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Risky Business

AN EFFECTIVE RISK MANAGEMENT PLAN – OR LACK THEREOF – CAN MAKE OR BREAK YOUR COMPANY’S FUTURE

BY KATIE KUEHNER-HEBERT

An effective risk management plan can make all the difference in whether a contractor thrives, survives – or fails. At no time in recent history has this been more critical than now as the country slogs through the COVID-19 pandemic.

TradeTapp’s automated risk analysis and risk mitigation recommendations. PHOTO COURTESY OF AUTODESK

Rudolph Libbe Inc., an AGC of Ohio member, has always maintained an up-to-date risk management plan, “and that is helping us remain strong during these challenging times,” says Mark Hoffman, safety and health director at the Walbridge, Ohio-based company.

Rudolph Libbe’s management team continues to have ongoing conversations with the company’s brokers, insurance carriers, customers and subcontractors on how to best operate amid the threat of COVID-19, Hoffman says.

“Our top priority is to keep everyone on our jobsites safe and healthy through the pandemic, and we’ve developed strategies and contingencies based on CDC guidelines and OSHA recommendations,” he says. “We’re also encouraging our associates to exercise their own creativity and share new ideas for staying safe.”

The impact on Rudolph Libbe’s operations from the spring shutdown due to COVID-19 peaked in early May, when owners placed 20 projects on hold that were in the design or bidding phase. As of early July, seven of those projects were scheduled to begin. Five active projects were shut down by owners, and as of July, work had resumed on all projects except one.

“We were very fortunate. The state of Ohio deemed construction to be essential, so most of our projects and operations continued,” Hoffman says.

The company updated its contracts with subcontractors to include requirements for compliance with its COVID-19 processes and added safety requirements. Rudolph Libbe’s contract administrator reviews owner contracts to ensure that appropriate force majeure language is in place.

“If not, owners have readily agreed to revise the language because they, too, recognize the potential impact of the pandemic on their project,” Hoffman says.

The company has always required subcontractors to provide monthly material status logs, and this had helped facilitate open dialogue to uncover potential schedule delay impacts resulting from COVID-19.

Safety, quality, contractual and financial management – and insurance – are intertwined to deliver the most efficient and effective outcomes in terms of better safety and higher quality for all stakeholders.

If Rudolph Libbe receives a generic force majeure delay letter from a subcontractor, the company requires documentation of specific delay circumstances and causes, such as a signed letter from a product manufacturer stating that its plant had been shut down due to COVID-19. The company also requires documentation of the steps the subcontractor is taking to complete the project, such as using alternative suppliers or expediting manufacturing and deliveries.

“As an example, we recently overcame a critical supply chain issue on a project,” Hoffman says. “Our electrical subcontractor could not get specified light fixtures because of a five-week delivery delay caused by the pandemic. We notified our customer of the delay immediately and with their approval, we found an alternative fixture which allowed the project to be completed on time.”

RECOVERY

The key to true recovery from the impacts of the pandemic is to have a very proactive safety program in place.

“My advice for safety professionals: Don’t base your program on the results you’ve achieved in the past,” Hoffman says. “Just because you haven’t had any incidents, doesn’t mean you’re a safe contractor or have safe jobsites. You need to be taking proactive steps to identify and eliminate or minimize potential hazards — and constantly evaluate their effectiveness.”

One proactive program that Rudolph Libbe has implemented is Find It-Fix It. The safety program challenges employees and subcontractors to identify, report and, whenever possible, eliminate jobsite hazards immediately before they have a chance of leading to incidents. Employees are recognized for their efforts.

Rudolph Libbe also goes above and beyond in making sure any subcontractor or vendor that wants to partner with the company shares its commitment to safety.

“During the prequalification process, I ask the subcontractor’s field operations manager — not the safety director — questions to assess their level of active engagement and commitment to safety,” Hoffman says. “If they aren’t actively engaged in safety and risk management, there’s a good chance their company won’t be working as a subcontractor for us because their culture doesn’t align with ours.”

The construction industry is weathering the pandemic fairly well because of its “safety-first culture, revolving around the mandate to make sure all individuals on jobsites return home safely,” says Matthew Walsh, executive vice president, regional director of the construction services group at Alliant Insurance Services Inc. in Chicago, a member of multiple AGC chapters.

