Competition over fewer opportunities in the construction industry, particularly in the local market has driven bids to record lows. Pricing for construction services in 2009 and thus far in 2010 resulted in owners getting more bang for their construction buck. However the circumstance presents a dilemma for contractors participating in this competitive environment. Many contractors that are the successful low bidder find that they must deal with increased risk, given that similar contractors, vendors and suppliers that have been included in the successful bid team, and they face the same industry belt tightening with smaller margins. They all must deal with issues such as performance by unfamiliar subcontractors, cash flow, timely billing and pay requests approval, focused field supervision and management, greater quality expectations, and increased bonding and insurance requirements, just to name a few. General contractors are transferring much of this risk to subcontractors due in part to more rigorous owner demands, and to mitigate its exposure.

To manage your risk, regardless of your role in the construction contracting process, you must begin by reading the contract. In my experience this is often an overlooked, under appreciated task, but certainly one of the most important things that a contractor must do as part of any risk management plan. And as you read, you must understand the contents of the contract - the who, what, where, why, when, and how, and everything in between, to be able to properly define your role in the process. And no matter how eager you may be to get a contract, never, ever sign one until you fully understand all aspects of it and you are fully prepared to proceed, even knowing the risk involved. If you find that you are uncomfortable and perhaps not fully knowledgeable on the subject or on any contractual matter, always seek the assistance of a professional as needed.

Risk management is not easily understood, and often times not clearly defined. It is however an important aspect of the contracting industry that you must address if you plan to be successful and survive, especially in this time of economic recovery.

Michael Bell