50 Predictions: Construction & Engineering - DAC Beachcroft

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50 Predictions: Construction & Engineering

Published On: 1 September 2016

Apprenticeship levy is too little, too late to address skills shortages

In January 2016, with annual growth of 2.5% forecast for the construction sector, it was estimated that 232,000 new UK construction jobs would be created in the next five years, leading to calls for more trained workers. Contractors currently face serious skills shortages in bricklaying, carpentry and other services and demand for skills post-Brexit is likely to remain high. The new apprenticeship levy due in April 2017 seems too little, too late: the industry and its insurers may bear the consequences. Contractors have been increasingly reliant on unskilled migrant workers to fill the gaps and keep projects on target. Language issues and the variation in international construction practices have brought a host of health and safety risks, a potential increase in accidents and more defect and damage notifications. The future supply of migrant labour is unclear but these issues are likely to continue and a loss of reputation will follow. In these changing times an eagle eye on the use of the qualification framework, and a more diligent, broad-ranging approach to supervision are now an essential daily reality as the demands of projects increase.

Modern methods of construction may be the future but what are the risks?

There is a serious shortage of low cost housing resulting in a relentless search for faster, more economic ways to produce sustainable buildings. The answer could lie in new methods of working, off-site fabrication and the modern use of traditional materials. These may, however, bear additional risks for insurers. For example, greater use of timber increases fire risks; the erection of straightforward components by unskilled labour may result in defective connection of pre-fabricated panels and pipes; processed assembly replacing specialist trades may also undermine fire protection and compartment integrity; and minor pod assembly damage may require whole pod replacement. Additional precautions are required to avoid many of the simple pitfalls. While weak premium growth will not support prescriptive or exclusory conditions, construction insurers must expand their survey horizons and impose a regime of constant risk improvement to avoid account deficits – small slips can result in large losses.

Building Information Modelling raises cyber security concerns

The insurance market’s march towards comprehensive cyber cover is yet to fully pervade the construction firstparty sector, but it is a journey the sector will soon have to make. The drive towards a common data environment now permeates every constituent of the construction process. The use of broadly accessed electronic data platforms (by owners, consultants and contractors) for all project information aids the coherent collaborative delivery of any modern construction project. The process has unremitting logical appeal but there is a darker perspective. Reliance on a broad interconnected wireless environment presents cyber security implications, especially as the diverse range of organisations sharing information possess differing levels of cyber security and awareness. Damage caused by malware (physical and financial) may arise through external or internal threats. A corrupted Building Information Modelling data network may severely disrupt operations in territory not covered by traditional insurance indemnities.

More regulation, larger fines and higher defence costs indemnity

Construction companies are beginning to recognise exposure to new regulations and, importantly, escalating fines for breach. The revised Construction (Design and Management) (CDM) Regulations 2015 carry a greater risk of criminal prosecution and reputational sanction following a site incident. Health and Safety Executive and local authority prosecutions have remained at constant levels in recent years but are now predicted to rise under the new CDM regime. CDM fines will be calculated under new sentencing guidelines and will involve much higher sums. While these cannot be insured, liability policies will more regularly be called upon to meet substantial legal expenses in the robust contests arising from such prosecutions.

Key developments in 2015/16