Utilizing Technology to Answer Tomorrow’s Questions

It is no secret that technology has evolved rapidly over the past century, improving communication, medicine, businesses, education, manufacturing, construction, among other many different fields. In a recent sit down with Rose Hall, Vice President and Head of Construction Innovation at AXA XL, she gives insights on how technology is the key to advancing Risk Management. Through the Construction Ecosystem, AXA XL is helping customers advance risk management and drive technology adoption by:

1.    Educating the industry and enabling Tech adoption and Implementation

2.    Bridging the gap between Construction Technology, Risk, and Insurance

3.    Cultivating a collaborative network, focused on advancing the industry through the fourth industrial revolution.

Educating the Industry and Enabling Tech Adoption and Implementation

According to Rose, the Construction Ecosystem at AXA XL was created “to help drive technology adoption and advance risk management through partnership, innovation, and invention.” To do this, the wide world of tech needs to be narrowed down into something meaningful. AXA XL is currently tracking more than 420 construction technologies, conducted one-on-one interviews with more than 120 tech companies and chose to partner with a select group of 35. The vetting process includes evaluating the viability of the technology, the maturity of the tech and the business, the partnership approach of the leadership, their willingness to provide a discount or preferred term for AXA XL customers, and the risk-reducing capabilities of the solution.

These are essential factors that should be evaluated when choosing tech partners to make sure the customers find the technologies that are best fit for their specific business.  

Bridging the Gap Between Construction Technology and Insurance

Staying ahead in the insurance market means keeping up with changing risks of the tech-enabled construction jobsite. AXA XL is combining construction technology with innovation to develop new underwriting classes of that meet our customers’ unique needs, and reward tech-savvy contractors for their innovation. AXA XL aspires to lead the industry as the innovative insurer for the innovative contractor.

Creating a Collaborative Environment to Enhance the Industry, and as a Result Better Preparing the Insured 

In our interview, Rose states that some of their contractor customers struggle with “pilot purgatory” and are keen to know what their peers are doing as well as share their experiences with their peers in an effort to advance the entire industry. To help support this effort, AXA XL created the Innovator’s Circle, which is a round table consortium of the innovative leaders from top contractors who convene to develop and share best practices, solve problems and advance innovation in construction using design thinking methodology. Additional supporting resources and programs offered by AXA XL are: Technology Adoption Maturity Index (TAMI), curated technology trial programs, Tech Champions and Ambassadors, and their Tech Tapas webinar series (to learn more about these, listen to our podcast).

By getting the top leaders of any industry together, we are bound to come up with several solutions to the most common problems in the trade.

Through advancing innovation and tech adoption, risk management can progress, and carriers, as well as insureds, can benefit as construction projects become more profitable and less risky. If you are willing to keep learning, maintain an open mind, and listen to others, you are bound to see growth. Technology has evolved because people are eager to learn more while keeping an open mind on how it is impacting those around them. To learn more about innovation, technology, and risk management, listen to our podcast with Rose Hall, Women in Leadership: Utilizing Technology to Answer Tomorrow’s Questions. 

Links:

Connect with Rose on LinkedIn
Follow AXA XL on LinkedIn
Visit AXA XL on the web here 
Email Rose at rose.hall@axaxl.com
Connect with Valerie Bono
Connect with Mike Diercksen 

Nine Steps to Managing Subcontractor Default Risk

In a recent podcast episode of The Building BITE, we caught up with Jim Budwell, Director of Subcontractor Default Insurance Risk Management and Claims at Construction Risk Partners. Jim’s experience as a builder, engineer, scheduler, carrier and now broker advisor makes him a great resource for all things SDI.  Having observed over 500 SDI claims, Jim has developed a guidance framework on what contractors should do, and what you should not do when managing subcontractor default risk.  We will list out a three of Jim’s nine ideas here, and if you would like to know more about all of Jim’s steps to mitigate subcontractor default risk, please take a listen in to The Building BITE podcast episode on: 9 Steps to Managing Subcontractor Default Risk.

Be Alert for Early Warning Signs

We all know the importance of communication around complex issues, and possible subcontractor default is no different.  While project teams and the risk management team need to be on the lookout for any potential red flags during the lifecycle of the project, the true beginning of this process goes back to pre-qualification. Asking yourself about the sub's current workload, are they going to staff the project fully? Have we had a consistent workforce on the project, or has it been sporadic?  In times of uncertainty, such as the current environment, subs have been known to overextend their capacity, leading to a potential default. That said, it is not enough to check a box on pre-qualifications but to continuously monitor and stay vigilant.

