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04-Managing Risk in The Construction BIM
04-Managing Risk in The Construction BIM
Managing Risk in
the Construction
Industry
Premier Partner
Supporting Partners
Research Partners
LARGE
OWNERS
G R O U P
SmartMarket Report
C
onstruction has always been respondents report experiencing from
MANAGING RISK IN THE CONSTRUCTION INDUSTRY
an industry with a high level each. Not surprisingly, given the very
of risk. Increasing project different experiences of risk they report,
complexity, large project owners and contractors also experience
teams and the inherent physical very different benefits from their use of
dangers of the work itself all contribute risk management strategies.
to this reality. However, too often the That said, though, a clear pattern
industry accepts high risk as a standard emerges in regard to the impact Stephen A. Jones
operating condition. As construction of collaboration on reducing risk. Senior Director
activity accelerates after the recession, The two top strategies for all Industry Insights Research
Dodge Data & Analytics
improving risk management is as respondents—formal brainstorming
important as increasing productivity, with the team and regular project Stephen A. Jones leads
safety and profitability, so we believe meetings with the full team focused DD&A’s Industry Insights
Research division. He
this study is both critical and very timely on risk—enhance collaboration across is active in numerous
for the industry. teams and yield critical benefits like industry organizations
While built upon the foundation of increasing reliability in overall project and frequently speaks at
industry events around
the seminal risk management study performance, reducing the cost of
the world. Before DD&A,
Dodge Data & Analytics (then McGraw construction, improving project Jones was vice president
Hill Construction) conducted in schedule and improving safety. with Primavera Systems
2011, this study takes a broader This is reinforced by the high (now part of Oracle), a
global leader in project
approach with over 500 respondents value all players place on project management software.
representing a wide range of building delivery methods that encourage Prior to that, he was
sectors, including general building, greater team integration as a means principal and a Board of
Directors member with
institutional, industrial and non-building to drive expanded future use of risk Burt Hill, a major A/E firm
(horizontal infrastructure). management practices. Likewise, (now merged with Stantec).
The study reveals that risk continues contractors in particular find the
to have an enormous impact on the lack of cooperation among project
construction industry, with three team members to be a critical
quarters (75%) of respondents reporting obstacle to their increased future
that they have experienced a dispute or use of these practices.
claim in the last five years. The most telling finding, though,
The findings also demonstrate comes from directly asking the
that the experiences of risks differ respondents whether increased
between owners and contractors. collaboration reduces risk. There is
Owners feel the greatest impact from resounding agreement that this is the
planning/scope changes, schedule case, with 91% affirming this statement. Donna Laquidara-Carr,
changes and cost escalation, while However, the concern about Ph.D., LEED AP
GCs and trade contractors are more contracts also demonstrates that Industry Insights
Research Director
concerned about labor procurement effective risk mitigation begins Dodge Data & Analytics
and contractual risks (from how risk is from the start, with how the project
apportioned directly by the contracts, team is contracted and the delivery Donna Laquidara-Carr
currently provides
to issues like warranties, guarantees, method selected. editorial direction,
etc.). These varying perspectives on We would like to thank our premier analysis and content
risk lead to differing priorities when partner Alliant for helping us to bring to DD&A’s SmartMarket
Reports. Prior to this
selecting the best risk evaluation and these important findings to the industry.
position, she worked for
mitigation strategies. In addition, we thank Procore and nearly 20 years with DD&A’s
One of the most important findings e-Builder for their support, and we also Dodge division, where she
of the study examines which of the 10 thank all of our research partners for gained detailed insight into
the construction industry.
risk evaluation and mitigation strategies their efforts to engage the industry in
are most effective and what key benefits the study.
TABLE OF
CONTENTS
4 Executive Summary
Executive Summary
4
7 Data
7 Introduction
12
sidebar Managing Subcontractor Default Risk
Case Study
30 Comprehensive Risk Management Yields Rave Reviews
Kings Theatre Redevelopment, Brooklyn, New York
60 Methodology
61 Resources
and disputes are the most common and most costly Planning/Scope Changes
for GCs. 21%
■ Warranty issues are the most common for trade
Contractual Risks
contractors, but they are nearly evenly split between (Owners of Project Specs,
warranty issues and claims arising from construction Warranty Guarantees, etc.)
defects when selecting the most costly. 21%
Most Effective Risk Evaluation and Most Effective Risk Evaluation and
MANAGING RISK IN THE CONSTRUCTION INDUSTRY
Increase Reliability
MANAGING RISK IN THE CONSTRUCTION INDUSTRY
In Overall Project
Performance OWNER CONTRACTOR
Reduce Cost Of
Construction
Improve Project
Schedule
Infographic design: Pegi Goodman
Formal
Checklists Contingency Brainstorming Contingency
Forms Planning With Team
Expert Input Regular Meetings Planning
Risk Registers
From Internal of Full Project Team
Resources Focused on Risk
A
s the construction industry has emerged from
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
Most of the owners, general contractors and trade Company Has Experienced a Claim or
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
contractors who participated in the study have Dispute in the Last Five Years
experienced a claim or dispute in the last five years. This (According to Owners, GCs and Trade Contractors)
finding supports the need for improved risk evaluation Dodge Data & Analytics, 2017
Owners, GCs and trade contractors who have Disputes and Claims That Have the Greatest
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
experienced a dispute or claim in the last five years Impact (Ranked First by Owners, GCs and Trade
were asked to rank the disputes and claims with the Contractors for Highest Frequency and Greatest
greatest impact in two ways: those experienced most Cost Impact )
frequently and those that were the most costly. Dodge Data & Analytics, 2017
1_02_EX_DisputesClaimsImpact_#02
Warranty issues appear to loom largest over the Infrastructure projects, in particular water infrastructure,
smallest projects. tend to experience more claims/disputes associated
• 22% of respondents from companies whose largest with professional liability than general building or
project is under $10 million rank warranty issues as their industrial projects, and the percentage who find them
most frequent claim or dispute, compared with 16% the most costly trends higher as well for those doing
that do larger projects. infrastructure projects. Approximately 13% of those
• 19% of companies doing small projects consider doing infrastructure projects select professional liability
warranty issues the most costly, compared with 8% of claims/disputes as the most costly, compared with 7% of
those doing larger projects. those doing general building or industrial projects.
public projects in the last five years and who have also by those doing multifamily projects (31%), and by a
experienced claims arising from construction defects, high margin. This sector has a reputation for being
there is little difference between those who think that particularly litigious, which these findings bear out.
public projects more frequently experienced claims Given the unusually high volume of multifamily projects
arising from construction defects (47%) and those started in the last three or four years (according to
who think private projects did (43%), and most of the Dodge database of project starts), this may have
the remaining 10% believe that there is no difference influenced the frequency with which those claims are
between the number of claims reported in public and reported in this study.
private projects. This suggests that whether projects ■ Education is the next highest type of project, with 20%
fall in the public or private realm has little impact on of those doing work in that sector reporting that they
the likelihood that they will experience a claim due to had claims due to construction defects.
construction defects.
Interestingly, both of these types of projects span the
public and private sectors, which may account for the
relatively even distribution of these claims between
public and private projects.
Project types in which claims due to construction
defects are least frequently reported include office,
healthcare, retail, airports and tunnels, all of which have
less than 10% reporting these claims.
The construction industry has rebounded from the 2008 recession to find the
MANAGING RISK IN THE CONSTRUCTION INDUSTRY
risk landscape transformed. The last five years have seen new risk factors spiking
while perennial factors continue in force. In response to this complex new mix,
the industry is making a major shift toward managing risk more systematically.
Top Three Post- environment,” reported a participant. manager. These indicators suggest
Recession Risks “Incomplete designs have become the industry is moving toward a more
Among today’s top-ranked risks, the contractor’s responsibility.” comprehensive approach to risk
the shortage of skilled craft labor Contractors who internalized management at the enterprise level.
has reached crisis level. With more a mentality of scarcity during the The practice of enterprise
than 1.5 million workers who left the downturn have been slow to risk management (ERM) controls
industry during the recession now say no when their plates are full, for all of the risk factors an enterprise
unlikely to return, the total number making subcontractor default faces: strategic, operational,
of employed construction workers the third-ranked risk trend in the financial and hazard; and it
currently hovers around 20% less post-recession mix. Between 2009 does so in a systematic way. It
than the 2006 peak; and among the and 2015, the average number of engages all company personnel
skilled workers who remain, those months of contractor backlogs in a cyclical process consisting
in the baby boom generation are industry-wide increased by 33 of five key risk management steps:
reaching retirement age. In this percent, according to Associated identification, analysis, response,
market, contractors pursuing a Builders and Contractors. control and monitoring. Done
growing number of projects with Subcontractors especially are right, ERM improves managerial
fewer, less-experienced workers are struggling to meet their existing decision-making around strategic
finding themselves stretched. commitments: failing to adjust to risks, promotes operational
Pressure from owners has new margins, tighter cash flows and efficiencies through increased
also intensified in the last five years, reduced labor pools, they may be reliability and accuracy of data,
not only constricting project costs undercapitalized, carrying too much maintains availability of credit
and schedules, but transferring overhead and unable to bond. and manages the cost of capital,
greater risk contractually. “Today, and reduces the consequences of
we spend a tremendous amount Responding to Risk uncontrollable losses.
of time analyzing project risk for Post-recession impacts combining Historically, it’s been primarily
clauses that we’ve never had to with the industry’s more consistent the largest companies that have
worry about in the past, since they risks have generated a complex new adopted ERM, says David Druml,
were either the owner’s or architect’s risk environment, and construction a construction risk management
responsibility,” Dan Whiteman, vice companies are responding with new consultant, yet the process “fits
chairman at Coastal Construction, approaches to risk management. smaller companies like a glove.”
