Construction risk advice critical amidst continued supply chain issues

Advising construction clients around risk management strategies and new exposures is critical as the industry continues to struggle through prolonged supply chain disruptions, the soaring costs of building materials and labour shortages amplified by the COVID-19 pandemic, a risk advisor said.

“Our clients are not out of the woods yet,” said Angela McKerlich, surety and construction risk advisor with CapriCMW insurance, a member of the Canadian Broker Network.

“While we’re still seeing project delays and increased costs of most materials, the issues aren’t purely pandemic-driven,” McKerlich, who is a past chairwoman of the B.C. Construction Association and based in Kelowna, told Canadian Underwriter.

“It’s more important than ever to talk about mitigating emerging risk. One of the most recent client examples I came across is a government project that was delayed in the Northwest Territories due to a cyberattack at a supplier in Texas.”

Brokers need to help clients understand their specific exposures and risk management strategies, she said.

Industry woes continue

The construction industry was one of the hardest hit by COVID-19, causing major disruptions in the global supply chain and contributing to record-high price surges in building materials.

According to a recent Supply Chain Canada survey, 70% of Canadian supply chain professionals noted their organizations experienced supply chain disruptions as a direct result of COVID-19 implications.

Between May 2020 and May 2021, reconstruction costs increased by 6.4% year-over-year in all provinces, a Q2 research report by Opta Information Intelligence revealed, with significant increases most evident in the Western provinces.

While lumber prices have plummeted in recent weeks — after skyrocketing to unprecedented highs earlier this year — industry experts say increased demand and limited supply issues will keep the cost of softwood lumber above pre-pandemic levels for the foreseeable future.

Labour shortages in the construction sector in particular continue, with Statistics Canada reporting in March the industry’s vacancy rate was 5.8%, or 58,300 jobs.

“It’s still an unprecedented situation, with uncertain delivery times, increased costs of materials — especially if clients try to source locally or get it faster from a different supplier — and some projects are delayed or shelved,” McKerlich said. “In B.C., specifically, the industry has continued to deal with severe weather and fire events, more often increasing the demand for rebuilding and repair projects. And with COVID-19 cases on the rise, the impact on exposures and how to mitigate risk remain top of mind.”

What to tell clients

From a risk management perspective, McKerlich said clients should be having more collaborative discussions in advance of projects with their entire project team around how to manage rising costs, project interruptions, late penalties and associated labour risks. “This can all have an impact on a contractor’s bottom line and their ability to perform successfully,” she said.

“We’ve seen a lot of clients caught in the middle where projects are delayed, people are worried about late penalties and dealing with managing labour issues on top of everything,” McKerlich said. “That’s why it’s important to have these discussions in advance: pre-tender vs. post-tender. Do your clients’ teams know what will and should happen if there’s a delay or if the whole team contracts COVID, for example? How well do they understand and know their construction contract?”

McKerlich also advises her clients to, when possible, adjust budgets to account for various contract risks, and to lock in supplier pricing in advance of tendering.

 

Feature image by iStock.com/Juanmonino