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Construction Contract Disasters

One mistake many contractors make is projecting past experience into the future. They think because it has never happened to them before it won't happen at all. They think all contracts are created equal and it would be too time-consuming to negotiate insurance requirements on every one. If you adopt this attitude, sooner or later, a serious claim is going to bite you on the ass.

Remember the Titanic? It wasn't supposed to sink. Trillions of dollars of global wealth wasn't supposed to evaporate in October '08. The federal government wasn't supposed to take over GM. These are called "black swan" events in a book by the same name written in 2007. No matter how many times you've only seen white swans in the past doesn't mean you won't see a black swan in the future.

(Top Ten List from Black Swan)

Real Life Examples:

Contractor's employee was killed on a job and contractor held owner harmless. Employee's estate sued owner and contractor had to pay claim (third party over action), even though it was sole fault of the owner, because federal court overruled state court.

Contractor neglected to buy builder's risk on large project because owner didn't ask for evidence (certificate of insurance). Building burned with serious uninsured damage.

GC hired roofing contractor. Roofing contractor's employee fell off roof suffering severe injuries and becoming a quadriplegic. Injured employee sued GC for failure to maintain safe worksite. Because of a weak hold harmless between GC and roofer, GC gets stuck with the claim.

These contractors had never experienced claims of this type in the past. One of these claims is seven figures and two are eight figures(That's 10 MILLION+ !).

Could your company absorb an eight figure claim?

What would happen to your bonding capacity if you had to pay several million on an uninsured claim?

Would you lose lots of good work after that?

Would your reputation be hurt?

Would your surety even want to keep you as a client?

Answer these questions before you discount the importance of this topic. Without a good left tackle in the form of a Risk Advisor, your black swan is waiting around the next corner.