Tuesday, November 12, 2013

Cash Strapped Owners And Developers Shift More Risk To Contractors And Trades

                   Upward creeping surety loss ratios and skyrocketing trade contractor borrowing for working capital are just two symptoms of increases in onerous contract terms imposed on the construction industry by public and private owners and developers, say speakers at the annual Construction Financial Management Conference sponsored by ACG and CFMA. According to Chubb Surety CEO Rick Ciullo, “Surety rates are down as new players join the fray and dilute prices with added capacity, helping drive profitability down 50% through June 2013.”
                    Consensus Docs Executive Director Brian Perlberg asserts that “We’re seeing larger, more complex projects that require collaboration and communication,” putting additional management responsibilities and computerization costs on building trades. Furthermore, increasing reliance on public private partnerships, design/build delivery processes and computer technology “is clouding how insurers respond to claims,” in the opinion of Marsh, Inc. Senior VP Danette Jones. The speakers agree that bonded contract loss ratios are significantly higher among smaller sureties with a higher number of small general and trade contractor principals.

                    Trade subcontractors furthest from the cash flow are being hit hardest, as both labor and material costs increase and owner payments get strung out over longer time frames. The financial stress on the trades will ultimately, of course, come back to plague owners and developers in the form of higher overhead and fee lines in trade contractor bids on future projects.
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