4 Opportunities to Improve a Contractor's Prequalification & Subcontractor Selection Process

Subcontractor Default Insurance (SDI) is a policy that protects general contractors and construction managers from the loss associated with a defaulted subcontractor. Contractors take on a substantial amount of risk when employing subcontractors for large construction projects. General contractors must do an excellent job of mitigating that risk by selecting and managing their subs carefully, so they may avoid running into any significant problems in the future, such as a default; this is what makes the prequalification process vitally important. In a recent interview with Jeff Nolan, Risk Engineer at Cove Programs, he gives us four steps to improving a contractor’s prequalification and subcontractor selection process:  

1. Don’t do Prequal in a Silo or Vacuum

2. Develop a Risk Mitigation Process

3. Consistently Apply the Developed Processes 

4. Capture the Lessons Learned 

Don’t do Prequal in a Silo or Vacuum

           According to Jeff Nolan, the “goal of prequal is to ensure that the subs being considered for the subcontract award are capable of successfully performing the subcontract.” The general contractor must evaluate a subcontractor’s financial stability as well as their operational capacity. If a contractor goes through the prequalification process in a silo, they fail to take advantage of the feedback loop; significant information on a subcontractor’s previous experiences gets shared with people who are interested in knowing. A GC will learn more about subcontractors if they communicate with other contractors and project personnel on how a sub performed on previous projects. The prequalification process should be more than just checking boxes. It should be an extensive evaluation process where general contractors communicate important information about a subcontractor to the entire project team. The more engaged and synergetic a GC is during the prequalification process, the more likely they are to select a successful subcontractor, allowing for better performance on the overall construction project. 

Develop a Risk Mitigation Process

           Once a GC builds strong communication with the project team during the prequalification process, they should then develop a risk mitigation plan that is more elaborate than a simple checklist. In our sit down with Jeff, he states that “being targeted and relevant is a critical part of the risk mitigation plan.” When a general contractor selects or is about to select a subcontractor for the project, they should evaluate and pay close attention to the items that could potentially create risk. For example, a GC might choose a sub whose operational capacity does not quite match the construction project size. The general contractor should identify this issue and figure out what they will do to mitigate this risk. Then, they should target this concern in the risk mitigation plan and formally document / communicate it to the people who can act on the proposed solutions. By doing so, the GC will monitor the risk and be prepared to act quickly and decisively should the sub begin to fail, potentially saving them from an SDI Claim. 

Consistently Apply the Developed Processes 

           One of the biggest lessons learned from SDI claims is that the inconsistent application of processes is a common factor in many subcontractor defaults. If a general contractor is not consistent with their qualification and risk mitigation processes, they are bound to overlook important information. They must identify and address risks each time they are awarding a subcontract. In our interview with Jeff, he says that it is key for the general contractors to have a “clear understanding of what happens when things are outside of limits and how they will be addressed.” A GC is more likely to overlook potential problems with the sub if they are not consistent with their risk mitigation plan. 

Capture the Lessons Learned

           The fourth step to improving a contractor’s prequalification and subcontractor selection process is to capture the lessons learned. It is beneficial to take note of the lessons learned from any subcontract defaults, regardless of whether the default results in an SDI claim. By doing so, a GC will evaluate the process as a whole and determine what is driving optimal results. Documentation of the lessons learned will also help general contractors improve their risk mitigation practice and add quality information to the feedback loop for future projects. 

A contractor is more likely to see success on a construction project if they go through the prequalification and subcontractor selection process with a thorough and proactive mindset. By avoiding silos while doing prequal, developing a consistent risk mitigation plan, consistently applying that plan to all prequalification evaluations, and capturing the lessons learned, GC’s are better positioned to see improvement in their subcontractor performance and avoid subcontract defaults. To learn more, listen to our podcast with Jeff Nolan, 4 Opportunities to Improve a Contractor’s Prequalification & Subcontractor Selection Process.

Links:

Connect with Jeff on LinkedIn
Follow Cove Programs on LinkedIn
Visit Cove Programs on the web here 
Email Jeff at jeff.nolan@coveprograms.com
Connect with Peter Duggan 
Connect with Mike Diercksen 

5 Considerations for Mass Timber Construction

       Do you know the difference between mass timber and wood frame when it comes to construction? Some Individuals may perceive both as large pieces of lumber used for building various structures. Even though both materials derive from trees, mass timber is used for larger projects as it is engineered to be stronger, straighter, stiffer, and lighter than concrete or steel. Typically used alongside other construction materials, mass timber is a sustainable element that can benefit projects. In a recent sit down with Cheri Hanes, Senior SDI Construction Risk Engineer at AXA XL, we receive five items to consider when using mass timber on a construction site:

1.       Know Your Partners

2.       Be Strategic with Placement Strategy

3.       Put the Right Strategies in Place to Manage Water

4.       Materials / Supply Chain Management

5.       Think About Fire

Know Your Partners

                When first considering mass timber, you must understand who you will be working with and their experience with the material. Cheri Hanes states that "people need to choose to do business with those who have as much experience [with mass timber] as possible" and that it is worth seeking out those who have specialized in the material. By working in conjunction with mass timber experts, you are more likely to avoid problems as these firms already know the nuances and attributes of the material. By knowing your partner's experience level, you can better prepare yourself for potential successes and roadblocks.

