In retrospect, that strategy was clearly lacking.

When 2020 started, the main concern of construction companies was staffing. Now, the main concern of those in the industry (75%) is creating a safe workplace for all employees. A survey by USG and the U.S. Chamber of Commerce Commercial Construction Index found:

  • 92% of contractors have increased social distancing;
  • 39% of contractors have modified their work and/or delivery schedules; and
  • 34% of contractors have adjusted salaries, furloughed or laid off employees.

The CCI also found contractors are not only focused on increasing safety protocols, they are also using safety as a factor in selecting contracts and moving as many positions as possible to remote working so fewer employees are on site. This is the short-term solution to a pandemic that does not seem to be going away.

Risk Management for the Long-Term

Companies also need to think about the long-term to survive. The most recent Architectural Billing Index by the American Institute of Architects gives a glimpse into the future. The report shows architectural billings were up in June when compared to the steep April decline but still not where they were before COVID-19.

Architectural companies with residential multi-family work saw the most increase in expected projects. New commercial construction showed the smallest increase in projects. Sectors expected to shrink include higher education, entertainment, aviation, hospitality/restaurants and retail. The sectors showing growth include residential construction, senior housing, distribution centers and data centers.

Before the pandemic, construction companies were having a very difficult time filling skilled labor positions. Today, whether a company is very busy, or has some available downtime, is a good time for companies to look at their talent pipeline and build their future workforce:

  • reach out to students, trade schools and technical schools to find new graduates who can work alongside current employees to gain knowledge;
  • build mentoring programs that allow the company to have team members ready to go once the economy and construction starts to boom again to avoid large employee deficits in the future; and
  • create or sponsor work-based learning so current employees can gain skills and future employees can begin training.

The current environment is unique in this generation. No one really knows when it will end but the situation does provide a chance for the construction industry to step up and prepare for a work increase. Having employees trained and ready to go does more than just fill jobs, it prepares contractors for future success and an improved economy.

by Douglas L. Rieder
Douglas L. Rieder has more than 30 years of experience in providing risk management, surety and commercial/professional insurance solutions for construction and real estate clients. Sterling Seacrest Partners is a full-service, broker-owned risk management and insurance brokerage firm serving the commercial, professional and personal needs of clients across a range of industries. 

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