reported in a survey conducted Among participants in the AGC/FMI Large or small, he says, “any owner
this year by the Associated General survey, 90 percent are deploying new or senior officer who wants to
Contractors of America (AGC) tools and strategies, providing risk improve the profitability of their
and FMI. (See page 46 for citation management-specific training, hiring firm would be well advised to take
information.) This finding resonates personnel for new risk management an interest in ERM.” n
in another recent study by FMI, positions, making more effective
focused on electrical contractors, use of their relationships with
that has not been released publicly: brokers or combining these and
“Design drawings have gone from other tactics; and almost 70% have
90% complete five years ago to a formalized risk management
50% complete in today’s business department and dedicated risk
S
ince emerging from the last “A critical path subcontractor could be relatively
recession, the construction small, but have a large impact on the overall
industry has taken a hard
schedule. The loss on that subcontractor could end
look at subcontractor
default. Both insurance carriers
up being four to six times the subcontract value.”
and contractors have adjusted their
outlook on subcontractors in the
hopes of better protecting against Bly notes that the recent trend in and manage work is creeping into the
future losses. megaprojects has led to very large cause for default,” he says.
subcontracts, increasing concerns Gray says that, in today’s
Factors Impacting that a default could lead to significant booming construction market,
Availability of losses. Bly says the industry is many subcontractors are working at
Subcontractor already witnessing defaults on capacity, but still pursue additional
Default Insurance subcontracts in the $30 million to opportunities. “As you’d expect in
Jim Bly, managing director at $40 million range. “It comes about a boom or bust industry, they are
Alliant Construction Services Group, from subcontractors that shot for very reluctant to take a pass on
says that although subcontractor the moon and tried to hit a homerun good job opportunities,” he adds.
defaults weren’t as dire as initially on a very large project that was “Inevitably, some of them end up
predicted going into the recession, maybe beyond their capabilities or being overextended, and they are out
carriers still tightened terms for they didn’t have the balance sheet to in the marketplace, struggling to find
subcontractors to reduce risk. finance it,” Bly says. people to run their jobs. And if they
One lesson learned was that Although there have been losses, find people, they might not have the
even a default from a small Bly says that hasn’t driven carriers capabilities or experience to run their
subcontractor could have a away from subcontractor default jobs properly. That’s a big driver at
big impact on a job, Bly says. insurance. In fact, the options have the moment. Ten to 15 years ago, it
“[Carriers] found that the smaller expanded. When the recession hit, wasn’t even on the radar screen.”
subcontractors had a much higher only Zurich Insurance Group offered Gray says the recession also
maximum probability loss factor,” he subcontractor default insurance. reminded contractors to always keep
says. “A critical path subcontractor Since then, XL Catlin and Arch have a sharp eye on subcontractors, even
could be relatively small, but have a launched programs as well. subs who have worked for them for
large impact on the overall schedule. decades. Gray says that contractors
The loss on that subcontractor could New Post-Recession risk “getting comfortable” with long-
end up being four to six times the Concerns time partners. “A contractor may
subcontract value.” Coming out of the recession, new have worked with [a subcontractor]
As a result, the industry has moved concerns around subcontractor risks for 50 years and automatically
to limit coverage. “We’ve seen have emerged. Terry Gray, managing consider them for the job,” he says.
underwriting that goes up to three director at FMI, says the tight labor “On the front end, they don’t have the
times the subcontractor value in market has had a big impact on the discipline around prequalifying and
limits, and that’s it,” he adds. ability of contractors to properly questioning the subcontractor before
While small contractors may man jobs. “That inability to find new they hire them,” he says.
receive more scrutiny, so do big jobs. people or get qualified people to run Gray says that when a longtime
Owners, GCs and trade contractors were asked to rate Strategic Risk Factors (Rated as a High Risk by
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
whether a series of six strategic risk factors posed a low, Owners, GCs and Trade Contractors)
moderate or high risk on projects their company had Dodge Data & Analytics, 2017
Companies that work outside of the U.S. are more Those Working In the U.S. Only and Abroad)
concerned about several strategic risks than those that Dodge Data & Analytics, 2017
Operational Risks
Owners, GCs and trade contractors were asked to rate abruptly change project requirements. Therefore, it is
whether a series of seven operational risk factors posed a not surprising that many owners find planning/scope
low, moderate or high risk on projects conducted by their changes to be a high risk factor for their projects.
company in the past five years.The chart on page 16 shows Nearly one fifth of general and trade contractors (19%)
the percentage who indicated that each posed a high risk. also consider this a high risk. Depending on when they
Comparing these findings to the strategic, financial occur in the project lifecycle, planning and scope changes
and hazard risk factors included in the study (see pages can be quite disruptive for contractors.
14, 17 and 18, respectively), it is clear that several
operational risks are a major cause of concern in the Cost Escalation
industry, especially among owners. Owners are more concerned about cost escalation than
contractors are. Cost escalation is typically a serious
Planning/Scope Changes problem for owners because they have to pay the
Reliability in terms of project schedule and building increase, while contractors are often able to pass cost
functionality are often critical measures of project increases on to the owner.
success for owners. In addition, many owners need to More data about drivers and impacts of cost
please internal stakeholders, but changes in leadership escalation are available in the 2014 Managing Uncertainty
or staffing at their company during a project can SmartMarket Report.
This is one of the few risks included of great concern to by Owners, GCs and Trade Contractors)
both owners and contractors. Their agreement on the Dodge Data & Analytics, 2017
Financial Risks
Owners, GCs and trade contractors were asked to rate Financial Risk Factors (Rated as a High Risk by
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
whether a series of four financial risk factors posed a low, Owners, GCs and Trade Contractors)
moderate or high risk on the projects their companies Dodge Data & Analytics, 2017
Owners, GCs and trade contractors were asked to rate Risk Factors Related to Hazards (Rated as a
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
whether a series of eight risk factors related to hazards High Risk by Owners, GCs and Trade Contractors)
posed a low, moderate or high risk on projects that their Dodge Data & Analytics, 2017
1_07_RiskFactors_Hazard_#01
• The largest contractors who participated in that study Other Hazard Risks
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
(measured by number of employees rather than annual Since GCs are the player most responsible for site
revenue) report using a wider range of safety practices; coordination issues, it is not surprising that more GCs
in fact, a higher percentage of large contractors report (10%) are concerned about weather delays/force majeure
using all 16 of the practices measured than smaller than either owners (4%) or trade contractors (4%).
contractors. This suggests that the largest companies The remainder of the hazard risks are not considered
recognize the risks of unsafe workforce behavior and to be high risk by many, with most seeing the rating
have more resources put in place to manage them. drop to 5% or less. For most of these risks—including
• In addition, the largest companies were also much weather delays but also risks of pollution/environmental
more likely to fall at the high end of the safety culture damage and emergency response risks—it may be
spectrum than midsize or small companies. Companies because, while potentially detrimental, they are also
are placed on that spectrum based on the number less common as a whole.
of safety culture indicators they have embraced.
Therefore, companies at the high end of the spectrum
are more likely to embrace safety as a fundamental,
core principle at their companies, from the level of the
jobsite worker and from company leadership down.
Midsize companies fall significantly behind the largest
companies in that study in terms of having a strong
safety culture, which may ultimately put them at risk for
unsafe workforce behaviors.
In addition to understanding the top risks by category, it is Top Risks (Rated as a High Risk by Over 20% of
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
also important to see which risks are considered highest Owners, GCs and Trade Contractors)
by player across categories. The table at right shows the
Owners
factors considered high risk by more than 20% of owners,
Planning/Scope Changes 27%
GCs and trade contractors.
Schedule Changes 25%
Owners Cost Escalation 25%
All of the top risks for owners fall into the operational GCs
category: planning/scope changes, schedule changes 33%
Labor Procurement Risks/Subcontract Management
and cost escalation. Each has an immediate and
Contractual Specification of Risk 27%
potentially severe impact on the owners’ performance on
the project, but each is also less directly influenced by the Schedule Changes 25%
owner than many of the strategic and financial factors, Contractual Risks (Owners of Project Specs, 22%
which may explain why these rank so high for owners. Warranty Guarantees, etc.)
Trade Contractors
Contractors Schedule Changes 28%
General contractors and trade contractors are most
Contractual Specification of Risk 27%
concerned about schedule changes, contractual
specification of risk and other contractual risks. Delays in Payment, Claims 26%
Increased exposure to how risks are allotted contractually Contractual Risks (Owners of Project Specs, 25%
can have long-term implications when unexpected Warranty Guarantees, etc.)
events occur. Schedule changes not only impact the Labor Procurement Risks/Subcontract Management 23%
project experiencing the changes but can ripple through
other projects as well.
General contractors are most concerned, though,
about labor procurement risks, far more so than even
trade contractors. In general, the industry is sounding
an alarm on this issue, and labor shortages could have
cost and schedule implications for GCs in particular if
shortages of skilled workers become more severe.
Trade contractors are unique in their high level
of concern about delays in payment. As the last to
get paid on a project, they may have to capitalize a
project for weeks or even months, limiting their
overall capacity to do work or causing them to risk
overextending themselves.
Active shooter incidents are so random, how could anyone prepare for them? And
MANAGING RISK IN THE CONSTRUCTION INDUSTRY
surely there are likelier risks claiming our attention. But understanding active
shooter incidents as a type of workplace violence, which is all too common in
America, places them on a continuum of risk that can and should be managed.
