The construction industry is firing on all cylinders. New projects spring up every day, but not all go according to plan.
Three out of every four construction projects fail to finish on time. Every party involved – owners, designers, contractors and subcontractors – expects perfection, with the final product delivered on schedule and on budget. Those expectations leave little room for uncertainty, so even a small hiccup can have ripple effects that disrupt a project for everyone.
“There’s often a big disconnect on the front end of project planning,” said Doug Cauti, Senior Vice President, National Insurance, Chief Underwriting Officer, Construction, Liberty Mutual.
Proactive risk mitigation is also important to manage emerging challenges facing the construction industry ? drone regulations are evolving, commercial auto losses are rising, and so is uncertainty about which party might be held responsible for a construction defect. Without the proper planning, these issues can easily be overlooked and result in major losses and project disruption.
“Key risk management strategies have to be aligned among all parties from the beginning to minimize these uncertainties.”
Before construction begins, there are actions that project owners, designers and contractors can take to address these challenges and better protect their projects and businesses:
Drones can be useful tools on construction sites, providing an extra set of “eyes” for large commercial projects or tall buildings. They provide a real time aerial glimpse of works in progress, giving supervisors an added perspective to spot potential flaws, assess safety hazards, and check on workers. But many challenges remain in the safe — and legal — operation of drones.
Liberty Mutual’s interactive infographic highlights risks related to managing drones at construction sites, and also includes a pre-planning drone use guide and a pre-flight checklist that includes making sure to review the latest drone regulations.
General contractors and project owners need to stay up to speed on FAA regulations, which changed in August 2016.
“For one thing, operators need to have the drone in sight at all times,” Cauti said.
“And you need to make sure any operators are appropriately licensed and trained, that the drones are regularly maintained, and that the machines don’t impede on others’ safety and privacy.”
Clear flight paths and work zone boundaries can minimize the risk of a drone striking another property, or worse, a person. Operators should also know how to conduct an emergency landing if the drone suddenly loses power. It’s also important to consider how you are going to manage and use drone footage. Advertising liability can be a concern if third party images are captured and released. Know who is in charge of the data collected, who has access to it, and how you are going to protect it.
“If the contractor owns the drone, it takes on more liability. The contractor should review its insurance policies to make sure the coverage will respond to that risk,” Cauti said. Contractors and project owners can protect themselves through enhancements to their commercial general liability policies or through separate aviation policies, he said.
If a general contractor leases a drone through a third party, “they bear the responsibility of making sure the vendor is fully insured,” Cauti said. Vendors should have “non-owned” aviation coverage with limits suitable to handle the size of the risk.
Commercial auto losses challenge many business sectors, and construction is no exception.
More vehicles on the road and more miles driven, combined with fewer experienced commercial drivers, are driving up the frequency of accidents. On construction sites in particular, congestion created by closed roads, piles of materials and roving heavy machinery may lead to work zone accidents. Rising medical costs and repair and replacement costs of high-tech vehicles increase claim severity.
“I don’t see this trend reversing any time soon,” Cauti said.
Mitigating commercial auto losses begins with driver hiring practices.
“Pay attention to who you put behind the wheel,” Cauti said.
“Motor vehicle reports (MVRs) and driving history can alert employers to previous accidents or tickets. But there also needs to be regular communication with the drivers you do hire, and clear protocols in place that define expectations of how the job should be performed,” he added.
Those protocols include requiring the use of seat belts, prohibiting cell phone use while behind the wheel, mandating scheduled breaks, outlining maintenance procedures, defining if company vehicles can be used for personal use, and establishing crash report procedures that delineate who to contact and what information to collect in the event of an accident.
Contractors can also monitor fleet performance through telematics systems. These on-board systems can track unsafe driving behaviors like hard braking, sharp turns, and speeding. But the data is only as good as the person analyzing it. Contractors and project owners should partner with an insurer who can use fleet telematics data effectively to pinpoint common causes of accidents and recommend specific risk mitigation strategies.
Liberty Mutual’s Managing Vital Driving Performance is one tool that leverages insureds existing telematics data to identify unsafe driving behaviors and accident patterns.
“Our risk control consultants can drill deeper into the data and interview drivers to identify patterns and find out the root causes of bad driving behaviors in the first place,” Cauti said.
For example, a post-accident interview with a driver could reveal that he had been skipping breaks and spending too many hours on the road, leading to fatigue and inattentive driving.
Identifying those connections enables consultants to make specific risk mitigation recommendations, such as adjusting drivers’ schedules and workloads to reduce overtime, or adjusting dispatch protocols so employers can ensure drivers aren’t working too many shifts in a short period of time.
Another uncertainty project owners, designers and contractors have to face is how insurance coverage will apply should a project end up in a dispute. “The struggle is around the definition of ‘faulty workmanship’ and who is responsible for the defect. Is it in the design or the build?” Cauti said.
“There can be a lot of finger pointing involved. This reinforces the need for contractors to have a systematic quality assurance (QA) program that adheres to best practices, and for every party to have a role in it.”
Elements of a QA program could include testing of construction materials, conducting regular walk-throughs and obtaining approvals from the owner at key phases, and final sign-off by the owner at the project’s completion.
Construction defect claims can affect a business’s reputation, profits, and ability to maintain insurance coverage. That’s why it’s so important to be vigilant about avoiding construction defects, whether you’re a designer, developer, owner or general contractor.
Ultimately, though, these risks should be addressed before ground is broken. Discussing these challenges and collaborating on loss prevention strategies up front reduces the likelihood that any “hiccups” will throw off project timelines or increase costs for the various stakeholders.
Pre-planning discussions also offer the opportunity for these parties to take advantage of carrier partners’ risk control services.
“As an insurance carrier, we may have a role to play in those proactive discussions,” Cauti said.
“We are uniquely positioned to help project stakeholders see their risks and work to minimize them.”