Contractors must take into consideration all these moving risk targets, including at times their contractual guaranteed price risk. Brian Cooper, U.S. national construction practice leader for Gallagher, said that asking the contractor, and the project owners, about things such as escalating costs could help insulate both parties against uncertain risks.
“We were advising them to have escalation clauses in their contracts so that if it’s a macro event, like we’re talking about with tariffs and things like that, that they’re not taking 100% of the risk on a project,” Cooper said. “The owner has the project for 50 years, so the owner’s got to take some of that risk, too.”
Cooper said that offering advice on contractual terms and conditions to ensure “a fair allocation of risk” for things outside of their control, like price escalations, is critical today.
“And approaching things from a negotiating standpoint with the client saying, ‘Listen, we know that, for example, electrical switching gear has a long lead time. Even though we won’t need it on your project for a year and a half, it’s best that we order and pay for it now so that we can be assured that it’s going to be there,'” Cooper said. “So, negotiating payment terms and offsite storage, things like that, that are very important in an environment like now can mitigate some of these risks from the uncertainty out there.”
Allianz Commercial’s policies typically have an escalation clause. “So, there’s a buffer; it could be 5%, it could be 10%, it could even be as high as 15%, so if the values increase within that band, they already have coverage,” Darren Tasker, regional head of construction in the Americas for Allianz Commercial, explained. Only if the price escalates beyond that buffer would they be underinsured. “So, they might come to us to do a midterm adjustment or midterm endorsement to increase the limit on the values of the policy and endorse the policy,” he said. “That’s why we tend to not go to our full capacity. We want to still be there for our clients if this does happen and still have some available capacity.”
Cooper added there have been some project delays in today’s climate, primarily in the large project space due to financing and interest rate concerns. “But that’s just what happens every time there’s uncertainty out there.”
Topics Agencies
Was this article valuable?
Here are more articles you may enjoy.
Long-Term Thinking and Scale Keys to Travelers Success: CEO Schnitzer 
Florida Appeals Court Says Plaintiff Can’t Harp on Adjusting Delays in Claims Dispute 
AM Best: US P/C Industry Records $1.1B Underwriting Loss for Q1 
Erie Insurance Reports ‘Information Security Event’ Caused Network Outage From This Issue