W
orkplace violence, will reduce their exposure to risk. implement emergency protocols,
according to OSHA, Studies show that employees who conduct a headcount of evacuees at
is any act or threat train for an emergency tend to act a predetermined assembly area, tend
of physical violence, effectively, whereas those without to the wounded and coordinate with
harassment, intimidation or other training tend to panic. Active shooter law enforcement officers.
threatening, disruptive behavior incidents are usually over in 10 to
that occurs at the worksite. It ranges 15 minutes, before the arrival of Stepping Up
from threats and verbal abuse to law enforcement. That makes site Very few workplace emergency
physical assaults and homicide. workers the first responders. plans, however, currently address
Nearly 2 million American workers Run. Hide. Fight. Those are the or train for workplace violence.
a year report having been victims three options the U.S. Department “Nobody’s doing this well,”
of workplace violence, and many of Homeland Security recommends says Bo Mitchell, a former police
more cases go unreported. For the in an active shooter incident, and commissioner who now heads
construction industry, dealing with they should be attempted in that an emergency preparedness
the risks of workplace violence is a order. Escape if you can, helping consultancy. “I can guarantee you
logical extension of their efforts to others if possible. Hide if you can’t three things in life: death, taxes and
manage issues of risk and safety. run, locking doors and turning off you don’t have an OSHA-compliant
A good beginning is to lights and cell phone ringers. And emergency action plan.” (Although
establish a zero-tolerance policy if you can’t run or hide, commit to OSHA regulations do not specifically
for workplace violence of all types, disrupting the shooter with all require employers to plan for an
either as a stand-alone policy or as you’ve got, coordinating with active shooter incident, OSHA
part of a larger safety and health others if possible. guides include workplace violence
program. According to OSHA, “it Workplace safety and health resulting in bodily harm or trauma
is critical to ensure that all workers attorneys Linda Otaigbe and as an example of the definition of a
know the policy and understand Nickole Winnett, at Jackson Lewis workplace emergency.) “Employers
that all claims of workplace P.C., recommend that general need to develop an all-hazards plan
violence will be investigated and contractors ask to see each for foreseeable circumstances,” says
remedied promptly.” subcontractor’s active shooter Mitchell, “whether it’s tornadoes or
Alertness for early warnings emergency response plan, and active shooters.”
of violent intentions may allow discuss its adequacy to the OSHA and the Department
construction companies to prevent particulars of the site and the training of Homeland Security publish
an incident. Active shooters often employees have received, prior to information to support employers
talk about their intentions or display starting work. They also recommend in developing active shooter
signs of instability or hostility that contractors coordinate their drills emergency plans. Otaigbe and
workers can be taught to recognize with subcontractors on multiple sites Winnett’s article in Construction
and report as a concern. throughout the year to help make Executive provides a useful brief, and
sure all workers know how to respond emergency management consultants
Managing the Risk on each site. In addition, each site can provide valuable guidance to
In the event that violence reaches needs a Threat Response Team, construction companies in managing
emergency level, having a plan all consisting of both management the rare but potentially devastating
staff have practiced implementing and non-management members, to risks of workplace violence. n
building projects use checklists/forms/risk registers size of contractor company, which underscores that most
than those doing industrial (75%) or transportation companies see value in this strategy.
infrastructure (76%) projects. This may be due to In fact, the only significant difference is between
the complexity and extended schedule length of 2_01_EM_EvalUse_#02
those who work outside the U.S. and those who do not,
industrial and infrastructure projects compared with with 84% of those who work outside the U.S. reporting
general building. that they take this approach, compared with 69% of
■ Work Outside the U.S.: 84% of companies that work those who work solely in the U.S. A formal brainstorming
outside of the U.S. use these tools, compared with 70% process could help lay the groundwork for better
of those that only work in the U.S. Formal processes teamwork and collaboration, a critical element when
may help a team drawn from disparate locations and teams are widely dispersed.
different cultures to evaluate risk more effectively.
EXPERT INPUT
FORMAL BRAINSTORMING WITH TEAM All types of companies rely more on expert internal
While a higher percentage of general contractors indicate resources than external resources, but the difference is
that they are using this approach than do owners or particularly strong among trade contractors, where only
trade contractors, the difference is not statistically one third (33%) use external resources at all, significantly
significant. There are also no significant differences by below owners (59%) and general contractors (55%). There
are also other meaningful variations in the use of expert Use of Risk Evaluation Strategies by Stage
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
significant difference in the use of external resources Checklists/Forms/Risk Registers Expert Input - Internal Resource
among small, medium or large contractors, more than Expert Input - External Resource Formal Brainstorming With Team
lifecycle in which they use them. The top chart at right Design Construction Design Construction
Owners, GCs and trade contractors who use several Most Effective Risk Evaluation Strategies
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
of the risk evaluation strategies were asked to rank the (According to Owners, GCs and Trade Contractors)
ones they consider most effective. The chart at right Dodge Data & Analytics, 2017
Checklists/Forms/Risk Registers
Checklists, forms and risk registers are widely used
(see chart on page 22), but they do not garner as many
top-place votes for effectiveness compared with the other
three strategies, which all involve personal interaction
with experts and team members.
After owners, GCs and trade contractors identified the Top Benefits of Formal Brainstorming
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
most effective methods of evaluating risk that they (Ranked in the Top Three by Respondents Who
employ (see page 24), they were given a list of nine Consider This Strategy Most Effective)
possible benefits from using this risk evaluation method Dodge Data & Analytics, 2017
and asked to rank the top three that they experience. The Owners GCs Trade Contractors
chart at right indicates the percentage who ranked each
Increased Reliability in Overall Project Performance
benefit as one of their top three for formal brainstorming,
among those who consider formal brainstorming one of 57%
the most effective strategies for evaluating risk. 35%
While formal brainstorming earns the highest ranking 39%
overall for benefits among the strategies studied, there Reduced Cost of Construction
are meaningful differences between the perspectives of 30%
owners, GCs and trade contractors. These differences
31%
demonstrate that even though they are using the same
44%
risk evaluation tool, each player sees quite different
benefits from it. Improved Project Schedule
28%
Owners 34%
By far, the greatest benefit to owners when their 29%
projects include formal team brainstorming is the
Improved Project Safety
increased reliability in overall project performance,
with over half (57%) of owners ranking this among 28%
their top three benefits. Reliability is critical to owners, 35%
and this finding demonstrates that owners identify 30%
the collaboration implicit in formal brainstorming with Maintained Original Intent for
achieving this goal. Level of Project Quality
The next four benefits ranked by owners are the 27%
cornerstones of project performance: cost, schedule, 16%
safety and quality. Each was selected among the top
22%
three benefits of formal brainstorming by between 20 and
Increased Ability to Innovate
30 percent of owners, reinforcing the strong relationship
between this strategy and tangible results. 26%
Also scoring well is the more subjective benefit 27%
of greater innovation, which often stems directly 21%
from interpersonal collaborative activities such as Reduced Rework
formal brainstorming.
22%
14%
13%
Competitive Advantage
4%
14%
22%
Increased Client Satisfaction
NA
33%
25%
3_02_EM_Eval_BrainstormingBens_#02
SMR1116_DT3_EM_22-29_32-44.indd 25 2/14/17 9:53 PM
Evaluation and Mitigation Strategies for Risk
Top Benefits of Formal Brainstorming CONTINUED
Unlike owners, there is not one clear benefit selected The highest percentage (44%) of trade contractors
by GCs, although most of their top benefits align with rank reduced cost of construction as the top benefit of
the ones selected by the owners. More than one third formal brainstorming. Often trade contractors can have
are split between four benefits: increased reliability in insights on specific challenges related to their trade that
overall project performance (35%), improved project may not be considered by the design team or the general
safety (35%), improved project schedule (34%) and contractors. Their participation in formal brainstorming
increased client satisfaction (33%). Again, clearly all during design can help address these issues in less costly
of these are seen as the direct impact of improved ways than inheriting them once the design is close to final
collaboration to identify issues. or construction is underway.
A relatively high percentage of contractors also see As with owners and GCs, trade contractors also see
formal brainstorming resulting in reduced construction increased reliability in overall project performance as a
costs (31%) and increased ability to innovate (27%). In top benefit of engaging in brainstorming.
fact, owners and contractors agree that this is the top It is notable that a relatively high percentage of trade
risk evaluation or mitigation activity associated with contractors (22%) report seeing a competitive advantage.
an increased ability to innovate. Early involvement in While only significantly higher than the percentage of
a formal brainstorming process allows GC and trade owners, they also trend higher than the GCs for this
contractor expertise to inform the design process, category. Because their insights are most often missed
and may help to generate constructible solutions on traditional projects, the trades who are able to
collaboratively that the design team alone would not participate in formal brainstorming during planning may
have developed. find that their expertise offers a competitive advantage
because of how it is perceived by owners and GCs.
There is wider agreement among owners, GCs and Top Benefits of Using Checklists/Forms/Risk
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
trade contractors about the benefits associated with Registers (Ranked in the Top Three by Respondents
using checklists, forms and risk registers than there Who Consider This Strategy Most Effective)
are about the other risk evaluation methods. In fact, the Dodge Data & Analytics, 2017
3_03_EM_Eval_ChecklistBens_#02
The differences in frequency of use and in what is Top Benefits of Input From Internal Experts
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
considered most effective between inputs from internal (Ranked in the Top Three by Respondents Who
experts and external experts are also reflected in the Consider This Strategy Most Effective)
benefits reported from getting those inputs. Dodge Data & Analytics, 2017
Owners
Input From Internal Experts GCs
The highest percentage of owners, GCs and trade Trade Contractors
contractors rank increased reliability of the overall
project as one of the top three benefits from using Increased Reliability in Overall Project Performance
inputs from internal experts for risk evaluation. For 45%
each player, this benefit is also several percentage points 36%
above any of the rest, revealing strong consensus that 39%
getting input from internal experts is critical to increase
Improved Project Schedule
overall project reliability.
