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About SmartRisk

As an advocate for the design and building industries, SmartRisk 
focuses on  mitigating risk and enhancing performance and profitability.   

Our Objectives:

* Identify risk and exposures threatening your financial viability

* Implement strategies mitigating risk,  improving performance and profitability

* Proactive approach  lowering insurance costs
      
    Visit our Website for  
            more details   

SmartRisk LLC

With the combined work experience in the design, construction, energy and environmental industries blended with insurance underwriting experience, SmartRisk understands the many challenges of firms today. As a risk and performance management consultant, we address those challenges through in-depth risk analysis and implementing tailored strategies mitigating risk and liability exposures. In return, improves performance, profitability and lowers insurance costs.

- Timothy J. Corbett, BSRM, MSM, LEED GA
    President 

Construction Bids and Risk

Congress approved the mammoth $787 billion stimulus package to jumpstart the economy. All 50 states quickly positioned themselves to obtain approval for project funding and increase of bids were flowing into the understaffed and over burdened state officials. Bidding is described as fierce with contractors no longer having months of backlogged projects. Construction bids are coming in much lower than engineering or agency estimates from unknown contractors. What does that mean for the design professional? Increased risk. 

Bids Under Engineering and Agency Estimates

Utah project bids have doubled with 30 that normally attract 10 – 15 bids. One project was awarded for $2.2 million that two years ago was bid at $3.8 million. School bids in Los Angeles have doubled from 5.4 to 9.6 in the last year. Colorado’s Department of Transportation (DOT) bids have increases 62%. The Southeast receives 35-40 project bids that normally attracted single digits attention. Specialized project contractors are looking for projects wherever they can; out of state, bidding in new markets and project sectors has become the norm for many contractors. Contractors that have stayed local are seeing contractors they have never heard or seen before bidding on projects. In a recent AGC article, contractors stated they are trying to diversify into new markets to survive the economic downturn. Contractors moving into new areas of construction requires hiring additional workers and building up expertise.  

With the competitive conditions, contractors are cutting bids to the bare bone. In Connecticut a school contract was awarded to one contractor that edged out 22 competitors by a percentage point. From highway, school construction, water and wastewater projects, bids are coming in well below engineering estimates. States such as North Carolina are taking advantage of contractors hungry to stay busy with bids 20%-25% below the DOT estimates. Colorado DOT bids are well below average and moving forward with many projects that were previously put on hold. Florida DOT awarded three contracts for a combined total of $46.5 million that estimators previously had at $90.3 million.

Risk for Owners and A/E’s

Forty-eight out of the 50 U.S. states are trying to dig out of deficits with their cash-strapped, understaffed agencies licking there chops at the project saving they are seeing in construction bids. Certain states are seeing a two for one ratio saving compared to engineering and their own agency project estimates. This cutthroat nature of the contractors imposes risks on project Owners as well as the design professionals. States agencies are being short-sighted when only looking at cost savings and not the overall quality of project. Companies without the experience and qualification are bidding and winning projects states Chief Estimators. Owners and agencies will only see the number of claims increase. A portion of the federal stimulus funding package, $100 million dollars was allocated to the Government Accounting Office (GAO). This money will be used to hire over 100 new attorneys, auditors, accounts to assess and evaluate how effective the stimulus funding is being used. In Washington State a civil contractor won a project bid for $4 million that was well below the engineering estimate. After six months, the city received notice the contractor was pulling off the project and the company surety company will be responsible for project completion.

Risk Management Considerations

• Review and evaluate ensuring adequate project schedule and budget has been established. 

• Inquire into the project team selection process including other design professionals and disciplines.     

• Inquire into the contractor selection process. Ensure a qualification based selection (QBS) will be used including the selection of sub-contractors .

• Assist the owner in developing a short-list of contractors allowing the owner to perform their own due diligence making the final selection.

• Inquire into the financial capability and strength of the contractors. Ensure capability to complete the project.

• Include objectionable design contract provision. If the owner/contractor moves forward with a design concept you objects to, you will be held harmless and not liable for negative outcomes.  

• Include other contract provisions such as limitation of liability (LOL), fees and payment requirements, suspension and termination and mediation. 

• Contract provisions that contractors and consultants retained by Client are financially solvent, able to pay its debts and possesses sufficient capital to complete the Services required and authorized to do business in the project state. 

• Discuss the project risks with your Client. If you see red flags, don’t be afraid to walk away. 

Conclusion

This is a challenging time for many firms; architect , engineers, environmental consultants and contractors. Most firms are making changes to services offered and project types trying to survive the soft economy. However, just obtaining work for work sake without knowing and identifying the potential risks puts your firm and practice at risk. During a slow economy claims and litigation increases. Construction bids and cost cuttings construction measures that impact the performance and quality of project will only increase risk for you and the client. Be aware and well informed, know where your risks and exposures are and implement effective risk management strategies.                 

Information in this newsletter is for information purposes only and should not be construed nor relied upon as legal advice. Readers should consult with legal counsel regarding their specific situations and circumstances.  

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