“The industry’s response to COVID really speaks to its adaptability and resiliency,” Walsh says. “In most states construction was deemed essential, and within weeks, if not days, most firms adapted to the new environment, and continued to operate safely and effectively without a great degree of interruption.”

SAVVY STRATEGIES

The key elements of an effective risk management strategy include both operational and financial risk management considerations. Safety, quality, contractual and financial management — and insurance — are intertwined to deliver the most efficient and effective outcomes in terms of better safety and higher quality for all stakeholders.

“Aside from the tragic developments of the COVID-19 pandemic, there are many catalysts for project delays or cost escalations contractors might still have to face every day — whether it’s hurricanes and other weather events, steel tariffs impacting supply chains or project financing,” he says. “But contractors successfully face these and demonstrate adaptability and resilience, which serves them well during the most extreme challenges.”

Building in appropriate time to complete the project is key — making sure the design of the project matches up with the constructability of the project and scheduling appropriately to manage design changes. Firms must also have back-up plans in place, including for potential loss of suppliers, by making sure they have alternative suppliers if necessary.

TOOLBOX ESSENTIALS

Autodesk, a software firm in San Rafael, California and a member of multiple AGC chapters, offers not only BIM and CAD tools, but also TradeTapp, a cloud-based risk management solution that can particularly help contractors weather the pandemic, says Andrea Neiman, head of project marketing, preconstruction — Autodesk Construction Solutions.

Have questions regarding COVID-19 and contracts? Visit the ConsensusDocs COVID-19 Contract and Construction Law Resource Center at www.consensusdocs.org/covid-19-construction-law-resources/.

TradeTapp digitizes risk management and pre-qualification processes with subcontractors, and also offers risk mitigation recommendations based on automated algorithms. The technology can also help contractors reassess their risk management procedures and plans to mitigate any insurers’ concerns during this time that could impact premium pricing.

“COVID is very much impacting OSHA safety compliance, and what may become permanent after the pandemic subsides,” Neiman says. “TradeTapp is a great tool to assess what subcontractors are now doing, to ensure the right safety practices are being implemented.”

By leveraging Autodesk’s BuildingConnected network, contractors can find subcontractors for future projects and then pre-qualify them using TradeTapp’s safety and financial-related questionnaires. In April, the company introduced supplemental questions based on the impacts of COVID, to help further support risk management planning.

Contractors can also take advantage of machine learning algorithms offered by Construction IQ within Autodesk’s BIM 360 platform, to identify safety risks on jobsites.

“It takes in data from the jobsite and assesses risks in real time, so project managers in the field can collaborate with pre-construction managers in the office, mitigating future risks,” she says.

Jon Tate, vice president of construction risk engineering, Zurich North America in Atlanta, a member of multiple AGC chapters, says that contractors that had already performed a risk register have been better positioned to cope with COVID-19 challenges. A risk register is an overview of all the risks identified at the beginning and during the life of the project, their grading in terms of likelihood and impact, initial plans for mitigating and subsequent results.

“Contractors probably didn’t anticipate or plan for a pandemic, but maybe they had considered what to do if the project was severely impacted by a workforce shortage, or a key supplier or fabricator went bankrupt,” Tate says. “They may have had alternative sourcing plans in place for unique pieces of equipment or materials, for example, to deal with supply chain delays.”

A risk register also would likely produce a plan for crews if there were project delays.

“Most workers don’t just want to sit around for 60 to 90 days and not collect a paycheck — they go out and find other work,” he says. “So then when you’re ready to restart, are you going to be able to get that workforce back?”

If contractors had foresight into that, perhaps they negotiated something with the owner of the project where both agree the workforce — or at least key people — will be kept on the payroll through a delay.

“That ultimately may be more economical than trying to go back out there and rehire crews, maybe settling for a lesser level of skill because of availability and risk further project delays,” Tate says.

Workforce safety is key to recovery. Beyond keeping workers safe on jobsites, talking with workers about what they’re doing in their off time is really important. Contractors might want to also ask the location of their last few projects and where are they coming from — is it a state with a high incidence of cases? “The biggest thing is to remain vigilant and know the risk is still there,” he says. “We still need to keep doing what we are doing until there’s a vaccine.”