Significantly more owners (30%) rank improved 30%
project schedule as a top three benefit resulting from 18%
internal expert advice than contractors (18%) do. It is 13%
possible that owners with experts on construction risk Reduced Cost of Construction
at their company can produce more accurate estimates
24%
of project schedules based on experience with the
14%
complexity and potential for unexpected problems
common to construction. Better estimates at the start 24%
are more likely to yield better schedule performance by Maintained Original Intent for
Level of Project Quality
setting up realistic expectations.
More owners (24%) and trade contractors (24%) rank 24%
reduced cost of construction as a benefit from the input 15%
of internal experts than do GCs (14%). For owners, this 18%
could also be a reflection of a more accurate cost estimate Improved Project Safety
resulting from internal expertise. For trade contractors,
21%
this finding may imply that they see cost benefits when
23%
their experts are called upon to directly participate.
Combined with the findings on formal brainstorming, it is 24%
a clear call to engage trade contractors earlier in the risk Increased Ability to Innovate
evaluation process to help control costs. 13%
In fact, other than increased reliability, less than one 21%
quarter of GCs rank any of the benefits listed among
17%
their top three for internal experts. It is possible that
many already factor in their internal expertise and do not Competitive Advantage
consider it as a separate risk evaluation approach. 6%
Not surprisingly, contractors are more likely to find 18%
that their ability to use input from internal experts for 21%
risk mitigation increases their competitive advantage. Increased Client Satisfaction
Owners who use value-based contracting methods
NA
may find internal expertise an important factor when
21%
considering contractors to hire, so the importance to
contractors is evident. 24%
3_04_EM_Eval_ExpertIntBens_#03
SmartMarket Report Dodge Data & Analytics 28 www.construction.com
Input From External Experts Top Benefits of Input From External Experts
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
Owners outpace contractors in terms of their use of (Ranked in the Top Three by Respondents Who
external experts to manage risk (see page 22) and in Consider This Strategy Most Effective)
the percentage who consider them among the most Dodge Data & Analytics, 2017
W
hen Gilbane
MANAGING RISK IN THE CONSTRUCTION INDUSTRY
contracted to restore
Brooklyn’s historic,
sumptuously ornate
Kings Theatre, built in 1929, the
building had been abandoned for
35 years. Superstorm Sandy had
yanked the roof off, entire sections of
the theatre’s mezzanine had washed
away, return air tunnels were filled
with water, historic finishes were
woefully deteriorated, ornamental
plaster lay in piles on the floor, and
a massive domed ceiling was at
risk of complete failure. Gilbane’s Kings Theatre, before and after restoration project.
contract assigned all risk for existing
conditions, known or unknown, strategies for success. “Swarm and This investigation included
to Gilbane, and fixed a date when solve” is how Klawans describes environmental and hazardous
funding expired and the curtain rose. the process, crediting the concept materials, structural conditions,
“We had an undefined scope, to business authors Jim Collins and code compliance, historic
limited funding, unknown Steve Spear. restoration, building envelope,
environmental and design risks, As their first step in bounding the and heating and ventilating systems.
three separate applicable building Kings Theatre risks, several of which In a step that alone saved millions,
codes, and schedule risk due to had earned the maximum score on investigators ran cameras on
more than 10 regulatory agencies the risk assessment template, the robots through existing ductwork
having jurisdiction over the project,” leadership team conducted a two- to check for integrity and hazardous
says Sue Klawans, senior vice day planning session to identify and materials, in the process identifying
president and director of operational map onto a framework schedule all opportunities to reuse existing
excellence and planning at Gilbane. the factors in play. These included ductwork rather than cutting and
“But we also had a comprehensive regulatory requirements and repairing historic plaster.
approach to risk management.” processes, funding requirements With the information from the
and processes, investigations and investigation, the team was able
Swarm and Solve assessments, design, construction, to generate realistic options for
At the heart of Gilbane’s approach theatrical outfitting and decision project scope and corresponding
is a risk assessment template with forecasting. The team then used cost. The team developed seven
which a project’s leadership analyzes this interactive plan as a meeting different program and cost options
and rates each of 12 risk categories, agenda and risk log with which the concurrently, with pros and cons
with two or three subsections in each project team could track progress, to inform the owner’s decision-
Photographs by Matt Lambros, Matt Lambros Photography
category, and calculates a weighted measure milestones and inform making. Now with clear goals for
score for the project. “But it’s not critical decisions. what could be achieved with the time
about the score,” says Klawans. “The and funds available, the project team
real value is in the conversation.” The Investigating Existing implemented a stabilization phase
risk assessment template provides Conditions in which the theatre was dried and
an agenda from which the project The team next set about reducing cleaned, and hazards removed, so
manager, project executive, business uncertainty by conducting a that the balance of the restoration
unit leadership and other principals thorough, yearlong analysis of work could proceed in a safe and
can work together to generate existing conditions at the theatre. organized manner.
CONTINUED
TI
N
CO
Enhancing Knowledge the Office of Parks, Recreation and Leadership Group to develop a
MANAGING RISK IN THE CONSTRUCTION INDUSTRY
st
at
assembling their bid so that they teams in identifying those strategies. and Figures
s
thoroughly understood the existing Using an interactive dashboard of all
Construction Manager:
conditions and the requirements projects, project teams can search Gilbane
governing the restoration of a by multiple factors, such as specific
Architect:
building listed on the National risks, risks in categories, or other Martinez + Johnson Architecture
Register of Historic Places. variables as they consider where
Owner:
to prioritize executive resources to
Kings Theatre Redevelopment
Achieving Success swarm and solve. In addition to its Co.
Across Projects internal risk assessment process,
Size:
“Everything went from uncertainty Gilbane has guided integrated 109,810 Square Feet
and risk to bounded and defined,” project teams to develop project-
Type of Project:
says Klawans. As a result, the specific risk and opportunity logs.
Historic restoration and
Kings Theatre restoration met Several options, customized to modernization
all its funding deadlines, and the each project team’s specific needs,
Project Cost:
curtain rose on the first concert are now available through the $95 million
as scheduled. The project was company’s software, so that a new
Completed:
completed within budget, and project manager can benefit from the
December 2014
without a single contractor- knowledge of previous teams.
initiated change order. The team “It’s real time prevention and Awards:
2014 Lucy G. Moses Preservation
even managed to find room for solving,” says Klawans, “rather Project Award by the New York
an additional 100 seats, adding an than reacting to issues after they Landmarks Conservancy
extra $250,000–$300,000 in annual happen.” For example, recognizing 2014 New York State Historic
revenue to the theatre. In testament that scheduling constitutes by far Preservation Award by the
to its success, the restoration the most frequently occurring risk, Office of Parks, Recreation and
won awards from the New York Gilbane initiated an Advanced Historic Preservation
Landmarks Conservancy and from Planning and Scheduling (AP&S)
Stages at Which Risk Mitigation • Development of a plan to manage risk is the least
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
Strategies Are Used typical in terms of use. Owners use it primarily before
As with risk evaluation strategies, respondents using construction begins. GCs tend to use it most in the
each risk mitigation strategy were asked to identify all of bidding and construction phases. Trade contractors
the project stages, from predesign to post construction, follow the same pattern as the other mitigation
when they use these strategies. The chart below strategies,with use peaking during construction.
represents their responses.
These findings suggest that owners consider risk
Overall, most of the risk mitigation strategies follow
mitigation approaches throughout the project lifecycle,
the same pattern for use in the different stages of the
but that contractors are more likely to consider mitigating
project lifecycle.
risk after construction has started. It is possible that
• A higher percentage of owners than GCs or trade
earlier adoption of mitigation strategies could help
contractors use each strategy during predesign and
reduce risk once construction is underway. However,
design, where contractors are often not yet engaged.
GCs and especially trade contractors may be limited
• Use among all three players is the same during
in how early they are included in the project. It would
construction and post construction.
be interesting to see if the pattern for risk mitigation
• Even among owners, use tends to peak during the
practice use is different for contractors when they are
construction phase, with one exception: more owners
involved in more collaborative delivery methods, or if
use risk prioritization during the planning stages than
they still consider risk mitigation most frequently during
during construction.
construction, the part of the project lifecycle for which
• Contingency planning is used by more than three
they are most directly responsible.
quarters of GCs (77%) during bidding/negotiating.
Regular Meetings With Full Project Team Focused on Risk Contingency Planning Development of a Plan to Manage Risk
100% 100% 100%
0% 0% 0%
Predesign Design Bidding/ Construction Post Predesign Design Bidding/ Construction Post Predesign Design Bidding/ Construction Post
Negotiating Construction Negotiating Construction Negotiating Construction
Risk Prioritization Tracking Metrics on Risk Across Projects Special Teams to Monitor and Mitigate Risk
100% 100% 100%
0% 0% 0%
Predesign Design Bidding/ Construction Post Predesign Design Bidding/ Construction Post Predesign Design Bidding/ Construction Post
Negotiating Construction Negotiating Construction Negotiating Construction
4_4_EM_MitigationStage_#02
Owners, GCs and trade contractors who use several risk Most Effective Risk Mitigation Strategies
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
mitigation strategies were asked to rank the ones they (According to all Respondents)
consider the most effective. The chart at right indicates Dodge Data & Analytics, 2017
Owners, GCs and trade contractors were asked to Top Benefits of Regular Meetings With Full
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
rank the top benefits they have experienced from each Project Team Focused on Risk (Ranked in the
of the mitigation strategies from the same list of nine Top Three by Respondents Who Consider This
benefits they ranked for the evaluation strategies (see Strategy Most Effective)
pages 25 to 29). They could select up to three responses, Dodge Data & Analytics, 2017
and the chart at right shows the benefits ranked in the Owners GCs Trade Contractors
top three for regular meetings with the full project team
Increased Reliability in Overall Project Performance
focused on risk.
