Construction is a high-risk business, often volatile, with a high potential for problems and adversarial relationships. Every project involves a multitude of participants—an owner, a design and engineering team, many members of a construction team—all with potentially conflicting interests, working on a critical path, with a shared goal to complete the project on time and under budget. Once the work begins, the project cannot be interrupted or delayed to any extent without serious repercussions. This is why the construction industry places a premium on resolving problems quickly.

At the beginning of a project, the participants are generally optimistic about reaching their goals and typically underestimate the potential for conflict. They often think, “What can happen?” But the reality is that all too frequently communications break down, the construction plans have omissions, the weather is inclement, materials don’t arrive, and subcontractors default. Each of these unplanned events, if not quickly solved or properly controlled, could result in a dispute that can escalate to the point where it could disrupt the project and cause the project to unravel, embroiling the parties in expensive discovery, mediation, arbitration or litigation, and ultimately lost business relationships.

In the business world it’s prudent and customary to buy commercial insurance to protect against the adverse consequences of all kinds of risks and potential losses, and it’s also quite common for participants on construction projects to obtain surety bonds. Virtually all business people consider the premiums they pay for business insurance and surety bonds to be a good return on investment, even if the risks that are insured against never occur. 

How can participants in a construction project protect themselves against the risks and adverse consequences of disputes in the all-too-common scenarios described above? Unfortunately, there is no commercially available insurance market that will provide protection against the risks of disputes from unknown project problems. However, there are prudent steps that construction project participants can take, comparable to (and probably less expensive than the combined premiums on) insurance and surety bonds, which are likely to protect against those risks. All that is required is to make a modest investment to use proven processes that keep unforeseen project problems from escalating into harmful disputes

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Tags: business insurance, construction project, construction projects, Construction Projects Construction