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.