Know Your Terms and Conditions

Jim explained how failing to understand the specific terms and conditions of the subcontract can seriously impact a contractor’s management of the risk.  For example, if the terms of a subcontract default require a written notice to cure, and a three -day cure period, the contractor should not terminate the subcontractor two days after a verbal notice of poor performance. Doing so could create risk for the contractor and raise questions.  Was this a proper default?  If the matter proceeded to subrogation (where the SDI carrier sues the subcontractor for recovery of payments under the insurance policy), and a court or arbitration panel stated that it was an improper default which failed to follow the terms and conditions of the subcontract, the contractor could have jeopardized its coverage under certain SDI policies. Knowing and understanding your standard subcontract terms is critical, and deploying those terms carefully is essential. But that is only one part of managing the risk.

Communicate/Escalate Accordingly

One of the more significant takeaways from the episode was to keep the lines of communication open and accessible between the project team and the subs. Jim details how keeping communication open and flowing between the various parties mitigates potential risks and helps establish trust and a better working environment. Another benefit of open communication is the project team having greater insight into the status and capacity of their project’s subs, empowering them to bring in the right partners such as the risk management team, brokers, or even the carrier should the need arise. Many Project Managers have a strong can-do attitude when it comes to problem-solving and maintaining the project schedule. Still, Jim clues us into how even seasoned PMs may only encounter 1-2 SDI claims in their career. That is why it is critical to escalate the situation when called for and bring in the Insurance and claim specialists who live in this space, bringing valuable professional experience and expertise when claims happen.

Understanding these three guidance points is a great start, but there is much more to be done to successfully manage subcontractor default risk.  Be on the lookout for other information from the Proactive Institute regarding tips to achieve successful SDI claim outcomes and let us know if you have some tips of your own.

Links:

Connect with Jim on LinkedIn
Follow CRP on LinkedIn
Visit CRP on the web here 
Email Jim at jbudwell@constructionriskpartners.com
Connect with Peter Duggan
Connect with Mike Diercksen 

Class 107: Activity Constraints

What are Activity Constraints?

An activity constraint is a restriction that is placed on an activity to control the activity’s start date, finish date, and/or duration. Common examples of activity constraints include start-no-earlier-than, finish-no-later-than, mandatory start, and as-late-as-possible.¹

Activity constraints are often utilized in construction schedules to identify the contractual completion date. Often called “Substantial Completion,” this activity is rarely the last activity in the schedule. However, placing a constraint on the “Substantial Completion” activity prioritizes the work sequence for the project and defines the schedule’s critical path. Activity constraints can also be applied for financial restrictions, material delivery dates, or crew availability.

Other constraints that can be applied to the schedule include: “(1) minimum time constraints to create a time buffer between two activities; and (2) minimum distance/location constraints to denote the minimum physical distance between two activities to allow for the proper or safe execution of linear construction activities.”² These constraints apply more to project management rather than to project scheduling, but they are often incorporated into a schedule by using activity constraints.

Example of an Activity Constraint:

• As Late as Possible

• Mandatory Start & Mandatory Finish

• Start On, Start On or Before, & Start On or After

• Finish On, Finish On or Before, & Finish On or After

1. An activity constraint is a restriction placed on an activity to control the activity’s start and/or finish date. 

2. An activity constraint is most often used to define a contractual completion date that must be achieved and must be on the critical path.

Key Terms:

Activity Constraint – a restriction that is placed on an activity to control the activity’s start and/or finish date to indicate a date that will not change, regardless of other changes to the schedule

Critical Path – the longest continuous chain of activities which establishes the minimum overall duration

Float – amount of time an activity can be delayed without impacting the overall project

 

Resources:

Class 106: Critical Path

What is a Critical Path?

The critical path is the “longest continuous chain of activities which establishes the minimum overall duration. A slippage or delay in completion of any activity by one time period will extend final completion correspondingly.”¹ Typically, the critical path has zero (or sometimes negative) float. The last activity on the critical path is often a contractual completion activity, called Substantial Completion.

What makes the critical path unique from other chains of activities in the schedule is that a delay to the start or finish of any one activity on the critical path will result in delay to the entire project by the same number of days. Essentially, the critical path determines the earliest possible completion date of the project and is used to calculate the overall project duration when using critical path method scheduling. If a construction schedule has multiple critical paths, the paths are called concurrent critical paths. Concurrency means “independent activities may be performed at the same time”¹, and in terms of the critical path, the concurrent activities are equally important to the project’s completion date.

Example of a Critical Path:

The example above shows a construction schedule for a high-end mixed-use skyscraper.  In the scheduling software, the red bars represent activities on the critical path and green bars identify activities not on the critical path. The green activities can become critical and turn red if they are delayed enough to have zero float. While all the activities shown, both red and green, need to be completed to finish the project, the critical path helps the project team concentrate on completing the activities that will surely delay the project if not completed on time.

Critical Path Summary:

1. The critical path is the sequence of activities that have zero or negative float and will therefore extend the overall project duration if delayed.

2. Identifying the critical path helps prioritize work, especially when resources are limited, to keep the project on track.

