Risks faced by self-employed builders and how to minimise them

A self-employed builder on a building site looking at an iPad.

Being self-employed, in any business sector, comes with a multitude of risks that full-time employees don’t have to worry about.

As a self-employed builder you will encounter a number of risks that you need to be aware of, differing with every job. Few industries face a similar variety and volume of risks as the construction industry.

We look at some of those risks, how you can manage or mitigate them, minimising your exposure to the risk of accidents and claims.

The unpredictability of building work

Every building project is unique and more unpredictable as a result. Even small construction projects require a number of different tradesmen to be involved, such as a: builder, bricklayer, electrician, plumber, plasterer, or decorator, all of which must be managed by the main building contractor. On top of this, there are the issues of materials supply, the weather, and labour. Not to mention the unpredictability of clients, who can be prone to moving the goalposts halfway through a project by making additional requests.

What are the key risks of building projects?

Construction risk management is important for the success of a building project. There are many building risks for self-employed builders to be aware of, including:

1. Design risks (misinterpretation of designs or plans)

a) If you provide designs for your clients and there are errors and/or omissions from your designs, then you could be subject to a negligence claim and the cost of correcting the designs.

b) The agreed design timescale overruns, which can occur due to pedantic changes, illness of a key person in your design team, or needing to change the designs to keep costs down.

c) You are provided with designs by an architect, but you misinterpret the designs or use substandard materials, both of which breach the conditions of the contract.

No matter how diligent you are, mistakes can still be made. To ensure you are covered, it is important to hold professional indemnity insurance which will respond if a claim of negligent work is made against you or you make a significant error in your work, both of which cause your client a financial loss, such as extra costs added to the build.

2. Health and safety risks

A building site is a hazardous environment and is home to many health and safety risks, including:

• Manual handling.
• Heavy lifting.
• Working at height.
• Moving objects and/or machinery.
• Working with plant machinery and power tools.
• Walking on uneven ground.
• Potential for trenches to collapse, especially after heavy rainfall.
• Excessive noise.
• Hand and arm vibrations from using power tools, compactors and drills.
• Potential exposure to asbestos.
• Working with electricity.
• Dust, airborne fibres and other materials.

Accidents will happen, no matter how careful you are. Some injuries can be minor and dealt with in situ, but many work-related injuries and sometimes illnesses, require hospital treatment.

A full risk assessment is important to ensure your business, your staff, subcontractors, and your client are protected. Preventative measures will help to minimise the risk of accidents.

3. Planning applications, right of way and public objections

a) Planning applications can be rejected.
b) Temporary construction permits can  expire.
c) There can be contradictions in construction documents.
d) Right of way access can cause plans to be redrawn.

All these risks can cause building projects to stall and increase costs. To mitigate these, it’s vital to plan ahead and ensure all assessments are thorough prior to a project breaking ground.

4. Construction risks

a) Changes in technology.
b) Property costs can overrun.
c) Unplanned work that needs to be accommodated.

To mitigate these risks, close monitoring of costs, such as prices of equipment, materials and labour are required. It’s important to bear in mind that there is not one single factor that can control the cost of a project, there are many, which can be categorized as the 5Ms.

1. Man;
2. Materials;
3. Machinery;
4. Methods;
5. Miscellaneous. (2)

5. Organisational factors

With the rising costs of goods, materials, and fuel, there can be delays caused by your supply chain, such as delayed deliveries from lack of drivers or strikes at ports so imported materials do not arrive at trades suppliers on time.

Internally, you can struggle with inexperienced staff and even a high employee turnover. If you use the services of subcontractors, then you are beholden to their work diaries.

6. Project management

Managing a building project successfully takes skill and organization, whereas an untidy, messy and hazardous environment is anything but helpful when it comes to being organised.

Issues with project management can include:

a) Missing paperwork.
b) Failing to comply with contractual obligations.
c) Contractor delays, such as subbies running over on other jobs and pushing your job schedule back.
d) Conflicts between your internal team and your subcontractors.

Clear communication and intelligent management of which subcontractors are onsite and when can be key to a harmonious and efficient construction site.

7. Environmental risks

The modern-day builder has a lot of environmental considerations to factor into any project. An incomplete environmental risk analysis can cause problems for a project further down the line.

The risk assessment identifies aspects of the building work that could have an impact on the environment. The main contractor is then tasked with devising ways to eliminate the identified environmental impacts. Therefore, it is important that the risk assessment is thorough and complete so correctly informed decisions can be made.

