Three key risks for general contractors in 2023

In its 2023 General Contractors Risk Report, Selective Insurance identified inflation, labor, and subcontractor risks as three key economic risks for general contractors.

"Construction is an inherently high-risk industry given its exposure to and reliance on macroeconomic factors, such as commodity pricing, supply chain, labor dynamics, and housing demand,” said Jim Albi, assistant vice president, contractors, Selective Insurance. “For general contractors, their ability to identify, anticipate, and manage a range of workplace risks can determine the success of their projects and, more importantly, their business resiliency."

Analyzing operational risks

Select Insurance’s 2023 General Contractors Risk Report underscored the inherent risks associated with the construction sector. Notable challenges included:

• Inflation: Escalating material and commodity prices heighten the need for adequate protection against property damage during construction projects. General contractors must proactively address this risk to safeguard their operations and ensure profitability.
• Labor Shortage: The construction industry continues to grapple with a shortage of skilled labor. As a result, general contractors face the challenge of hiring inexperienced workers, leading to increased incidents of injury and workers' compensation claims. Strategies to attract and retain qualified personnel are crucial for sustained success.
• Subcontractor Risk: The responsibility for subcontractors' errors has long been a concern for general contractors. However, the current environment, characterized by soaring prices, labor scarcity, and material shortages, amplifies this risk further. General contractors must adopt robust risk management strategies to mitigate the potential impact of subcontractor errors on their projects and reputation.

Insights and forecasts for the construction industry

The General Contractors Risk Report also offered predictions for the remainder of 2023. These included:

• Workforce Diversity: The construction industry will continue to prioritize efforts to attract more women and minorities, fostering greater inclusivity and expanding the talent pool.
• Rise of Multi-Use Properties: Increasingly, there will be a demand for multi-use properties that combine corporate and entertainment centers with residential opportunities. General contractors should anticipate this shift and adapt their strategies accordingly.
• Technological Advancements: The integration of technology will become increasingly prevalent in all aspects of general contractors' operations. Embracing innovation will enhance efficiency, productivity, and competitiveness within the industry.
• Driver Shortage: The shortage of drivers with commercial licenses is expected to persist, posing logistical challenges for general contractors. Alternative transportation solutions and strategic partnerships may mitigate these obstacles.
• Commodity Price Volatility: The construction industry will continue to experience fluctuations in commodity prices, requiring general contractors to maintain agile procurement strategies and adapt to changing market conditions.
• Business Expansion and Diversification: To thrive in a dynamic marketplace, general contractors will explore opportunities to expand into related fields, such as design-build, and provide comprehensive, one-stop turnkey services. Additionally, single-trade contractors will seek growth by branching out into multiple trades or even general contracting.