How To Avoid the 10 Biggest Construction Risks Facing Contractors

In a previous post, we considered the 10 biggest construction risks facing contractors. However many of these risks can be avoided. In this post, I suggest ways that contractors can mitigate and avoid these risks.

How to avoid construction risks

1. Non-payment

1. 1. Contractors doing research on their prospective clients before pricing the project. This research could inform the contractor if the client has a history of not paying their contractors, or of disputing invoices and variation claims.
   2. During the execution of the project continually updating the client of the expected final project cost. This includes timeously notifying clients of variation claims.
   3. Always being aware of rumors or stories that could indicate the client may be in financial trouble.
   4. Submitting invoices in a timely manner, ensuring that they are in the correct format and have all the required supporting documentation. Don’t give clients any reason to avoid paying invoices.
   5. Immediately following up late payment with the client. In fact, better still remind the client ahead of when the payment is due that you are expecting payment.
   6. Working with the client to minimize variations to the project. Variations invariably add to the project costs and they could result in the client exceeding their project budget and running out of money.

2. Losing money on projects

1. 1. Accurately pricing the project.
   2. Minimizing waste.
   3. Maximizing productivity.
   4. Ensuring that all work is invoiced and that items that are different from what is in the project document are claimed as variations.
   5. Making sure the project is completed on time, or even ahead of time. Any delays not of your making may be claimable as a variation.
   6. Ensuring that the quality of all work and materials is acceptable and meets the specifications.

3. Cash flow 

1. 1. Submitting invoices on time and following up with the client to make sure that the payment will be received on time.
   2. Immediately submitting variation claims when changes are noticed. The variation claims must have all the supporting documentation and back-up. Make every effort to get the client to agree on the claim as soon as possible. Extended legal battles and disputes delay payment which will negatively impact cash flow.
   3. When pricing the project understand the payment terms and conditions. If possible try and get some of these terms and conditions altered to make them less onerous.
   4. Check the project cash flow before submitting your price. If the cash flow will be negative you could consider not pricing the project, or looking at alternatives to improve the cash flow.

4. Finishing projects on time

To ensure the project is finished on time:

1. 1. Check that the construction schedule is achievable and is correct, taking into account all restrictions on the project as well as the expected weather conditions.
   2. Don’t price projects where the construction schedule is impossible.
   3. Ensure that the project has the required resources and skills.
   4. The project team must understand the schedule and work on it.
   5. Regularly update progress against the construction schedule. When slippage occurs to understand the reasons and immediately implement steps to prevent further slippage and to catch up the lost time.

5. Impacts of adverse weather 

1. 1. Designing the construction schedule so that tasks most impacted by poor weather happen when the weather should be at its best. This includes trying to close up buildings ahead of the onset of poor weather and avoiding executing earthmoving tasks in the rainy season.
   2. Constructing earth berms and drains to prevent the ingress of stormwater into the work areas.
   3. Being storm ready so that incomplete work and material deliveries can be quickly protected and tied down.
   4. Possibly designing and scheduling work so that sections can be built in modules in protected areas or off-site.
   5. Avoid projects that have to be constructed at the worst time of the year.

6. Safety

It is important that all project employees are committed to working safely and eliminating safety risks. Safety can be improved by:

1. 1. Ensuring all employees have the required skills.
   2. Keeping the work areas neat and tidy.
   3. All project workers undergoing a proper project induction before starting work on the project so that they understand the project rules and hazards.

7. Good quality

1. 1. Having workers with the right skills and training.
   2. Buying materials from reputable suppliers and not basing decisions on price alone.
   3. Putting in place continuous checking to eliminate errors.
   4. Using subcontractors and suppliers who have the resources and skills to deliver the required quality.
   5. Providing the right equipment.
   6. Instilling pride in the project team to deliver a quality job.
   7. Never sacrificing quality for speed or price.

8. Having the right resources

1. 1. Continuously training so your team has the right skills.
   2. Planning projects so there are sufficient resources with the right skills.
   3. Not pricing projects when you don’t have the right resources and experience and when you’ll have difficulty finding them.

9. Good project management

A good project manager and experienced supervisors are literally worth their weight in gold. They can make a fortune for the company and ensure that clients are happy.

Look after your team by offering them training, opportunities and making them feel part of the company. Employing the cheapest person invariably leads to problems – offering people peanuts often only attracts monkeys.

10. Theft in construction

Theft includes ‘white-collar crime’. Reduce the incidence of theft by:

1. 1. Ensuring that there are robust and sufficient checks in place to; prevent false invoices and claims from being paid, to ensure that the best (price, quality and delivery time) subcontractors and suppliers are selected, that deliveries are checked properly to ensure that the correct quantities and quality have been received and that there are sound financial controls in place.
   2. Installing suitable security to deter theft.
   3. Securing items properly wherever possible.
   4. Everyone is aware of the threat of theft and are always on the lookout.
   5. Marking and labeling equipment.

Conclusion

It’s important to understand the more common construction risks. Investigating them, and taking mitigating actions to eliminate or lessen the risk, even reducing the quantum of the impacts, can help contractors safely negotiate most projects. Don’t be undone by a risk event that you should have seen coming, that you could have avoided. In your haste to secure a project don’t just jump in, blindly ignoring the construction risks. Always go into every construction project with your eyes wide open.

Sometimes the wise contractor will walk away from a project that is too risky, one where the client possibly doesn’t have the money to pay, or when the client has a history of treating their contractors badly. Don’t think that bad client will treat you any better than their other contractors.

Have you had a project that you wished you had never started or a nightmare client that cost you money?

Have some of these construction risks tripped your project up?

Paul Netscher

Paul Netscher is an experienced construction professional who managed over 120 projects in 6 countries over 28 years. Paul writes for the ClockShark blog and is the author of five books on construction project management.

http://www.pn-projectmanagement.com