Construction risk management: With labor shortages, the devil really IS in the details

By Higginbotham on July 25 , 2016


There’s good news in the construction industry these days. Business is booming across the country as the post-recession comeback continues. There’s a growing demand for buildings, roads and homes. Average hourly wages are up. Unemployment is at a 16-year low, with more than 200,000 jobs created in 2014 according to the ADP Research Institute. And the Bureau of Labor Statistics (BLS) reports that construction growth leads all other sectors of the economy.

The only thing missing from the equation? The construction workers!

A 2015 survey by the Associated General Contractors of America revealed that almost 80 percent of construction businesses are having a hard time finding qualified skilled laborers. Unfilled job openings in the construction industry have been on the rise since 2009. How can it be, with the industry bouncing back and offering plenty of steady, good paying jobs?

The fact is, several factors are contributing to a labor shortage for many construction companies. Expanding job opportunities in other parts of the economy are making it harder for contractors to find experienced workers. And many skilled construction workers who lost their jobs in the recession simply moved on to other industries and haven’t come back. On top of that, many high schools around the country have phased out shop classes, and parents have increasingly been steering their kids toward four-year colleges and white-collar careers. That means fewer young workers are considering construction as a career option.

The labor shortage isn’t a nationwide crisis though. Areas of the country where demand for new homes is still weak are reporting little or no worker shortages. But here in Texas and in the South, the industry has been particularly hard hit, since we have the highest rate of single-family home building in the nation.

With increasing work and a shortage of workers, it’s easy to make mistakes – and it’s more important than ever to keep up with details such as contract review and certificate validation.

There’s a lot riding on the details of your construction projects and a thousand ways you can get burned. The contract review process is vital. Regardless of your worker situation, you have to have your ducks in a row with all the pieces in place, including:

  • The contract. Always require written contracts with all subcontractors that include indemnification and hold harmless language, as well as safety language. Make sure the contract spells out the minimum insurance limits and coverages to be provided by your subcontractors.
  • Certificates of Insurance. Require certificates of insurance from all subcontractors, stating that coverage won’t be cancelled without a 30-day written notice. Endorsement forms should be included with the certificates of insurance.
  • Additional insured status. Make sure there is a written requirement that your subcontractor names you as an additional insured on the subcontractor's policy. That way, your policy limits remain available for you in the event of a loss, and those limits are protected from being exhausted, allowing you to meet future contract coverage requirements. In the event of a lawsuit, the sub’s insurance carrier will be required to provide defense, outside or in addition to the limit of liability, and subrogation can be avoided. You also might get additional coverage as an additional insured under your sub’s policy.

Let a professional sweat the details.

Building activity and labor shortages are both expected to increase in the coming years, so the chances of overlooking crucial details will only increase. That’s why you need a professional construction risk management partner to make sure you’re covering all the bases.

When you partner with the experts at Higginbotham for your contract review process, you’ll get the tools you need to make smart decisions about managing your contractual risks. And that could save you a bundle. 

Related: Construction contract risk management: Texas anti-indemnity laws


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