The highest percentage of owners, GCs and trade 49%
contractors all rank increased reliability in overall 47%
project performance as one of their top three benefits. 40%
Knowing that projects will be on time, on budget, Maintain Original Intent for Level of Project Quality
achieve the expected quality and do so safely can be 42%
even more valuable to owners and contractors than
26%
achieving cost savings or shortening schedules on a
22%
few projects. Getting the whole project team evaluating
risk throughout the project lifecycle clearly contributes Improved Project Schedule
toward this goal. 28%
Other top benefits vary by the type of company. 35%
25%
Top Owner Benefits
Reduced Rework
The other benefit ranked in the top three by a high
percentage of owners (42%) is maintaining the original 27%
intent for level of project quality. In addition to revealing 20%
potential problems, regular meetings on risk by the 22%
full project team can ensure that the solutions do not Improved Project Safety
compromise the goals the project is trying to achieve,
22%
whether those are performance-related, aesthetic or deal
38%
with the functionality of spaces within the building. Active
owner engagement in these meetings is critical to deliver 37%
a project that best meets the owner’s desired goals. Reduced Cost of Construction
It is also notable that more than one quarter of 18%
owners rank improved project schedule (28%) and 20%
reduced rework (27%) as top three benefits, suggesting 35%
that they see projects running more efficiently due to
Increased Ability to Innovate
these meetings.
9%
Top GC Benefits 9%
Over one third of GCs rank improved project safety (38%) 19%
and improved project schedule (35%) among the top
Increased Client Satisfaction
three benefits they experience from full project team
meetings on risk. NA
■ Safety: Full project team meetings draw upon all the 28%
expertise across the team to identify and mitigate 22%
possible risks, which can clearly impact safety. In
addition, the Building a Safety Culture SmartMarket
Report revealed that larger companies often have
more resources for implementing safety practices than
4_6_EM_Mit_MeetingsBens_#03
SMR1116_DT3_EM_22-29_32-44.indd 37 2/14/17 9:53 PM
Evaluation and Mitigation Strategies for Risk
Top Benefits of Regular Meetings With Full Project Team Focused on Risk CONTINUED
smaller companies. Full project team meetings on risk Top Benefits of Regular Meetings With Full
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
may allow smaller companies to benefit from the more Project Team Focused on Risk (Ranked in the
formalized and extensive safety resources of larger Top Three by Respondents Who Consider This
companies on the project. Strategy Most Effective)
■ Schedule: In addition, shared expertise in regular Dodge Data & Analytics, 2017
More than half of large contractors (53%) find increased general building sector (24%) find reduced rework to be
reliability in overall project performance one of the top a top benefit than those in the transportation (17%) or
benefits of conducting regular project team meetings on water (16%) infrastructure sectors.
risk, compared with about one third of small contractors ■ Increased Client Satisfaction: More contractors working
(34%). However, the reasons for the increased reliability in the industrial sector (23%) consider this a top benefit
experienced by larger contractors may be evident in the than those in transportation or water infrastructure (16%
responses of smaller contractors, who are much more and 17%, respectively).
The chart at right shows the top benefits that owners, Top Benefits of Developing a Plan to Manage
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
GCs and trade contractors experience from developing Risk (Ranked in the Top Three by Respondents
a plan to manage risk. The chart shows all of the benefits Who Consider This Strategy Most Effective)
ranked in the top three by more than 20% of respondents. Dodge Data & Analytics, 2017
The chart at right represents the benefits that more Top Benefits of Contingency Plans
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
than 20% of owners, GCs and trade contractors ranked (Ranked in the Top Three by Respondents Who
among the top three that they receive from their use of Consider This Strategy Most Effective)
contingency plans. Dodge Data & Analytics, 2017
For the most part, respondents across project types tend (According to Large and Small Contractors)
to rank the benefits of contingency planning similarly. Dodge Data & Analytics, 2017
4_10_EM_Mit_ContigencyBensSize_#01
The level of use of three other mitigation strategies— Top Benefits of Mitigation Strategies
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
special teams to monitor and mitigate risk, tracking (Ranked in the Top Three by Respondents who
metrics on risk across projects and risk prioritization—is Consider This Strategy Most Effective)
relatively low, and each of these are also selected as the Dodge Data & Analytics, 2017
4_11_EM_Mit_OtherStrategiesBens_#01
SMR1116_DT3_EM_22-29_32-44.indd 42 2/14/17 9:53 PM
Evaluation and Mitigation Strategies for Risk CONTINUED
Owners, GCs and trade contractors were asked to across the team as critical to help achieve these benefits.
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
rank the top three benefits they achieve from the risk ■ Increase Reliability in Overall Project Performance:
evaluation and mitigation strategies that they consider There is consensus among owners and contractors
most effective. Pages 25 to 29 and pages 37 to 42 provide that regular meetings of the full project team on risk
a detailed evaluation of the top benefits associated with and expert input from internal resources help to
each strategy. The tables below and on the following achieve this benefit. However, owners also credit
page reorganize that data according to which strategy the formal brainstorming with the project team, while
highest percentage found yielded each benefit. contractors credit developing a plan to manage risk to
Previous charts and tables showed the split by owner, achieve this benefit.
GC and trade contractors. However, for the benefits ■ Reduce Cost of Construction: Owners and contractors
included in the table, GC and trade contractors tended to agree that formal brainstorming with the project
find the same three benefits effective, and, therefore, the team is an important strategy to reduce the cost of
table shows the general results for contractors instead of construction. Owners also find expert input, whether
providing separate data for GCs and trade contractors. external or internal, important, while contractors see
Agreement between owners and contractors is far this benefit also emerge from developing a plan to
less consistent. Contractors consistently find regular manage risk and conducting regular meetings of the
meetings of the full project team on risk to be a critical full project team on risk.
strategy, and frequently select formal brainstorming, ■ Improve Project Safety: Owners and contractors agree
which suggests that they see the ability to collaborate that formal brainstorming and developing a plan to
manage risk are critical strategies to improve project helpful in reducing rework. Owners also select formal
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
safety. Owners also see value in using checklists/forms/ brainstorming as a top strategy to achieve this goal,
risk registers to achieve this goal, while contractors while contractors consider developing a plan to manage
again consider conducting regular meetings of the full risk important.
project team on risk important. ■ Increased Ability to Innovate: There is general
■ Improve Project Schedule: This is one of the top agreement that formal brainstorming and expert input
benefits associated with contingency planning by (from both internal and external resources) help to
owners and contractors. Owners also select checklists/ increase the ability to innovate. Owners also note that
forms/risk registers and expert input from internal contingency planning is important as well.
resources as a top way to achieve this benefit. However, ■ Competitive Advantage: This benefit is not noted on
contractors favor the same methods they think yields the table because so few owners select it as the result of
many of the other benefits, formal brainstorming and any of these strategies. However, contractors agree that
regular meetings of the full project team on risk. formal brainstorming with the team, expert input from
■ Maintain Original Intent for Project Quality: Regular internal resources and developing a plan to manage risk
meetings of full project teams on risk and developing help them to achieve a competitive advantage.
a plan to manage risk are widely recognized by all ■ Improved Client Satisfaction: This benefit is not noted
respondents as a good approach to achieve this on the table because it was only asked of contractors. GC
benefit. Owners also see value in checklists/forms/risk and trade contractors agree that formal brainstorming,
registers, while contractors favor formal brainstorming, regular meetings of the full project team on risk and
an approach that is generally more collaborative. expert input from internal resources all help improve
■ Reduce Rework: Owners and contractors agree that client satisfaction. However, the highest percentage of
regular meetings of the full project team on risk trade contractors rate contingency planning as one of
is the top strategy for reducing rework. They also the top three strategies for improving client satisfaction,
both consider checklists/forms/risk registers to be while this strategy is far less important to GCs.
Owners, GCs and trade contractors were asked to rank Top Triggers Encouraging Greater Future
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
the top three triggers that would encourage them to Use of Risk Management Practices (Ranked in
increase their use of risk management practices. The the Top Three by Owners, GCs and Contractors)
chart at right reveals the triggers ranked in the top three Dodge Data & Analytics, 2017
infrastructure projects. All these findings suggest that Concerns About Trade
Contractor Default
increasing scrutiny, whether by the general public or by
14%
regulatory agencies, is common across the industry. 30%
6%
5-1-TO_Triggers_#01
SMR1116_DT4_TO_45-47.indd 45 2/14/17 9:54 PM
Triggers and Obstacles for Increased Use of Risk Management Practices
Top Triggers Encouraging Greater Future Use of Risk Management Practices conTInued
More Widely Available Information on Successful Risk • The increased cost of litigation is a concern for GCs
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
■
Strategies: This is also ranked in the top three triggers and especially trade contractors that will influence
by a higher percentage of owners than contractors. For their future adoption of more risk mitigation practices.
contractors, the wide range of projects they work on • The cost of available insurance coverage is a
and the other firms they work with can all be sources particular concern among trade contractors.
of strategies. However, many owners may be more There is no statistically significant difference
isolated from resources about successful risk strategies between small, midsize and large companies about
than contractors are. the influence of this trigger, which suggests that the
■ Concerns About Trade Contractor Default: This is cost of insurance matters to trade contractors, not
ranked as a top trigger by nearly one third (30%) of GCs, just because insurance may be a heavier burden for
but is less influential for owners or trade contractors. smaller companies, but because of specific aspects of
A recent study released by AGC on risk suggests that insurance related to the trades.
the risk of subcontractor default has not receded with
the recession but is still an ongoing concern,1 and this Variation by Type of Project
finding supports that conclusion. 59% of respondents doing industrial projects rank the
increased tendency to shift risk to contractors as a top
Around a quarter of owners, GCs or trade contractors
trigger for their future increased use of risk mitigation
ranked each of the remaining options in the chart as one
practices, more than those doing general building
of their top three triggers. Such a broad series of triggers
(45%), transportation infrastructure (50%) and water
suggests that many factors have at least a moderate
infrastructure (54%). Clearly, contractors in the industrial
influence and should be considered in efforts to drive
sector see themselves as bearing the burden of project
greater adoption of risk management practices in the
risk to a greater extent than those in other sectors.
construction industry.