Be Strategic with Placement Strategy

                Another critical factor one should consider when working with mass timber is the placement strategy around the material. When thinking about placement strategy, Cheri suggests asking the following questions: Which subcontractor will you use, will you do it with internal forces? Who is going to hold the subcontract if there is one? Who is going to manage the work? Are you going to use the manufacturers and consultant's expertise? By asking these questions, you can better strategize the placement of work, leading to preferable results.

Put the Right Strategies in Place to Manage Water

                When utilizing mass timber on a construction site, it is critical to think about managing water as it is an element that can damage the material. A project team can mitigate water risk through technology that notifies managers of weather warnings and leak detections. Cheri states that it is vital "builders have a rain crew ready with the right instructions and equipment to clear water from the structure in the event of some kind of water release – whether it is external or internal." Temporary measures should be in place if water gets into the structure as it is under construction. A project team can alleviate potential water risks by implementing wet works permit protocols to help mitigate water damage. By putting the right tactics and strategies to manage water on a project, you diminish the risk of potential water desolation. 

Materials / Supply Chain Management

                Another item that a project team should consider is understanding where the materials are coming from. Tracking the production and transportation of mass timber will help with the sequence of materials placement. In our interview with Cheri, she says the project team should "have the materials arrive on site sequence, even if it costs more" because it will save time and handling of the material. In addition, by effectively managing the materials and supply chain, you are more likely to see project continuity and drive your team to stay organized and on schedule.

Think About Fire

                Fire is another element that can destroy mass timber. Even though mass timber has less fire risk than wood frame, strategies should be in place to help assuage any potential hazards. Like the wet works permit protocols used to prevent water damage, there are hot works permit protocols that should be in place to help prevent/mitigate fires. Technology is available that can assist in alleviating the risk of fire and should be considered for mass timber projects. Cheri mentions that "builders can utilize technology to monitor for smoke or heat." Another way to manage this risk is to have on-site security to watch for fire and vandalism. The project team can talk to the local fire department and tour the facility when building a structure. This will help the fire department prepare for any potential hazards that could take place. By implementing these protocols, you can mitigate the risk of fire, which will help keep the project safe and on schedule.

                Mass timber is a durable and sustainable material used for various construction projects and comes with many benefits. By considering these five points when using mass timber, you and your team are more likely to succeed when choosing mass timber for your project. To learn more, listen to our podcast with Cheri Hanes, 5 Considerations for Mass Timber Construction, to learn more about mitigating risk when utilizing mass timber.

Links:

Connect with Cheri on LinkedIn
Follow AXA XL on LinkedIn
Visit AXA XL on the web here 
Email Cheri at Cheri.hanes@axaxl.com
Connect with Peter Duggan 
Connect with Mike Diercksen

Utilizing Technology to Impact Healthcare Development

As technology has advanced, so has the healthcare industry. New devices and software programs are benefitting healthcare on several different levels. From smartwatches that can monitor individual heart rates to Building Information Modeling (BIM) that can assist in developing extensive healthcare facilities, technology is improving health maintenance across the world. With this comes an abundant amount of data and analytics that experts can evaluate to progress the industry. In a recent sit down with Ken Henry, Senior Vice President of Development at Pacific Medical Buildings (PMB LLC), and Eli Dresner, Managing Director of Client Solutions at Pivotal Analytics, we gain three insights into utilizing technology to impact healthcare development:

1.       Ask Questions

2.       Consistently Balance the Quantitative and Qualitative Data

3.       Study Healthcare Data and Reach out to Leading Data Providers 

Ask Questions

Eli, who works for Pivotal Analytics, a technology development firm dedicated to the transformation of health system planning and care delivery management1, suggests that those involved in the development of healthcare facilities be curious and ask a lot of questions. He states that "the data integration and utilized information comes from asking interesting questions about the market." What data assets can you utilize to have a quantitative leg to stand on? Where can you get insight that previously wasn't available? By asking specific questions and exploring different data assets and insights, you will gain new perspectives. Different outlooks will benefit you when it comes to developing various healthcare amenities as you can build for the needs and desires of varying communities and socioeconomic classes. 

Consistently Balance the Quantitative and Qualitative Data

Eli also advises healthcare developers to balance the quantitative and qualitative data consistently; listen to the data provider the same way you would listen to the doctor or patient. In our sit down with Eli, he states that "the data provider generally will never have the boots-on-the-ground knowledge of a market." As much as the data provider can tell from their data, insights, and models, they still do not fully understand what is happening in a given market because they do not live in it day-to-day. By pairing the quantitative information from data providers with the qualitative information from healthcare workers, developers will gain a more insightful look into the market. With this, they will better understand what to look for when constructing future facilities.

