At the 2015 IRMI Construction Risk Conference, the CEOs of two construction firms discussed how they view risk, the role of risk management and their roles in establishing risk management expectations in their organizations. The speakers were Charles Bacon III (Chairman & CEO of Limbach Facility Services LLC) and Thomas Gilbane Jr (Chairman and CEO of Gilbane, Inc). William McIntyre moderated the discussion. The session was presented in question / answer interview format.
What are the prospects for the commercial and residential construction markets in 2016?
- The prospects for 2016 are very strong. There is a healthy pipeline of projects right now. However, they are cautious about 2017 and 2018 due to pending Fed interest rate hikes.
- Since there is ample work right now, contractors can be more selective on who they work with. There is no reason to work with those who are not good partners and don’t pay their bills timely. Subcontractors are also being more selective on who they work with.
Do you think subcontractor defaults will increase in the future?
- Most of the defaults they are seeing is due to performance vs financial issues. This is something you always have to keep a close eye on. It is important to have a good pre-qualifying process to properly review your subcontractors.
What is the biggest challenge for the construction industry now and into the future?
- Talent. So many people left the construction industry during the recession there is a shortage of talent now. Leadership development is also a challenge as there is a need to develop your next generation of managers. Retaining and developing your people is key to the construction business.
- Rate of change. From a technology perspective much is changing and this is happening rapidly. Pushing this down to the workforce is a challenge.
- Financial stability. The strength of the construction companies and the impact that the general economy and interest rates has on the construction business.
How do you integrate the risk management process into your business operations?
- Risk management is an essential component in the construction operation. This includes which brokers and carriers you partner with to provide the coverage you need. Risk management is also very involved in the contract review project for any project being considered.
- Risk management is very involved in the subcontractor pre-qualification process to ensure the subcontractors are financially strong and also that they have a good safety record.
- They have a formal risk report that is communicated to their board of directors every month.
- You have to be mindful of the differences between states when it comes to risk management regulations and insurance requirements.
What changes in contractor administration have you made in your company?
- Supply and demand has changed the dynamic in these negotiations as there are less good contractors out there. Because of this, they are getting more push-back from contractors on terms.
- The executive committee and board of directors are more involved in reviewing the contracts than they were previously.
- Most of the people who have unreasonable contract terms are probably not good people to work with. It’s not all about volume. You need to make sure you are working with quality partners.
What safety and quality control issues are arising from the changing dynamics of the workforce?
- Their analysis showed that it was not the newer employees driving injury claims but instead it was the long-term employees.
- When times were tight a few years ago they had to let some key people go. That really stressed their internal safety and quality control. This is something they are working on rebuilding.
- They have created new safety committees with more “boots than suits”. You need to involve the workers in any loss prevention initiatives.
What are the best suggestions you have to increase effectiveness of your safety program?
- Leadership at the top of the company. The leadership needs to fully support safety initiatives.
- Employee engagement. The workforce has to understand the importance of safety and their role in having a safe workplace.
- You have to focus on safety, not just keeping things on schedule. A safe worksite is a good worksite.
- 50% of their accidents are happening on the first 30 days on the job site. There is a need to increase the focus around safety issues starting from day one on the job.
- When you visit your job sites, dress for the part. Wear work boots and jeans. Fit in. If you visit your job sites in a suit it sends the wrong message.
- Safety ultimately impacts quality.
What recommendations would you give to get other company CEOs to buy in on safety efforts?
- Safety needs to be part of the cultural to be effective. This has to start at the top.
- A safer workplace will ultimately be more profitable. The numbers are very convincing.
- A safer employer will attract and retain better workers. Contractors who are unsafe get a reputation and people do not want to work for them or with them.