A high percentage of those in water infrastructure
• Owners are seeking more basic knowledge on risk.
(31%) report that the increased cost of litigation is a
In addition to ranking more widely available information
trigger for their investment in risk mitigation. The high-
on successful risk mitigation strategies quite highly,
profile issues with water quality in Flint, Mich., and other
they are also influenced by increased perception of
areas have led to a general concern about liabilities
different types of risks.
related to water infrastructure that may be influencing
• Owners, GCs and trade contractors would all be
this finding.
influenced by access to better risk management
However, those in water infrastructure are influenced
tools. This may suggest an opportunity for technology
by concerns about trade contractor default far less than
companies to help address this issue.
those doing general building, industrial or transportation
• Owners and GCs in particular also believe that
infrastructure projects.
internal champions for risk management are
important, suggesting an important role for the
leadership at their companies to promote risk evaluation
and mitigation strategies.
1. Managing and Mitigating Risk in Today’s Construction Environment, AGc of America and FMI, 2016. http://lp.fminet.com/rs/583-MeF-388/images/ManagingandMitigatingRisk_Survey_FInAL.pdf
Owners, GCs and trade contractors were asked to Top Obstacles to Greater Use of Risk
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
rank the top three obstacles discouraging them from Management Practices (Ranked in the Top
increasing their use of risk management practices. The Three by Owners, GCs and Contractors)
chart at right reveals the obstacles ranked in the top three Dodge Data & Analytics, 2017
The same obstacles of concern to trade contractors, Tendency to Exclude Risk Factors
That Question Project Viability
including lack of cooperation/information flow between
23%
the design and construction teams, lack of cooperation/ 23%
information flow between their organizations and 15%
clients to address risk, and greater competition among Lack of Cooperation/Information Flow Between
bidders are the top issues. However, the gap is much Construction Industry Partner and
Client Firms to Address Risk
smaller for GCs than for trade contractors between 20%
those collaborative issues and the next series of issues 31%
that they consider obstacles. The next group includes 36%
several of the obstacles reported by owners, including Project Owner’s Culture Does Not
lack of awareness about the cost of risk and lack of Embrace Risk Management
5-2-TO_Obstacles_#01
Dodge Data & Analytics 47 www.construction.com SmartMarket Report
In-depth interviews with three surety experts reveal a positive outlook, albeit
MANAGING RISK IN THE CONSTRUCTION INDUSTRY
I
n the current post-recovery Haney says he is monitoring and [construction] activity picks up, it
environment, sureties see a merger and acquisition (M&A) will be even worse.”
mix of new challenges and activity to gauge market health. To help mitigate risk, Haney
opportunities for contractors. “[M&A activity] tends to come at warns that contractors should be
Dodge Data & Analytics conducted the end of a cycle,” he says. “That more selective about the projects
in-depth interviews with three usually means that corporate they pursue. “It can’t be all
leading experts in the surety earnings are running out and they are about growth—it has to focus on
industry to explore these recent looking for opportunities to grow.” profitability,” he adds. McVicker says
trends: Stephen Haney, president contractors need to be proactive
of Ace Surety and global surety Lack of Workforce and institute training programs
chief underwriting officer; David Surety experts agree that availability “instead of waiting on the traditional
McVicker, vice president of surety of skilled labor is the biggest associations to help them address
at Zurich North America; and challenge facing the industry today. these problems.” Mikolajewski
Timothy Mikolajewski, executive Haney notes that, after the recession, suggests that companies could look
vice president of global specialty and many workers retired or left the to leverage technology and lean
president of Liberty Mutual Surety. construction industry. “There wasn’t techniques like prefabrication to help
enough preparation done for how the reduce labor demand.
Outlook pipeline of [new] people would come
Surety experts are generally into the industry,” he says. Contractor Margins
optimistic about the overall In addition to field labor, Surety experts have seen limited
construction market in the near term Mikolajewski says he is also improvement in contractor margins
and cautious about the coming years. concerned about availability of since the recession, presenting
McVicker says contractors generally project management. “We’ve seen a potential risk. They estimate
have good backlogs through 2017, contractors unwilling to pursue margins on vertical building projects
but he has heard concerns about opportunities because they don’t generally range from 2.5% to 5%,
“2018 and beyond.” During the 2016 have an A or a B team available to while infrastructure and specialty
presidential election, candidates’ take advantage of them,” he says. work can range from 8% to 12%.
focus on the need to increase “It impacts contractors’ ability to “Margins have gone up, but not what
investment in infrastructure was a maximize their backlogs.” you’d expect from our standpoint,”
positive sign for future growth in All agree that shortages are a Mikolajewski says. He adds that
those sectors, he adds. problem across the United States, current margins could be healthy
Mikolajewski does not see any but some major metro areas could for contractors, “assuming they are
indicators of an approaching face greater challenges, such as New sustainable over a five- to seven-year
downturn, although he expects that York, Seattle and San Francisco. cycle, but if it’s a two-year cycle and
private investment will begin to wane They also agree that shortages are then [the market] drops, that poses a
while public spending increases. not likely to get worse in the coming big challenge to the industry.”
“There was five years of pent-up years, but improvements could be McVicker has seen “very
demand in the private sector,” he limited. “Optimistically, [shortages] incremental” improvement in
says. “That will have to start going probably stay the same in the next margins since the recession, but
down a little bit, even though it will three years,” Haney says. “[After] notes that clients are “being more
still be robust.” three years, if there is still a shortage disciplined on price. We’re hearing
that more frequently this year, which say. “When you push that type of “We don’t see it changing
MANAGING RISK IN THE CONSTRUCTION INDUSTRY
is a good sign for the industry.” risk, it favors the more sophisticated dramatically in the next three
Haney says he sees fewer contractors,” Haney says. “They years, Mikolajewski says. “It does
bidders on jobs, which could help will ultimately prevail in the cycle appear there’s a decent pipeline of
reduce downward pressure on because they… are better managers construction dollars.”
margins, but he still has not seen of risk.” However, Mikolajewski notes
much improvement. Mikolajewski agrees that that, given the thin margins on
Faced with tight margins, contractors who can better many projects, “even a small
Mikolajewski suggests that understand and control additional downturn in revenue could have an
contractors try to “control as much risks have improved opportunities in impact on subcontractors.”
of the project as you can. Identify the current market, adding that the Zurich was the first to provide
what the highest risk area of a project surety industry is “not afraid of risk subcontractor default insurance and
is and make sure you control the as long as we get compensated.” did experience some losses during
schedule and the budget for that.” the recession. McVicker says the
Haney says that contractors Risk on Large Projects company has since adjusted the
looking for better margins should McVicker notes that he has seen terms and pricing of the product and
move away from “hard bid” an increase in the size and number remains committed to providing
contracting and focus on more of “megaprojects” in the industry. subcontractor default coverage.
collaborative alternative delivery “From a surety standpoint, 10 years
methods to differentiate themselves ago a $500 million bond in the Risk Mitigation Trends
from the competition. industry was a big deal,” he says. Many surety experts see increased
“Now $500 million is almost an availability of in-house risk experts
Shifting Risk in afterthought in terms of project size.” and in-house attorneys, even among
Contractual Agreements When coupled with the trend medium and small contractors.
Surety experts have seen increased toward shifting risk away form “That’s one component to truly
efforts by owners to shift more risk owners, McVicker says this raises the understand contractually what risks
to contractors. This trend can present level of concern among sureties. “It’s you’re taking on,” Mikolajewski says.
both challenges and opportunities. hard to be right all the time,” he says. Surety experts agree that use
Haney says owners are shifting more “If you take that increased risk, it just of technology, such as building
risk on contractors “from design takes one or two [bad projects] for a information modeling, can help
through warranty. The contractors portfolio to have a misstep and hurt mitigate risk on projects by helping
are in a position where, if they are your operation,” he says. contractors better identify and avoid
hungry, they will accept the risk McVicker notes that dividing potential problems. Drones and use
because they want the work.” risk within a joint venture is a of robotics for automated tasks were
Mikolajewski sees more good mitigation strategy on large also noted as potential opportunities
owners favoring “sole-source projects. Owners can also split up to reduce risks.
responsibilities” in contracts. large projects into multiple jobs. Prefabrication can also improve
“Owners don’t want five different “Does it need to be a $1.5 billion quality, safety, speed, cost and
sources of responsibility for project, instead of three $500 million predictability on projects, although
five different segments of the projects?” he adds. experts had mixed outlooks on its
construction, the design or other adoption in the industry. McVicker
aspects,” he says, noting that more Subcontractor Default says it was a “hot trend several years
owners are looking for contractors to Although sureties experienced ago,” but he has seen less emphasis
take on those risks. some losses related to subcontractor on it recently. Haney says he sees
In light of this trend, a contractor’s default during the recession, experts steady adoption of prefabrication
ability to take on more risk creates see limited cause for concern in the and expects to see increased use of
competitive advantage, experts current environment. the technique in the coming years. n
demonstrated industry consensus that increased Risk (Owners, GCs and Trade Contractors in
collaboration reduces risk, including the impact of Agreement With Statement That Increased
collaborative risk evaluation and mitigation factors (see Collaboration Reduces Risk)
pages 25 and 37). In addition, owners, GCs and trade Dodge Data & Analytics, 2017
contractors were explicitly asked whether they agree Strongly Agree Neither Agree nor Disagree
with the statement that increased collaboration with Agree Disagree/Strongly Disagree
other members of the project team reduces the risk they
experience on their projects. Owners GCs Trade Contractors
Contractors and owners overwhelmingly agree with 6% 7% 4%
3% 2% 5%
this statement. In fact, 91% of owners, GCs and trade
contractors alike state that they agree, and, even more
tellingly, nearly half say that they strongly agree. There is 47% 44%
36% 55%
44% 47%
strong industry consensus on this point.
