U.S. Construction Turning Around; Lending and Insurance Follow

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The 2012 U.S.construction industry is forecasted for $412 billion dollars of construction starts for the upcoming year. This is only a slight increase from 2011, but construction starts are always a lagging indicator to the rest of the economy and any increase is viewed as a sign that the economy is turning in a positive direction.

Construction Gains Benefit Related Sectors

Lending is also increasing. According to McGraw-Hill’s 2012 Construction Outlook, J.P. Morgan Chase has about $1 billion of construction loans in its pipeline, a threefold increase from what was in its pipeline 12 to 18 months ago.

Infrastructure projects will continue to pop up as funding trickles down to the municipal level from any limited stimulus funds still remaining.

A few other sectors–such as the hotel/motel industry and healthcare/senior living–are showing increases in construction starts. Among the projects we have seen recently, with construction starting in 2012, include the Four Season Orlando, FL., Maine General Hospital and the LSU Medical Center. For all of 2012, hotel construction is forecast to rise 17% and healthcare is projected to rise at a more modest 2% to $22.9 billion of construction starts.

Innovative Delivery Systems Introduce Undefined Risks

With some of these new projects, we’re starting to see a variety of innovative delivery systems, such as Integrated Project Delivery (IPD) and Public Private Partnerships (P3). These kinds of contracts are still relatively new in the United States that the risks associated with them are often unfamiliar and require many contractors, architects, and engineers to take on increased, shared and sometimes undefined and/or uninsurable risks.

Many of the risks associated with professional liability (errors and omissions) on construction projects are the same as they’ve always been—construction defect and errors in design and/or installation, for example—but these new delivery systems introduce the additional risk of contract certainty. Contractors can find themselves taking on risk on behalf of their company unwittingly unless they identify and address the project-specific risks when the contract is drafted.

Ever-changing contracts and project delivery systems will require that professional liability insurance continue to take a more prominent role in project-specific risk management and insurance.

About Tim McGinnis

Tim is a Senior Vice President with Willis’ National Construction Risk Management Group. Based in Texas, he has o…
Categories: Construction

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