How To Avoid The 10 Biggest Risks Facing Contractors

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In a previous post, we considered the 10 biggest construction risks facing contractors. However many of these risks can be avoided. In this post, I suggest ways that contractors can mitigate and avoid these risks.





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1. Non-payment can be avoided by:
   1. Contractors doing research on their prospective clients before pricing the project. This research could inform the contractor if the client has a history of not paying their contractors, or of disputing invoices and variation claims.
   2. During the execution of the project continually updating the client of the expected final project cost. This includes timeously notifying clients of variation claims.
   3. Always being aware of rumours or stories that could indicate the client may be in financial trouble.
   4. Submitting invoices in a timely manner, ensuring that they are in the correct format and have all the required supporting documentation. Don’t give clients any reason to avoid paying invoices.
   5. Immediately following up late payment with the client. In fact, better still remind the client ahead of when the payment is due that you are expecting payment.
   6. Working with the client to minimise variations to the project. Variations invariably add to the project costs and they could result in the client exceeding their project budget and running out of money.
2. Avoid losing money on projects by:
   1. Accurately pricing the project.
   2. Minimising waste.
   3. Maximising productivity.
   4. Ensuring that all work is invoiced and that items which are different to what is in the project document are claimed as variations.
   5. Making sure the project is completed on time, or even ahead of time. Any delays not of your making may be claimable as a variation.
   6. Ensuring that the quality of all work and materials is acceptable and meets the specifications.
3. Improve cash flow on your projects by:
   1. Submitting invoices on time and following up with the client to make sure that the payment will be received on time.
   2. Immediately submitting variation claims when changes are noticed. The variation claims must have all the supporting documentation and back-up. Make every effort to get the client to agree on the claim as soon as possible. Extended legal battles and disputes delays payment which will negatively impact cash flow.
   3. When pricing the project understand the payment terms and conditions. If possible try and get some of these terms and conditions altered to make them less onerous.
   4. Check the project cash flow before submitting your price. If the cash flow will be negative you could consider not pricing the project, or looking at alternatives to improve the cash flow.
4. Finishing projects on time. To ensure the project is finished on time:
   1. Check that the construction schedule is achievable and is correct, taking into account all restrictions on the project as well as the expected weather conditions.
   2. Don’t price projects where the construction schedule is impossible.
   3. Ensure that the project has the required resources and skills.
   4. The project team must understand the schedule and work to it.
   5. Regularly update progress against the construction schedule. When slippage occurs understand the reasons and immediately implement steps to prevent further slippage and to catch up the lost time.
5. Steps can be taken to negate some of the impacts of adverse weather on construction. This includes:
   1. Designing the construction schedule so that tasks most impacted by poor weather happen when the weather should be at its best. This includes trying to close up buildings ahead of the onset of poor weather and avoiding executing earthmoving tasks in the rainy season.
   2. Constructing earth berms and drains to prevent the ingress of stormwater into the work areas.
   3. Being storm ready so that incomplete work and material deliveries can be quickly protected and tied down.
   4. Possibly designing and scheduling work so that sections can be built in modules in protected areas or off-site.
   5. Avoid projects that have to be constructed at the worst time of the year.
6. Safety. It is important that all project employees are committed to working safely and eliminating safety risks. Safety can be improved by:
   1. Ensuring all employees have the required skills.
   2. Keeping the work areas neat and tidy.
   3. All project workers undergoing a proper project induction before starting work on the project so that they understand the project rules and hazards.
7. Good quality is achieved by:
   1. Having workers with the right skills and training.
   2. Buying materials from reputable suppliers and not basing decisions on price alone.
   3. Putting in place continuous checking to eliminate errors.
   4. Using subcontractors and suppliers who have the resources and skills to deliver the required quality.
   5. Providing the right equipment.
   6. Instilling pride amongst the project team to deliver a quality job.
   7. Never sacrificing quality for speed or price.
8. Having the right resources for a project includes:
   1. Continuously training so your team has the right skills.
   2. Planning projects so there are sufficient resources with the right skills.
   3. Not pricing projects when you don’t have the right resources and experience and when you’ll have difficulty finding them.
9. Good project management. Poor management can lead to poor quality, poor organisation on the project resulting in low productivities and mistakes, accidents, low morale of the team causing people to leave or to be less productive, poor financial controls which could result in overpayments, theft and failure to invoice for completed work or to submit variation claims.
10. Avoiding Theft Theft is a major concern on construction projects. Not only is the direct loss of the item, or money, but there are indirect losses which include:
    1. When equipment, tools and materials are stolen (even when parts of equipment are stolen like batteries) then work often can’t continue until the item is replaced or repaired. This causes loss in productivity of workers and delays to the project.
    2. Sometimes when an item is stolen damage is caused to other items creating additional costs to repair the items.
    3. Disruption to cash flow.

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Reducing construction project risks

Construction projects are inherently risky. The weather won’t be perfect, changes will occur, everything won’t be exactly as you expected it to be, suppliers and subcontractors will let you down. Obviously contractors can’t have a risk free project. Risks vary from project to project, both in the type and the quantum of the risk. Some projects can be inordinately risky, especially when the client and the contract document place undue risks on the contractor. Some projects are best avoided. Even the biggest and best contractors have been undone by one bad project.
But, by understanding the risks on projects you can take action to limit and protect against the risk. In my next post I discuss simple actions that contractors can take to reduce and even eliminate many of these risks.
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What do you think are the big risks that contractors face?
Have some of these risks caused your project pain

​This article was first published on the ClockShark website. 
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