Comparisons with findings from the 2011 Mitigation
of Risk in Construction SmartMarket Report suggest
that industry recognition of the value of collaboration
may be growing. In 2011, owners and contractors in the
infrastructure sector were asked about the impact of
using integrated teams on risk. The results were quite 5-3Trends_Collaboration_Players
positive, with 77% who affirmed that using integrated
teams reduces risk, and only 17% reported that using
integrated teams had no impact on risk.
It is important to note that the question asked in
the current study and the one asked in 2011 are not
directly comparable, since creating an integrated team
is more formal than simply increasing collaboration.
However, the truly nominal percentage (4% across all
players) in the current study who neither agree nor
disagree that increased collaboration reduces risk
certainly suggests that the industry is increasingly
crediting collaboration with actively decreasing the
risks they face on their projects.
Research by Dodge Data & Analytics has repeatedly Impact of Using BIM on Risk (Owners, GCs
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
demonstrated that use of BIM reduces rework, reduces and Trade Contractors Agreement With Statement
RFIs and has a positive impact on project cost and That Using BIM Reduces Risk)
schedule, especially when it facilitates the transfer of Dodge Data & Analytics, 2017
reliable project information between team members. Strongly Agree Neither Agree nor Disagree
Owners, GCs and trade contractors who use BIM or Agree Disagree/Strongly Disagree
see BIM used on their projects were asked if they agree
that the use of BIM decreases risk on projects. In general, Owners GCs Trade Contractors
over half of respondents agree that BIM reduces risk on 8% 11%
their projects. However, approximately one quarter of 9%
16% 14% 13%
owners and one third of contractors also remain neutral
on the impact of BIM on risk. 25%
34% 32%
Owners currently are most likely to report that using 46% 41%
51%
BIM reduces risk. Two thirds of owners (67%) agree that
BIM decreases risk on their projects, compared with
57% of GCs and 54% of trade contractors. While this
finding may seem surprising, it is in line with findings
of other SmartMarket Reports that demonstrate owner
confidence in the impact of BIM on their projects, 5-4-Trends_BIM_Players_#01
including the 2015 Measuring the Impact of BIM on
Complex Buildings SmartMarket Report, in which 93% of
owners report that use of BIM improves the quality and
function of final design on their projects. It is possible
that owner involvement across the project lifecycle
contributes to the increased perception that BIM reduces Impact of Using BIM on Risk
project risk compared with contractors who may only see (Small and Large Contractors Agreement With
the benefits that emerge during construction. Statement That Using BIM Reduces Risk)
Dodge Data & Analytics, 2017
5-5-Trends_BIM_Size_#01
Owners, GCs and trade contractors were asked if they Impact of Lean Design and Construction
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
agree that the use of lean design and construction on Risk (Owners, GCs and Trade Contractors
approaches reduces risk on their projects. All responses in Agreement With Statement That Using Lean
are shown together in the chart at right since there were Design and Construction Methods Decrease Risk)
no significant differences by type of company. Dodge Data & Analytics, 2017
More than twice as many respondents agree that lean Strongly Agree
design and construction reduces risk (39%) than those Agree
who think it increases risk (16%). However, nearly half Neither Agree nor Disagree
(45%) take a neutral position, perhaps because of lack Disagree/Strongly Disagree
of familiarity with lean. In the 2013 Lean Construction
SmartMarket Report, 37% of a construction-industry
8%
representative panel of respondents were not familiar
16%
with any lean practices, and a much higher percentage
were not engaged in lean on their projects. It is still a
relatively small niche of contractors who truly practice 31%
lean construction, and that may contribute to the lack of
45%
a clear conception of the impact that lean practices can
have on project risk.
Large contractors (those with annual revenues of
$500 million or more) are more likely to find that lean
construction reduces risk, with 59% in agreement with
that stance, compared with 25% of small contractors
(those with annual revenues of less than $50 million). 5-6-Trends_Lean_#01
For the experience of a project supervisor with how
specific lean practices like pull planning helped him to
reduce the risk of negative impacts on project cost and
schedule, see pages 58 and 59.
Owners, GCs and trade contractors were asked if they Impact of Labor Scarcity on Risk (Owners,
MANAGING RISK IN THE CONSTRUCTION INDUSTRY DATA
agree that labor scarcity will increase risk on their GCs and Trade Contractors in Agreement With
projects, and most (81%) agree that they expect their Statement That Labor Scarcity Will Increase Risk
project risk to increase due to labor scarcity. on Their Projects)
Unlike their responses about the impact of the use Dodge Data & Analytics, 2017
of BIM or of lean design and construction practices,
Strongly Agree
only 10% are neutral about the impact. Even fewer (9%)
Agree
actively disagreed with the impact of labor scarcity on
Neither Agree nor Disagree
their projects.
Disagree/Strongly Disagree
With such a strong consensus, it is not surprising to
find that there are no significant variations of interest
based on contractor size, type of work or location of work. 9%
As the construction industry continues to gain
10%
strength, skilled labor is likely to be increasingly difficult 34%
to find, and this could impact critical project success
factors like cost, schedule and safety.
47%
5-6-Trends_Lean_#01
not productivity,” says Christian. or compounding a mistaken who’s responding and who’s not,
MANAGING RISK IN THE CONSTRUCTION INDUSTRY
“It’s reliability. We are massively assumption through multiple design and that creates an opportunity to
unreliable in our ability to deliver iterations are all but eliminated. It’s figure out why. Is it something to do
projects on time and on budget.” clear who received what when, when with the contract? Is it procedural?
Sutter’s reliability for its IPD- they responded and what they’re Are there human factors in play? The
contracted projects is 100 percent. working on. flow of information and quality of
Once a project is fully integrated engagement start to improve.
The Technology of into a single platform, from feasibility As technological support for
Collaboration study to, potentially, facilities collaboration reaches enterprise-
Digitization has made it possible management, the next step becomes wide adoption across all business
to visualize, measure, and monitor repeatability and improvement. With units and project partners, the
communication and collaboration in repeatability comes standardization, potential arises to deliver insights
new ways. This in turn is facilitating increased predictability, improved from big data. Not only can firms
more—and more effective— visibility of processes and the mine their own data from multiple
collaboration and integration. opportunity to incorporate lessons projects, but—leaping scale—
“The power of this is when every learned. “Even outside the purely platform providers can provide
stakeholder involved in delivering the analytical side of things,” says insights from data patterns across
project is using a single platform,” Venkatasubramanian, “there is the many thousands of projects they
says Karthik Venkatasubramanian, the opportunity to have better host, patterns that can represent
director of business operations relationships with the ecosystem.” best practices with regard to a wide
at Aconex. At that point, tactical For example, from working with range of risks. These may include
risks such as bouncing an email, the same people over a number sector-specific aspects of project
working off an old revision, getting of projects, benchmarks start to management, such as contract
left out of a communication loop, emerge from the data: teams know structure, design review process or
volume of RFIs. Big data patterns
may also suggest early warnings
for inchoate risks by, for example,
This is the graphic flagging terminology or behaviors
representation of a
project-wide collaboration identified as precursors to trouble
network for a large rail across the data set, and signalling
infrastructure development. project leaders to intervene in time to
prevent a risk materializing.
Circles represent different
organizations, with the size “We’re starting to ask if we can
representing the volume of contribute to preventing some of
collaboration and the color the biggest sources of risk,” says
representing performance
Venkatasubramanian, “things like
in turnaround times.
design risk and scope management,
Lines represent poor information flow and project
information flow between management risks. The answer
organizations. The
thickness shows the
is progressively, ‘yes.’” The risks
volume of information of not managing for the evolving
exchange, and the technology of collaboration are real,
color shows the relative both in terms of project functionality
turnaround time
for information. and competitive advantage. On the
credit: Aconex Limited
T
he AEC industry on Becoming Part Human risk factors primarily
the whole has been of the Solution revolve around the ways employees
slower than some of Preventing, detecting and use passwords and email. For
its clients to prioritize responding to cyber threats requires example, reusing passwords—
cybersecurity. For cyber criminals, AEC companies to address both the something nearly everyone does—
this makes poorly protected AEC technical and human aspects of risk. enables hackers to travel from a
firms a back door into infrastructure Technical aspects of cyber resilience single compromised system as far
or other client sectors. A cyber include protection for software as the password will take them.
attack on a contractor working on and hardware (such as firewalls, Emailing critical project information
the Australian Security Intelligence encryption and intrusion protection builds a culture of reliance on a
Organisation’s new headquarters, systems), protection for physical fundamentally unsecure format,
for example, allegedly gave hackers structures (such as limiting access to so that, when a phishing email
in China access to the building’s data centers) and clear instructions purportedly from an employer or
construction drawings, including for using external hard drives. a colleague asks for confidential
the locations of communications The number of organizations information, it doesn’t necessarily
cabling, servers and security involved in construction projects, seem suspicious.
systems. A password lifted from and the sheer volume of information As a basic best practice, firms
an employee of a major U.S. exchanged on large projects, creates should plan for a cyber attack
retailer’s HVAC subcontractor, a cybersecurity risk specific to the before it happens: create an incident
using emailed malware, enabled AEC industry. “No matter how many response plan; designate leadership,
hackers to steal credit- and debit- walls and moats a firm builds,” says procedures and communication
card information from point-of-sale David Chatterton, chief information protocols; and provide training that
devices nationwide. officer at Aconex, “the drawbridge is includes all employees. For firms
AEC firms have an important down to collaborators,” putting each wanting to assess the security of
role to play in reducing the risks firm’s system at the mercy of their their systems, Chatterton suggests a
of cyber attacks—to critical collaborators’ security practices. On few questions to start with:
infrastructure, across the full collaboration platforms, by contrast, • Who can access my information?
spectrum of client sectors, and, “the wall protects the project itself,” And who is accessing
not least, to themselves. In addition says Chatterton. Tracking who has my information?
to cyber attacks that cause damage access to what, and when, becomes • Who owns this system?
in the physical world, ransomware simplified, and regular upgrades, • Where is it located?
denying access to data can disrupt testing and third-party audits • How is it protected?
business; data theft can expose make for higher security than the • Who retains the information
employees’ health or financial participating firms are generally able (when it’s deleted, is it
information, compromise their to provide for themselves. really deleted)?
security and facilitate fraud; and The technical aspects of security • Are those people who they
interference with construction data are only part of the solution, claim to be?
can disrupt operations, damage however. Maintaining a system’s “The AEC industry does
data, servers and equipment, and security requires building a culture of a fantastic job of making sure
impair jobsite safety. cyber awareness that encompasses that safety is everyone’s
the entire organization: “Your biggest responsibility,” he adds.
risk is your people,” says Chatterton. “Security is exactly the same.”
