To de-risk a project, there are four factors to consider: the project itself, products, people, and payment.
A thorough understanding of general and supplementary conditions is necessary if you want to de-risk a project.
The four Ps—project, product, people, and payment—are major risk factors you can somewhat control through proper contractual language and negotiation of a project’s terms and conditions.
To de-risk a project, here are some important factors to consider.
1. The Project Itself
Schedule compression, postponement, or cancellation all cost money. To mitigate this risk, make sure these things are built into your paperwork. Also have an open discussion with the owner, construction manager, and/or general contractor to let them know that:
- Due to uncertainty about schedule and accessibility to the project or constraints created by other trades, you cannot be held responsible for liquidated damages.
- If the schedule is compressed, then you cannot agree to “no change orders” or “no additional billing for overtime.”
- If the project is terminated, then you need to receive compensation for work performed plus the non-labor expenses associated with the project (material restocking, freight, etc.).
2. The Products Being Used
In most cases, supply chain issues are beyond your control. To mitigate this risk:
- Don’t order anything for a job without an executed contract.
- Communicate concerns, get written approval for down payments, and store materials early if you have supply chain concerns.
- Expand contract language beyond “work completed” to include all expenditures related to the project if it’s cancelled or delayed.
- Be open and transparent about the fact that products specified and approved on submittals may have to be substituted or that a surcharge or additional expedited charge may be required.
- Take a three-month investigative look at your pipeline, your backlog, and the work in progress to determine what delivery looks like for the most common and known materials and products.
3. The People Providing the Labor
The project is ready, and the products are here—but your labor resources are committed to other projects. What hasn’t changed (surprise!) is the completion deadline. To mitigate this risk:
- If you need to sub out any portion of the work, strike out contract language that requires your employees to perform the work.
- Get the prevailing wage determination on the project in writing and know your SOC before putting in your final price.
- If the schedule moves, then don’t allow schedule compression to force unbilled overtime. Strike contract language that triggers a default until things stabilize if the project is not properly staffed.
- Don’t let lengthy approval and signoff delays prevent you from starting the project on time.
- Understand safety provisions of the site in advance in case additional OSHA training is required before starting.
4. The Payment for Your Work
Cash is king, and payment cycles can sometimes cause problems. To mitigate this risk:
- Maintain margin, labor accuracy, and efficiency to eliminate the reasons why you shouldn’t be paid.
- Never waive your right to file a lien on big projects.
- Watch for retainage delays beyond the normal closeout period.
- When licensing, software, tests, and inspections are within your scope, but the project is contracted with a general contractor or electrical contractor and not the owner, address how this is communicated. Expenses will be ongoing through a post-warranty-period managed services agreement.
A Few Final Considerations
There are a few other factors to consider if you want to de-risk a project:
- During renovation work, the removal, tagging, or connectorization of abandoned cable is your responsibility and is a code requirement—no matter what your proposal states. Make this responsibility clear before you price the project.
- Be absolutely certain about prevailing wage requirements.
- Never sign a waiver of subrogation.
- You can’t indemnify the owner, other contractors, or anyone else from liability in case of an accident or workplace situation.
- Determine before pricing whether a performance bond or insurance rider are required.
- As always start with a clear scope of work.
Have questions about how to handle any of these things? We can help. Don’t hesitate to send us a note.