Key Terms:

Critical Path – the longest continuous chain of activities which establishes the minimum overall duration

Float – amount of time an activity can be delayed without impacting the overall project

Activity – individual component or step of a construction schedule

Critical Path Method Scheduling – scheduling method that uses activity relationships and durations to calculate the earliest and latest start and finish dates for activities to determine the overall duration of the project

Concurrency – independent activities may be performed at the same time

 

Resources

1. 10S-90: Cost Engineering Terminology.  https://web.aacei.org/docs/default-source/rps/10s-90.pdf?sfvrsn=60

 

Essential Steps for Contractors to Improve Subcontractor Prequalification

 

Contractors can lose millions of dollars if a subcontractor defaults on a large construction project. That is why is it important that a contractor has an effective prequalification process in place; they are less likely to run into issues if they take the time to efficiently evaluate if a sub is qualified for the job. In a recent sit down with Bill Lane, Lead Risk Manager at Hudson Insurance Group, we gained insights on how contractors can improve their subcontractor prequalification process. He suggests that contractors should:  

• Implement a Financial and Operational Assessment,
• Add Prequalification Data into the Bid-Leveling Form, and
• Use Technology as a Tool, Not a Solution

 Implement a Financial and Operation Assessment

When choosing which subcontractor to use for a project, it is imperative that a contractor assess the company’s current and historical financials as well as their operational capabilities. There is a whole list of fiscal data that can be used to evaluate a subcontractor’s financial health. This ranges from tax returns and balance sheets to a subcontractor’s surety capacity. Bill Lane states that a contractor should “get a temperature check on if the subcontractor is financially healthy,” so they can see if the subcontractor will be able to deliver on the project they are being considered for. Implementing a financial assessment is easier to do when compared to evaluating a company’s operational capacity. This is because the financial side of things is much more defined and metrically based, making it easier to arrive at a single and aggregate limit of award.

When looking at a subs operational function, a contractor should ask the following questions: What is their largest past project? What is their average project size? What other work do they have to bid right now? Do they have the right management staff? Are they good with submittals? Are they good with schedules? And are they good at getting payment applications in on-time? By asking these questions, a contractor will get a better feel for a subcontractor’s operational capacity. If the answer to most of these questions is “no,” then a contractor will know not to choose that subcontractor for the project as they will most likely fail to deliver operationally. Assessing a subcontractor’s financial and operational competency is a key part of the subcontractor prequalification process and can effectively display if a subcontractor is fit for a specific project or not.

Add Prequalification Data into the Bid-Leveling Form

The Bid-Leveling Form, also known as the Bid Tabulation Sheet, lists all the vendors who submit a proposal to work on a project. A contractor uses this form to organize all the information gathered on each vendor, helping them decide on which subcontractor is best fit for the project. By including prequalification data on the Bid-Leveling Form, a contractor will have an easier time picking out the sub most likely to drive success. Bill states that the prequalification data is the “lowest hanging fruit,” and “it might visibly drive some different decision-making” if included on the Bid Tabulation sheet. A contractor could clearly see if a vendor is a known commodity and if they are in a better financial and operational position compared to other bidders. By adding prequalification data into the Bid-Leveling Form, a contractor is creating visible transparency into the prequal process, allowing them to pick the vendor who is best-fit for the project, not just the lowest bidder.

Use Technology as a Tool, Not a Solution

Even though technology has improved and evolved significantly over the years, it still contains blind spots. According to Bill, “contractors are pre-qualifying better than ever” as the amount of technology being used is making the process more efficient and effective.  For example, nearly 20 years ago, fax machines were used as the main source of technology for the prequalification process. Today, the industry can rely on intricate and customizable software suites to help support their bid management and prequalification processes and practices, allowing the process to move at a much more rapid pace. Even though technology today is incredibly advanced, Bill states that “technology is a tool, not a solution.” Contractors should not rely on technology to solve 100% of their problems as deficiencies still exist.  If these blind spots are not caught in time, bigger and more challenging problems may arise.

If you are a contractor, Bill suggests you make sure to efficiently go through your prequalification process as it could save you millions down the road. Additionally – continue to qualify throughout the lifecycle of your subs performance as marketplace position changes constantly during the execution of projects (especially with high-risk or critical path trades!). By assessing a subcontractors financial and operational capacity and including them on the Bid-Leveling Sheet, you are bound to see an improvement in your prequal process. If you want to learn more from Bill regarding enhancing subcontractor prequalification, listen to our Podcast with Bill Lane, Essential Steps for Contractors to Improve Subcontractor Prequalification.

Links:

Connect with Bill on LinkedIn
Follow Hudson Insurance Group on LinkedIn
Visit Hudson Insurance Group on the web here
Email Bill at WLane@hudsoninsgroup.com
Connect with Peter Duggan
Connect with Mike Diercksen