Critical Infrastructure
The critical infrastructure sector is
particularly important to protect
from cyber attack, and contractor
security can be a crucial element of
defense. For critical infrastructure,
such as water and energy utilities,
the consequences of a cyber attack
can be especially acute, threatening
the economy, public safety and
national defense. Incidents such
as the 2006 Pennsylvania Water
Company hack, Florida’s 2012 Key
Largo Wastewater Treatment District
hack and the Tijuana River sewage
spill, also in 2012, are evidence of
the water sector’s vulnerability.
In the energy sector, the U.S.
Department of Homeland Security’s
Cybersecurity Emergency Response
Team responded to 295 energy
sector cyber incidents in 2015, a 20%
increase over 2014; and globally, 80
percent of oil and gas companies
saw an increase in the number of
successful cyber attacks.
Senior Airman Holly Durkin, a cybersecurity technician for the 129th Communications
“Energy leaders are increasingly Flight, Moffett Federal Airfield, Calif., replaces an uninterruptible power supply
recognizing the importance of (UPS) from a network server Aug. 4, 2010. The UPS serves as backup power supply
viewing cyber attacks as a core for network servers in case of main power loss.
threat to business continuity,” says a
recent report on cybersecurity from networks were purpose-built, and USB drive to upload software to the
the World Energy Council, “and the isolated for security. Increasingly, system. In the Ukraine, the world’s
need to create an organization-wide however, ICS are built using off- first publicly acknowledged hacker-
cyber awareness culture that extends the-shelf components (essentially caused power outage began when
beyond traditional IT departments.” full-powered computing elements) hackers gained access through
Digitization of critical utilities which, when connected to the a spear-phishing campaign to
through smart grids, smart devices Internet, become vulnerable to the company employees. (Spear-
and the growing Internet of things same types of threats affecting any phishing uses legitimate-looking
credit: U.S. Air Force photo by Tech. Sgt. Ray Aquino
may create opportunities for other connected device. emails to dupe recipients into
more efficient operations and Attacks can come from many disclosing confidential information.)
maintenance, but digitization is quarters, but contractors who are An attack on a company operating
also expanding utilities’ surface for not appropriately shielded from more than 50 power plants in
attack. Historically, industrial control cyber attacks contribute to the Canada and the U.S. began when
systems (ICS) for water treatment risk. U.S. power utility’s ICS was hackers were able to steal critical
facilities, nuclear power stations, infected with a virus when a third- power plant designs and system
electricity grids and transportation party technician used an infected passwords from a contractor. n
Neal Ernest
General Superintendent, Balfour Beatty Construction
A general superintendent and lean construction advocate, Neal
has led complex, iconic projects: the Dr. Phillips Center for the
MANAGING RISK IN THE CONSTRUCTION INDUSTRY
What are the primary risks lean “[How to develop a basis of trust with subcontractors]
practices are helping you to
mitigate on large projects?
It’s long-term development of the relationship.
We’re doing jobs 10, 12, 15 months It’s treating contractors as partners and not a
faster than we would have done the commodity. And the third thing is inviting them
same project eight or 10 years ago. to be a part of the solution, not just dictating.”
That doesn’t come without inherent
risk. You have less time to coordinate decades. That’s the foundation. We is inviting them to be a part of the
the subcontract work, and there’s have developed both company and solution, not just dictating.
more of an overlap with the design individual relationships.
phase—because the pressure on Another way is that we recognize Can you illustrate that with an
the designers in our industry is just that our subcontractors are in this example of a problem solved?
as intense as it is on the contractor. business for profit, just like we are. On a recent hospitality project,
So we’re trying to reduce the risks We’re just filling a different role on we identified the biggest risk on
around delivering projects faster, the project, ultimately to bring to the project was [the length of time
and I think the only way to get there fruition the dream that our client needed for] completing the concrete.
is through some truly effective lean has for it. So we don’t make it a So we engaged early with all the
planning practices. transactional relationship where major concrete frame subcontractors
we’re just taking the lowest number in the market, and said, “Look, we
Where do you start? and putting that guy on the job. We need to know what you think it’ll
We’re construction managers, and want to make sure that the contractor take.” Ultimately we partnered with a
we’re good at what we do, but we who has the best strategy, who contractor who was able to take two
succeed on the capability of our engages with us early in a pre- and a half months out of our proposal
trade partners who actually perform construction effort, and who puts schedule for the project without
the work in the field. You have to their best people on the project has any additional cost. We could not
develop a basis of trust—from the an opportunity to have a successful have done that if we had just been
highest levels within the organization project where they can help control looking for the low ball because they
all the way down to the field level— the outcome. would have been looking to protect
so that the trade contractors and And then, at the project level, themselves and their schedule.
our staff are very quickly and easily we meet a lot. The focus of every But these guys knew us, we had
aligned around the driving factors of meeting is action-oriented, where been successful together on other
the project, and what we need to do we’re asking subcontractors for their projects, and so they trusted us
together to achieve those goals. suggestions and advice to get where enough to come in and have an open
we need to go together. We don’t conversation about it.
Developing a basis of trust is a know everything, and we’re very
key idea. How do you achieve it? open about the fact that they’re a We’ve identified a relationship of
You don’t do it sitting across the table critical part of the solution. trust and communication with
at a meeting when you’re reviewing To summarize: It’s long-term the subcontractors. What’s next?
a bid with a subcontractor, [although] development of the relationship. It’s Now we really need to make sure
you can form a basis then. We’ve treating contractors as partners and the appropriate plan for building
been successful in these markets for not a commodity. And the third thing the job is in place. We begin with
subcontractor, they not only have backed up. When that happened, we ahead, helping to solve things
some accountability to each other, had to decide as a group. (If we’re before they happen. n
This study was conducted by Dodge To be eligible to participate in the SIZE OF LARGEST PROJECT
MANAGING RISK IN THE CONSTRUCTION INDUSTRY
Data & Analytics (DD&A) to explore study, all respondents had to work Where meaningful, significant
trends and strategies of construction for companies located in the U.S. differences are occasionally reported
risk management. and had to be involved in evaluating based on the size of the largest
The research was administered or managing risk for their firm’s project they were involved with in the
online between July 13 and August construction projects. They also past five years.
18, 2016. Survey sample was drawn were required to have worked on a • 83 with largest project totalling
from the DD&A Contractor Panel, the project with a minimum valuation less than $10 million
Dodge Database, contact lists from of $5 million or higher in the last • 94 with largest project totalling
funding partners Alliant, e-Builder five years. Their firms could work between $10 million and less than
and Procore, and association in a wide range of project sectors, $20 million
memberships. Partnering including commercial, institutional, • 330 with largest project totalling
associations or groups included: industrial, multifamily, single $20 million or more
• Associated Builders and family or non-building (horizontal
PROJECT TYPE
Contractors (ABC) infrastructure), although firms
While these categories include
• Construction Financial with more than 50% single-family
significant overlap, with firms
Management Association (CFMA) residential work were excluded.
engaged in multiple categories,
• Construction Owners Association
MARGIN OF ERROR notable differences still emerge
of America (COAA)
The margin of error based on a 95% when comparing the responses of
• Construction Users
confidence interval is +/- 4.3% for the those who reported doing work in the
Roundtable (CURT)
total respondent group of 507. following sectors:
• International Risk Management
• General Building: 455
Institute (IRMI)
• JB Knowledge
Additional Analytical • Industrial: 270
ACKNOWLEDGEMENTS:
The authors wish to thank our premier partner Alliant, specifically Denise Wynn
and Karen Walsh. Without their vision and dedication, this report would not have
been possible.
Dodge Data & Analytics
Main Website : construction.com We also thank our contributing partners, e-Builder and Procore, for recognizing
Dodge : construction.com/dodge the value of this research and supporting it, not only through funding but through
Research & Analytics : distribution of the survey.
construction.com/dodge/
We would like to thank all of our research partners for sharing the survey broadly
dodge-market-research.asp
across the industry.The list includes Associated Builders and Contractors, Construction
Sweets : sweets.com
Financial Management Association, Construction Owners Association of America,
SmartMarket Reports :
analyticsstore.construction.com Construction Users Roundtable, International Risk Management Institute, Inc., JB
Knowledge, the Large Owners Group, National Electrical Contractors Association, and
Sheet Metal and Air Conditioning Contractors’ National Association.Their participation
was not only essential, but also demonstrates the degree to which many industry
players, from owners to general contractors to trade contractors, share an interest in
improving risk mitigation in the industry.
Finally, we would like to thank all the experts who participated in our articles and case
studies for sharing their experience, expertise and images with us to help the industry.
Alliant
www.alliant.com
SmartMarket Report
www.construction.com