Study Healthcare Data and Reach out to Leading Data Providers

Ken Henry from Pacific Medical Buildings, a healthcare real estate developer, advises construction companies, architects, engineering firms, and consultants "to learn more and study healthcare data as much as possible" and to "reach out to leading data providers." This will help you understand the language of health system providers and better understand the industry's challenges. By working with a data provider such as Pivotal Analytics, developers will gain better insight into the marketplace, allowing them to build more efficient and effective healthcare accommodations. Ken states that "getting to know a group like Pivotal will definitely be beneficial regardless of what type of company you work with."

The healthcare industry is constantly evolving and adapting to meet the needs of the diverse world in which we live. With progressing technology and data, developers have the potential to enhance health maintenance continuously. By asking questions, balancing quantitative/qualitative data, and partnering with leading data providers, developers will positively impact the healthcare industry.  Listen to our podcast with Ken and Eli, Utilizing Technology to Impact Healthcare Development, to learn more.

Resources:

1.    https://www.pivotal-analytics.com/about

Links:

Connect with Ken on LinkedIn
Follow PMB LLC on LinkedIn
Visit PMB LLC on the web here 
Email Ken at khenry@pmbllc.com

Connect with Eli on LinkedIn
Follow Pivotal on LinkedIn
Visit Pivotal on the web here 
Email Eli at edresner@array-analytics.io

Connect with Valerie Bono 
Connect with Chris Epps 

SDI Claims - Leading to a Better Way

Often, when people hear the words "insurance claims," they are associated with negative connotations. These include the anticipation of lengthy resolutions, undesired tasks, and conflict. However, to the contrary, claims can bring people together when all parties collaborate effectively. In a recent sit down with Derek Fennell, Assistant Vice President of Subcontractor Default Insurance Claims at AXA XL, we gain insight around four steps that help lead Carriers and Insureds to a better way of handling claims:

1.      Communicate Early

2.      Create an Atmosphere of Trust

3.      Educate the Insured

4.      Rip Off the Band-Aid

Communicate Early

    The first step to creating a better claims atmosphere is to communicate early. According to Derek, "In the marketplace, there seemed to be a pattern where Insureds would put the Carrier on notice of a claim and then a period of months or even years would go by – there would be intermittent discussions, but nothing." Poor communication can lead to conflict as the Carrier may have questions about conducting Proof of Loss. The more the Insured talks to the Carrier, the more the Carrier can communicate about documentation requirements as the Proof of Loss is being prepared for submittal. When the Insured can provide approved documentation, the chances of getting a suitable yield to satisfy the overages increase significantly. The claims process can be contentious, but early and effective communication can be a clear, successful step towards claim resolution.

Create an Atmosphere of Trust

    As a foundation to communicating effectively, the Insured and Carrier must establish a relationship built on trust. Both parties will find better results and expedited claims when the Carrier fosters an atmosphere of trust, allowing the Insured to feel comfortable while informing the Carrier with project/claim details.  In our interview with Derek Fennell, he states that "It is really difficult when everyone retreats to their corners and it's really hard to resolve issues when you have an Insured that doesn't have trust in the Carrier." Usually, in the context of construction claims, the relationship between Insured and Carrier is adversarial; however, it does not need to be as everyone is trying to obtain the same fair and equitable results.

Educate the Insured

    Once trust is established, and both parties communicate openly and effectively, the Carrier should seek opportunities to educate the Insured to allow for enhanced risk management. Derek suggests that the Carrier should "take the analytics developed during claims and give the feedback to the Insured in ways that make the Risk Managers understand risk more." By sharing their vast claims experience and educating the Insured on risk management trends, the Carrier can assist Risk Managers in creating strategies that help prevent future claims from happening. Though Risk Managers cannot see every catastrophic issue that may arise on a construction site, the valuable insight they gain while working with their Carriers can better prepare them for future claims.

Rip the Band-Aid Off

    The fourth step identified by Derek, which helps lead to a better way for insurance claims, is "ripping the band-aid off." Derek Fennell describes this as giving "the message very early so the project team is prepared and the risk management team is prepared, which will often lead to a better result." By informing the Carrier of any significant project nuances early on, all parties involved have more time to process and prepare for the claim. Through this process, any major factor such as insufficient documentation may be identified, impacting the timeline or scope of the claim submissions. By ripping the band-aid off, these topics are discussed upfront and help to establish clear expectations for the entire claims team. As a result, both the Carrier and Insured can collaborate to identify the best path forward and potentially make adjustments that would mitigate the setbacks that have been identified. All of this is made possible by early communication, an atmosphere of trust, and up-front knowledge of the claim.

    Although many see the claims process as a challenge, there are paths that will help lead to a better way. By communicating early, creating an atmosphere of trust, and educating the Insured, the Carrier is further likely to build a smooth process for those involved. To learn more about the SDI claims, listen to our podcast with Derek Fennell, SDI Claims – Leading to a Better Way.

Links:

Connect with Derek on LinkedIn
Follow AXA XL on LinkedIn
Visit AXA XL on the web here 
Email Derek at derek.fennell@axaxl.com 
Connect with Peter Duggan 
Connect with Mike Diercksen