How to Mitigate Financial Risk as a GC on a Project

Large-scale commercial and residential construction projects carry a lot of risk for all parties involved. Generally, it’s in everyone’s best interests for the project to succeed on time and on budget. However, in construction, when projects can last for months on end, there is a lot of time for things to run off-course.

Some examples of unexpected obstacles that can hinder a project’s success include budgets running out of money mid-way through or the lending institution deciding they won’t fund further construction. When issues like these arise, it can lead to tense disagreements and unwanted financial burdens. This is why it’s imperative to put safeguards in place prior to beginning any kind of construction project.

Getting Your Financial Ducks in a Row as a GC

As a general contractor (GC), it’s essential to protect yourself from incurring unplanned financial burdens and to do what you can to mitigate risk. One way to do so is by putting in contractual safeguards to reduce the unwanted financial impact on your business.

Here are examples of steps you can take to reduce your financial risk as a GC.

  • When you set up your project contract, require the project owner to purchase some of the materials to mitigate your risk as a GC.

For example, the owner could purchase windows or mechanical supplies directly so the financial responsibilities still fall on them. You, as the GC, will still coordinate and ensure everything is appropriately selected and installed, but the financial burden of the materials cost will fall on the owner rather than the GC. This is important if the project were to stall or end completely.

  • Insist on payment deposits to transfer the financial responsibility and risk to the owner.

Examples may include requiring the owner to put down deposits for certain materials or to cover construction mobilization costs. When these costs and fees are managed by the GC, they can be hard to recover if the project ends unexpectedly.

With the economy so in flux, it’s important to protect yourself as a general contractor and business owner. At Seacoast Construction, we’ve found putting some of these safeguards in place can be helpful in mitigating our financial risk on projects, while still being able to deliver superior service. If you have questions about commercial construction in South Florida, please don’t hesitate to get in touch with us.

 

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