I just got back from our local Associated General Contractors (AGC) winter membership meeting and would like to share some thoughts. Bob Barker and our local AGC team lined up two excellent presenters. The latter speaker, Ryan Howsom, focused his presentation around a survey commissioned by AGC’s Surety Bonding and Risk Management Forum in collaboration with FMI. The presentation was about contractors’ perceptions of risk and explored how risk is being managed in today’s business environment. The results were interesting.
One risk discussed caught my attention immediately: construction contract administration and risk transfer. We all devote significant resources in battling the complexity of certificates of insurance, and rightly so, as there is inherent risk in this process. Ryan indicated that most general contractors have procedures to track contract administration and risk transfer. However, if a big claim occurs and the procedures are not followed, the contractor could face a grave financial challenge.
As fate would have it, we were just completing an audit of contract administration procedures for one of our large general contractor partners. After reviewing a variety of jobs, we built a tool to quantify the effectiveness of their contract administration process.
Our partner can now improve their contract administration performance and identify training opportunities within their staff. Ryan suggested that this could also tie into HR and compensation plan design, by rewarding those responsible for performing those mundane, but essential, contract administration tasks.
Most importantly, the tool can measure the risk reduction of hitting what I call a “reverse home run”. As Ryan said, in an environment of heady recovery, it is not famine that can sink a contractor, but gluttony. To borrow a sports metaphor, we are all just trying to improve our game, and by having the right equipment you increase your probability of success.