|
Industry Forecast, Claims and Risk
With 2017 coming to an end, lets take a brief look at this year, and what is expected for 2018.
Construction spending and projects are expected to remain strong in 2018 with a forecast of a 4.8% increase. Residential construction, especially single-family construction, is expected to remain strong. Lodging construction, including hotels and motels, is expected to be down after experiencing growth in 2017. Public construction has declined in 2017, but expects growth with airport construction expansion in terminals and runways, as well as public education construction spending. A big question remains for highway construction as federal spending remains flat, however states are continuing to pursue increases in gas taxes and public-private partnerships (P3s) to fund road and infrastructure projects. Retail construction is expected to continue its decline in 2018 driven by e-commerce.
Causes of Claims
Construction employment is still more than 10% below its previous peak with approximately seventy five percent (75%) of firms stating they are having trouble filling positions with qualified staff. This shortfall impacts a firm performance and increases project risk. Technical errors are on the rise driven by inadequate staffing and QA/QC processes. A SmartRisk survey has shown the following areas as primary causes of claims for design firms.
- 57% - Technical error or omission when rendering professional services caused by a lack of QA/QC, inadequate, inexperience staff, or peer reviews.
- 42% - Incomplete project communication, documentation, management of changes on the project, handling of unanticipated site conditions, project conflicts, project team not aware of project scope, incomplete reviews and approvals, and status reports.
Risk & Performance
Firm specific risk analysis conducted by SmartRisk has shown firms with effective risk management programs, are better performers, are more profitable, and have fewer claims. Lower risk, higher performing firms go well beyond the basics of contracts and insurance. These firms address potential risks that could impact overall operations, practices, and project performance. The approach has the following advantages:
- Improved quality
- Higher client satisfaction ratings
- Fewer claims and lower insurance costs
- Higher profit margins
All elements enhancing the bottom-line of the firm, resulting in increasing business opportunities, and reducing risk.
Risk Management Strategies Performance
The follwing are a few suggestions for reducing risk and improving performance.
Improved Firm Knowledge - Every employee should learn how everyday decisions can impact a projects success along with increase, or decrease the firm’s exposure to risk. Conduct regular training sessions on the topics of risk, claim trends, relationship of risk to business practices and examples of industry claims. Ensure employees are aware of the specific risk management practices the firm has implemented and how they play a role in mitigating exposures.
Project and Client Selection - Assessing project opportunities and evaluating potential risks go hand-and-hand and should be done early in the selection process of a project and client. Certain projects and clients are higher risk. Go through a "check-list" or "Go/No-Go" process before accepting any assignment evaluating,
- Work within your area of expertise
- Assess clients experience
- Claims history of clients
- Ensuring adequate project finances is available
- Other criteria
Clients are asking design professionals to do more with less. Clients that do not allow an adequate scope of service, and allocation of proper fees along with unrealistic project expectations are BIG Red-Flags and signs of trouble ahead.
Project Communication and Managing Project Problems - Every project has its own unique risks and problems that do not go away on their own. Communicate with the owner, prime and the contractor identifying potential problems at early stages of a project, and work together developing solutions is the best remedy. Document all meetings, discussions, decisions made along with action-items moving forward for all parties. As projects progress, memories fade along with the decisions that were made during critical points of a project. Documenting these decisions is a key risk management practice.
Quality Assurance and Quality Control - Productivity and performance increase as quality improves. Why? Less rework, fewer RFI’s and change orders along with increasing client satisfaction reducing the potential for project delays, disputes and claims. Ensure the firm has implement a systematic approach in the development of design documents along with peer review of plans, specifications and calculations. A senior representative not involved in the project should conduct the peer review to ensure clarity of the design documents and criteria.
Staffing - Experienced and proper staffing levels are critical for the success of any firm and project. Having the balance of knowledgeable, and experienced employees in your service and project segments is essential, along with developing design documents, providing oversight, mentoring junior staff on the proper methods and applied practices. Principals, take care of your “stars” and show them a path towards advancement and possible ownership. They are the future of your firm, and critical for today’s success.
Client Management - You have the work - now its time to build the clients confidence in you by using your expertise, skills and project knowledge. Create a communication plan, and communicate with clients on a regular basis ensuring expectations are understood and being fulfilled. Obtain feedback on their level of satisfaction during the projects progress, and conduct a formal evaluation at the completion of a project. All strategies will build upon and broaden the relationship with the client. This strategy has advantages,
- Keeps clients happy creating future opportunities
- Identifies potential problems
- Provides the opportunity to mitigate risk for completed projects
Balanced Contract - Negotiate a fair and balanced contract stating the responsibilities and intent of all parties involved. A well-written agreement is the projects play-sheet outlining provisions helping to prevent misunderstandings, identifying duties and responsibilities - all methods for helping to resolve problems and mitigating potential claims. Key provisions to watch for,
- Client favored indemnity provisions
- Inadequate scope of services and fees
- Removal of construction phase services
A balanced and fair contract allows you the best opportunity for completing a quality, reduced-risk project. No project is ever perfect. Include in contracts that all parties agree conflicts will be resolved fairly, quickly and as effectively as possible through direct meetings and negotiation followed by mediation if needed. Refuse to accept unlimited liability for your services with a limitation of liability (LoL) clause in your contracts that makes the amount of liability you assume proportionate to your services and your ability to control the risk.
You are welcome to forward this newsletter to others who may be interested.
If you are interested in obtaining more information about SmartRisk, and services offered, please contact us.
Thank you.
|
artRisk