8. External factors

Last in our list, but by no means least, are the external factors that you simply cannot foresee or control.

Public objections can be a big headache for building contractors. Planning applications for builds, which may obstruct views that neighbours enjoy and do not want tarnishing, can be rejected, resulting in compromises. This can cost a lot more money in terms of redesigns and can also delay project completion, which means the builder in question then must either rearrange their project diary, or they must find a contingency plan for future projects such as taking on more staff.

Rising inflation causes all costs to increase, with fuel and material costs rising monthly, this can cause profits to be significantly reduced from what was originally calculated when the building project was quoted for.

Close monitoring of economic trends and process, as well as planning ahead, can minimise the impact of external factors on your building project.

Builders’ public liability

As the lead contractor for a building project, you are ultimately responsible and therefore you carry the most liability and the highest risk of potential reputational damage.

Therefore, it is important that you cover all bases both in terms of preventing risks from causing problems for your building projects, to ensuring your business is protected in the event of a claim, if something doesn’t go according to plan.

Be sure, get covered with builders’ liability insurance

Ultimately, the only way to be sure your business is protected, in case something goes wrong with a building project, is to ensure you’re adequately covered by builders’ public liability insurance for self-employed building contractors.

The following trades insurance policies offer a high-level of protection for you and your business, for your customers, and for members of the public.

• Builders’ public liability insurance (PL) – PL cover protects your business if a claim is made against you for damage to a customers’ property whilst working on a building project. It will also cover you if you are alleged to have caused an accident. As an example, you are operating plant machinery and do not properly safeguard a machine after using it, which causes an accident, injuring a subcontractor. The subcontractor makes a claim against you for compensation for loss of earnings.

• Employers’ liability insurance (EL) – This policy is a compulsory insurance requirement under the Employers’ Liability Act (1969) and it is a criminal offence not to carry cover if you employ staff. The legal minimum of cover is £5million. The policy will enable you to meet the cost of compensation for your employees’ injuries or disease. Cover can include medical costs, legal costs, and loss of income, as well as other damages.

Example being: your employee could fall from a ladder, severly injuring themselves, an employee working with drills for hours develops a repetitive strain injury, or a former employee may contract a disease because of work they undertook while in your employment, such as being exposed to asbestos.

You can be fined £2,500 for every day you are not covered. You can also be fined £1,000 if you do not display your EL certificate or if you refuse to make it available to inspectors when they ask for it. (1)

• Occupational personal accident insurance - How would you cope if an injury or illnesses prevented you from being able to work? This policy provides financial help should you suffer from an injury or illness and can incorporate cover for business and holiday travel worldwide in any one year for you and your family.

• Tools and trade materials insurance – Tool theft is common, so it pays to have your tools insured. Extending your trades insurance policy to include tools cover could save you a lot of money, reduce stress and help you get back ‘on the tools’ quicker. Tools insurance can also cover you if your tools are lost or damaged.

• Contract works insurance - Sometimes known as Contractors All Risks, this policy is specific to builders and other tradespeople and is designed to protect building works in progress. The policy will cover the cost of having to re-do work that is part of a contract, including the cost of the tools, materials and labour required for the work, should existing work be damaged by fire, flood, or theft during construction.

• Plant Insurance – If you lease plant equipment, you are responsible for the ongoing hire charges even if the equipment has been damaged or stolen. Plant insurance is designed to pay the costs of continuing hiring charges you incur while the plant is replaced or repaired.

• Business content insurance - This type of cover will respond in the event your office contents are stolen or damaged, including: computers, furniture, stationery and important documents and plans whilst within your property.
You may not own business premises, but your company may own expensive contents such as laptops, mobile phones, and other equipment. In which case a business contents insurance policy would still be a great way to protect your property.

• Stock insurance - This policy covers the cost of replacing your stock if any of it is lost, stolen or damaged and is typically available as an extension to a business contents insurance policy.

• Professional indemnity insurance (PI) – PI cover will respond to pay your legal costs, as well as compensation payments that may be due, if your client takes legal action against you for a mistake you’ve made when providing professional services, advice or designs. Without this cover, you'd have to defend any allegations of mistakes out of your own finances - which is why PI is regarded as essential insurance for businesses.

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1. https://www.gov.uk/employers-liability-insurance 2. https://www.schedulereader.com/blog/how-to-control-cost-overruns-in-construction-projects/

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