In the past year, Hurricanes Florence and Michael became just the latest major weather disasters to strike the U.S., leaving paths of destruction in their wakes. As many construction contractors continue to see a spike in demand for their services as the affected areas engage in the process of repairing and rebuilding, those involved in projects that began prior to the storms may have endured serious delays and significant financial consequences.
However, effective planning – including doing some basic groundwork on how a catastrophic weather event might affect various aspects of the project and the related workflow – can go a long way to reduce a contractor’s potential exposure and protect its anticipated revenue stream. 
Here are steps to help contractors accurately assess and manage potential exposures prior to, during and following catastrophic events.
PRE-EVENT PLANNING
Well in advance of any event, check insurance coverage against risk. Don’t wait until a major storm is approaching or after a loss occurs to “test” insurance coverage. While construction values may be understood by contractors, quantified by their financial advisors and insured, they represent only part of the risk. Indeed, potential consequential damages, such as delays, soft costs, extra and expediting expenses, and indirect costs, may be uninsured, underinsured or a contractor may have more coverage than needed. By taking time to quantify their worst-case exposures, delays and soft costs, contractors will be in position to assess their coverage needs and create a more efficient and reliable insurance program.
Evaluate potential soft costs and additional expenses related to a major disaster. Consider:
- legal fees for revising contracts or other documents and accounting fees to renew or restructure financing;
- architectural/engineering fees;
- added realty taxes, ground rents or other assessments;
- additional insurance costs to extend or renew coverage as policies expire when projects take more time to complete than originally anticipated;
- additional project administration expenses, such as temporary office space, clerical and other costs;
- advertising and promotional expenses beyond what were initially budgeted; and
- costs of renegotiating and pre-leasing of the project, including additional commissions incurred for renegotiating leases.
Quantify potential exposures. Consider the downtime associated with specific types of events or site damage, including lead times to obtain critical replacement components or materials and daily costs associated with delays, including:
- overhead;
- extra expenses for site preservation;
- protection, security, safety and loss mitigation;
- sub-contractor costs; and
- the impact of a delay on a project’s potential profit.
Use these calculations to estimate different potential outcomes such as maximum foreseeable delay, which is absolutely the worst-case scenario for downtime; probable maximum delay, which accounts for the potential impacts of mitigation efforts; and the net expected delay or the most likely outcome given probability of a major incident will occur and affect the project. 
Calculate the maximum foreseeable financial risk. To arrive at this amount, use actual or contracted expenditures as guideposts. Note that the actual costs typically are somewhat less than what might be initially modeled due to a learning curve in the recovery period as contractors identify opportunities for salvage or economies of scale on materials, repairs or related labor costs.
Evaluate insurance extensions that best limit exposure. Insurers offer numerous optional extensions to their base property insurance coverage that can help address many of the “soft costs” associated with large-scale incidents. They include:
- coverage for architects’ and engineers’ fees;
- insurance for expediting expense, extra expense and delay in completion;
- debris removal coverage;
- emergency property protection expense;
- claims preparation costs; and
- ordinance or law/demolition and increased cost of construction.
Review these options carefully with the insurance advisor and determine which coverages apply to the company and the appropriate levels of protection needed.
Meet with first responders and emergency authorities. Communicate critical aspects of the jobsite to first responders and authorities, including:
- providing roadway access points;
- blueprints;
- storage locations; and
- any hazards, such as electrical wiring, fuel tanks, gas pipelines, power generation equipment and at-risk temporary structures.
Assess and reassess jobsite for areas of potential loss. From the start of the project, begin developing a comprehensive list of construction work completed, in process, materials, scaffolding and equipment most vulnerable to loss from a major weather event. Include a complete inventory of all materials and equipment to be secured or stored onsite as well as those to be moved offsite. Update the list frequently as the work on the project progresses and nears completion. Before an event, such as when a storm is predicted, do a walk-though to double-check the list, making sure nothing has been missed and correctingi any deficiencies.
Develop a coordinated crisis plan. Develop a site-wide crisis management plan. Create a list of actions, timing, worker roles and responsibilities and communicate to all supervisors and workers engaged at the jobsite. Include contact information of specialty contractors for remediation work and alternatives. As practical, conduct tests to make sure everyone understands individual responsibilities in the event of a pending storm or severe weather.
DISASTER EVENT/CRISIS MANAGEMENT AND EMERGENCY RESPONSE
Communicate with civil authorities and first responders. Monitor all reports to assess the likelihood of a weather event affecting jobsites. When appropriate, begin implementing the crisis plan so that all materials and equipment is secured or removed from the jobsite before any evacuation may be required.
Make employee and site safety paramount. Make sure workers have sufficient time to secure and evacuate a jobsite, so they can get to their cars or other transportation and depart safely. Be aware that working during inclement weather in wet or muddy conditions can take longer and increases the risk of slips, falls and jobsite accidents. Be sure any power tools used are rated for outdoor use and have workers check electrical cords/equipment daily to remove faulty equipment. Be sure the site uses GFCIs to protect workers from electrical shock and avoid leaving any cords in standing water. Make sure workers wear appropriate eyewear, helmets, footwear and that they avoid covering high-visibility safety clothing with jackets or other outerwear. Maintain adequate lighting for employees to see work areas and egress routes.
Ensure proper storage or timely removal of materials and equipment. Protect laydown areas against oversaturation, move materials inside or offsite where feasible. Have designated personnel prepare cover for fuel storage, waste containment, and spoils.
Secure structure from elements. Identify and cover openings, such as exposed or vulnerable sections of the roof, windows, elevator shafts and partially completed exteriors that may be damaged by high wind or excessive rainfall.
KEY CONSIDERATIONS FOLLOWING A MAJOR LOSS EVENT
Notify insurance companies of a pending loss. Work with the insurance broker to provide timely notification to insurance companies.
Return to jobsite as authorities permit. If practical and safe, conduct a walkthrough to identify damage and begin initiating loss mitigation measures and corrective actions, including notifying specialty contractors as needed.
Check with insurance advisors on best ways to conduct jobsite physical damage assessments. In some cases where large areas may be inaccessible for extended periods, drones or even satellite imagery may be used for preliminary exterior, leakage, perimeter and surrounding property damage assessments.
Work with the insurance or claims advisor to establish a team to develop and manage builder’s risk claims. Team members can include the insurance broker, claim advisor/consultant, attorney, accountant, human resources, and managers and supervisors overseeing specific aspects of the jobsite that sustained damage or may be subject to related delays. Appoint a claims leader to make sure all aspects of the claim are managed, monitored and communicated to all internal and external parties on the claims team.
Develop an initial loss estimate. As quickly as practical, work with the team to prepare a preliminary estimate of loss for planning, reserve and advance purposes. Work with the insurance or claim advisor to make sure the estimate is as complete and accurate as possible. This will help avoid disputes with insurers and related delays in achieving insurance recovery.
Prepare comprehensive reports of claimed losses. These should include schedules summarizing hard and soft cost losses; a detailed analysis of loss elements, including delay; supporting documentation, such as invoices, financial documents and photographs of damages.
Recognize the limitations of historical data in calculating extra expense and delay costs. Be aware that straight-line trending or averages may not tell the whole story. Loss documentation should be supplemented with narrative, updates or other information to arrive at actual projections.
Finally, be sure the claims leader closely monitors and manages the claim adjustment activities, including a claim audit by the insurer, until a settlement is achieved.
In recent years, severe weather events and related catastrophes have been occurring with greater frequency. By practicing sound risk management and getting on top of their insurance claims, contractors will be in a better position to minimize the financial impact of these events and expedite their recoveries.
