As the construction industry tries to rebound from the pandemic, a convergence of factors is complicating the recovery process. Faced with increased risk in construction, contractors should take steps to double down on their risk management strategies.
Surging Costs and Tariff Concerns
Construction materials are getting more expensive, and new tariffs could exacerbate the problem.
According to the Q3 2021 Commercial Construction Index from the U.S. Chamber of Commerce, 62% of contractors say that reduced availability of building products is the top concern, and 98% of contractors say material cost fluctuations have had a moderate to high impact on their business. Wood and lumber are the top products causing cost fluctuation concerns, followed closely by steel and copper.
The report also found that contractors are worried about new tariffs, with 44% saying that tariffs on new construction material and equipment will have a high or very high degree of impact on their business. Engineering News-Record reports that tariffs on Canadian softwood lumber producers have doubled, raising the rate from 8.99% to 17.99%, and economists predict that this will increase prices.
Labor Shortages and the Lack of Skilled Workers
Material shortages aren’t the only problem causing increased risk in construction right now. Labor shortages are also causing issues, and the problem appears to be getting worse.
According to the Q3 2021 Commercial Construction Index, 55% of contractors say they are experiencing a high level of difficulty finding skilled workers, up from 45% in the second quarter, and 92% of contractors say they are having at least a moderate level of difficulty. The vast majority of contractors do not expect this to improve in the next six months, and 42% are turning down work because of skilled labor shortages.
Risk Management Reminders
Supply and labor shortages are driving up costs and making it more difficult for contractors to complete projects on schedule. It’s a challenging time, and to navigate the current landscape successfully, contractors need to strategically manage their risks.
- Safety – Contractors might be tempted to cut corners to deal with the labor shortage, but that could backfire big time by leading to incidents that cause injuries, increase costs, and lead to further delays. Safety always needs to be a priority.
- Training – A lack of skilled workers makes training especially important right now. You can’t count on new, inexperienced workers to know what to do. Take extra time to create safety checklists and training protocols to help inexperienced workers succeed. Find ways to incentivize/reward experienced workers when they take initiative to help and coach those who are less experienced.
- Tech – It can be hard to keep an eye on all workers to make sure they’re using PPE correctly and following all safety procedures. New tech can monitor workers to help keep them safe. Ask us for details.
- Proactive communication – Remember that everyone on the team is under increased pressure and it probably won’t let up anytime soon. Now is the time when your culture really counts. Show employees you care, make time for fun and proactively tend to your team’s mental health.
- Insurance – With increased property values and the rising cost of labor and supplies, this is a good time to double check that you have the right limits and the right coverage terms in place. You might also want to look into alternative coverage solutions. For example, wrap up policies can close gaps and reduce costs for large projects. A captive arrangement may also be advantageous.
Managing the Increased Risk in Construction
The construction industry faces unique risks. To navigate the increased risk in construction, you need an insurance partner with expertise in the industry. Heffernan is here to help. Learn more about our construction insurance solutions.