Optimizing site safety can ease construction industry’s looming profit crunch

Today, even as contractors in the US commercial and residential construction markets seek to take advantage of major opportunities, they are simultaneously coping with multiple market challenges, many of them precipitated by lingering effects from the COVID-19 pandemic. On the opportunity side, construction starts remain at or near all-time highs, with estimated construction spending in August 2021 up 8.9 percent year over year¹. There are few signs of slowing in the market, even with the increasing cost of labor and materials. And while the size of the proposed federal infrastructure package still remains under debate, the growth in US infrastructure spending will likely continue to push markets forward.

However, in the meantime, supply chain challenges in the construction industry are leading not just to materials shortages but to increased materials costs. As Fitch Ratings recently noted, “The disruption is causing production delays, which have been exacerbated by ongoing port congestion, pressuring sales volumes and leading to higher raw materials and transportation costs.”²

Labor costs also continue to increase as the US comes out of the pandemic with a general scarcity of available talent. One construction trade group recently reported that 89 percent of contractors are having a hard time finding craft workers.³ Meanwhile, labor costs also continue to increase in the sector.⁴

While contractors naturally are seeking to pass unavoidable cost increases through to owners and developers, these market challenges are pressuring their profit margins even at a time of great opportunity. With material and labor shortages and rising costs not expected to be alleviated anytime soon, much of the burden is falling on contractors to control the factors they can control—and find cost-saving measures wherever they can.

One potential opportunity for contractors to hold down or even reduce costs lies in the area of risk management. All construction projects can potentially benefit from instituting the latest best practices in managing job sites for optimized safety. Here are a few specific suggestions from Markel’s Risk Solution Services:

• Plan for safety.

  Every construction project has potential safety hazards, and taking the necessary time up front to identify those hazards and develop the right controls can save time and money. In order to have the tools, materials, and people required to get the job done in a safe and efficient manner, a job-specific safety plan should be developed in close coordination with subcontractors. Making smart purchases of safety equipment, providing required safety training, and communicating safety expectations with employees and subcontractors up front, are all products of effective upfront safety planning; and they offer substantial promise for limiting both the downtime and the delays associated with addressing safety hazards after the fact.

• Build a culture of safety.

  Some of the safest, most efficient and successful construction projects have resulted from an overall safety culture established up front by the general contractor. A mindset of safety can be built among both employees and subcontractors by rewarding safe behaviors and addressing unsafe behaviors in a timely manner. Holding everyone accountable for safety also sets the expectation that safety outcomes are integral to the project’s overall success.

• Engage subcontractors.

  Subcontractors are the lifeblood of most construction projects, and each trade has its own unique safety hazards. When it comes to project safety, subcontractors can get more “skin in the game” by being required to develop their own safety plans specific to their exposures. Often overlooked are the benefits of involving subcontractors in regular, project-wide safety meetings and of establishing open lines of communication to address concerns as they arise.

• Look beyond traditional safety.

  Injured workers aren’t the only reason safety- related concerns can disrupt or delay construction. Other risk exposures to a job site, such as intruders, fires, or weather, can also result in significant delays. To prevent or reduce the amount of downtime in the event a situation occurs, site security, fire prevention measures, and weather preparedness should all be included in the overall safety plan for the site.

• Quality counts.

  A strong safety culture goes hand in hand with high expectations for quality. Few things can frustrate contractors and their customers more than poor-quality work that results in time-consuming delays and costly re-work or repairs, often executed under significant time pressure. A formal quality control plan that goes above and beyond required inspections and sign-off on completed work should include such measures as informal “pre-inspections” as well as advance validation of the qualifications of the trade workers engaged for each component of the project.

In summary, there is an opportunity to improve construction profitability by managing safe, efficient, incident-free job sites. Minimizing incidents and claims can yield multiple potential benefits, including:

• Reduced downtime, translating to increased production time
• Less need for repairs, re-work or re-sourcing materials at higher costs
• Less money paid out for insurance deductibles
• Less administrative time spent on managing incidents and claims

All of these potential benefits allow management to spend more of its time and attention on managing the project and identifying future opportunities to grow the business.

¹ US Census Bureau, “Monthly Construction Spending, August 2021,” Oct. 1, 2021, census.gov/construction/c30/pdf/release.pdf.
² Fitch Ratings, “Ongoing Supply-Chain Issues to Constrain US Building Product Sales,” Sept. 17, 2021, fitchratings.com/research/corporate-finance/ongoing-supply-chain-issues-to-constrain-us-building product-sales-17-09-2021.
³ Associated General Contractors of America, “Construction Workforce Shortages Reach Pre-pandemic Levels Even as Coronavirus Continues to Impact, Projects and Disrupt Supply Chains,” Sept. 2, 2021, agc.org/news/2021/09/02/construction-workforce-shortages-reach-pre-pandemic-levels-even-coronavirus.
⁴ ForConstructionPros.com, “COVID-related Freight Constraints, Labor Costs Continue to Push Engineering and Construction Costs Upward,” Aug. 25, 2021, forconstructionpros.com/business/press-release/21627311/ihs-inc-covidrelated-freight-constraints-labor-costs-continue-to-push-engineering-and-construction-costs-upward.