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General contractors: industry overview and trends to watch

NOV. 01, 2020

General contractors plan, budget and manage the construction of a project. Among other responsibilities, this often includes overseeing several tradespeople, including plumbers, HVAC contractors, electricians, roofers and carpenters.

Projects are diverse and may include new builds or renovations of structures such as retail stores, apartment buildings, manufacturing plants or high-rises.

General contracting companies vary greatly in size and areas of specialty. Some general contractors, such as paper contractors, do little to no construction work of their own. Other general contractors perform different types of structural work (e.g., framing, rough carpentry, steel erection or structural masonry).1

General contractors don’t fall neatly into one NAICS code. This is because the definition of a general contractor is relatively broad, covering a wide variety of entities and individuals who focus on projects both large and small. Classifications may include:

Industry outlook and trends

The outlook for general contractors is relatively positive. According to IBIS World and the Bureau of Labor Statistics, there are approximately:

    • 3,233,406 construction businesses2
    • 9,261,441 construction jobs2
    • 471,700 construction manager jobs3

In addition to this positive outlook, revenue for all of construction is approximately $2 trillion, and the industry has seen 3.3% annual growth over the last five years.2 Together, these statistics show a growing construction industry, which is likely to benefit general contractors.

In terms of demand, there’s not only a need for new buildings but for interior refits for new commercial occupants and building renovations as well. This is particularly true when it comes to making structures more energy-efficient. General contractors ensure these types of projects are finished on time and on budget.

Overall economic conditions

It’s no secret that the construction industry is tied heavily to the economy: The Great Recession from 2007 to 2009 was estimated to have cost the United States around 1.5 million construction jobs. And while the industry has since rebounded, a number of factors -including global trade tensions, tariffs and protectionism – have introduced uncertainty to the overall economy.

Despite these concerns, analysts are optimistic that the construction industry will continue to grow. In fact, the construction industry is poised to grow at nearly 2% for 2020 and somewhere between 1.5% and 2% for the next five years.5 In this environment, general contractors are typically able to find a sufficient number of projects.

Employment trends

Hiring for skilled trades continues to be a challenge for many general contractors, particularly in the face of a labor shortage. While there is a growing demand for construction projects, supply of labor may be an ongoing problem. In fact, the labor market is so tight for the construction industry that, according to the Associated General Contractors of America, 82% of construction companies expect filling positions to be difficult for the foreseeable future.6 There are a number of factors contributing to this shortage:

    • Overall, unemployment for all industries is low. When unemployment in construction peaked at 27% in 2010, many workers opted to leave the industry entirely and find work in other areas. This has created a significant gap that has yet to be filled.
    • Technical and vocational schools have fallen out of favor, and more high school graduates are pursuing four-year degrees and opting for other industries.
    • According to a survey from the National Association of Home Builders, only 3% of young people ages 18 to 25 are interested in pursuing a career in construction. And for individuals who didn’t know which career to pursue, 60% said it would definitely not be in construction, no matter how high the pay.

To combat the labor shortage, some general contractors are increasing pay and offering better benefits to recruit and retain employees. However, this is just a short-term strategy, and construction firms will need to embrace technology if they are to attract and retain the next generation of employees. Labor shortages will be an important trend for the insurance industry to monitor, as they can sometimes have a negative impact on work quality. For a look at strategies that general contractors can use to address labor shortages, review our article on recruiting the next generation of construction workers.

Technology Trends

While general contracting is far from a new industry, emerging technologies are playing a bigger role than ever before.

    • Smart project management – Real-time data can help project managers make more informed decisions on things such as scheduling and purchasing building materials. This technology can also make documentation of projects easier, leading to greater efficiencies.9
    • Drones – In addition to taking useful aerial photographs of a site, many drones have thermal imaging capabilities and aid in the inspection of areas that are difficult, time-consuming or unsafe to evaluate. However, general contractors looking to use commercial drones must have a drone program in place that accounts for Federal Aviation Administration compliance.
    • Wearables – This technology is designed to collect data related to safety, an employee’s location, worker biometrics and other key jobsite indicators. This data can be used to keep track of workers, improve efficiencies and reduce common employee exposures (e.g., heat stress and ergonomic injuries). It should be noted that wearable technology is still in its infancy, and its potential impact on the construction industry has yet to be fully explored.7
    • Robotics – Robots have been used in manufacturing for years and are a widely accepted technology. And, while far from common, robots are being used more and more in construction for repetitive tasks such as masonry, bricklaying and painting. Robots are yet another technology that could help with the labor shortage and improve safety by reducing musculoskeletal disorders caused by repetitive or high-intensity tasks.11
    • GPS and telematics – Managing risky driving behaviors is a concern for all fleets, and general contractors are no exception. GPS and telematics systems can identify unsafe behaviors and improve efficiency. This technology is being more widely implemented by general contractors and other contractors with light- and medium-duty vehicles.

Insights on major lines of coverage1

Exposures, precautions and lines of coverage that may apply for general contractors.

Property/inland marine

Exposures will depend on the size of the general contractor and how much work is self-performed. Property could range from an office in a strip mall to a larger office attached to a yard, with equipment and building materials. For these larger operations, storage of flammable liquids, such as gasoline and combustible building materials, can be an issue.

    • Precautions: Good housekeeping is critical to mitigating property exposures. Storage of flammable materials is a crucial component of this.

For general contractors, builders risk should be considered. For buildings under construction, temporary heating and lighting can increase the risk of fire. Notably, buildings under construction are statistically more likely to burn.

    • Precautions: General contractors should consider a builders risk policy to cover their property during the time of construction. In addition, good housekeeping and proper storage of flammable materials is important. Furthermore, general contractors should have an effective inspection program and ensure any heating or powered equipment is shut off before workers leave the job site.

Theft of a general contractor’s property is common and a significant concern. Often, they may store expensive tools and equipment on the job site. Additionally, it’s not unheard of for criminals to steal heavy equipment.

    • Precautions: General contractors need secure storage for tools and equipment and should never take that security for granted. Asset tracking systems can be used to help locate equipment in the event of a theft.

Workers/ compensation

Workers’ compensation exposures will vary depending on how much work a general contractor self-performs. General contractors that task employees with building structures will have significant fall and heavy-equipment risks to consider.

    • Precautions: A fully written and practiced safety program should be in place. Fall protection, trenching, crane safety and heavy equipment are especially critical elements of this program due to the potential for catastrophic losses. These programs require extensive training for employees, as well. Adequate subcontractor screening, signed contracts with risk transfer in the general contractor’s favor and verification of subcontractors’ insurance coverage is critical for project success.

Commercial auto

General contractors can have sizable fleets. In order to move heavy equipment and building materials, they may have truck and trailer combinations that require a commercial driver’s license and compliance with the Federal Motor Carrier Safety Administration (FMCSA). With these larger commercial motor vehicles, comes increased exposure on the road. Securing equipment and building materials on open trailers is critical for avoiding losses.

    • Precautions: General contractors should ensure that all employees who drive for the job have a valid license and acceptable driving records with regard to violations and accidents. More contractors are using GPS systems and telematics to monitor unsafe behaviors in their fleets. All drivers should be trained on defensive driving techniques. Those operating commercial motor vehicles should be trained on Department of Transportation and FMCSA requirements. Load securement training is especially important.

Liability

Because the general contractor is responsible for the project, completed operations liability exposure is very high. Not adhering to plans, using inadequate materials and failing to perform quality work can all result in significant losses.

    • Precautions: General contractors should prequalify their subcontractors. Ensuring the use of reputable subcontractors can reduce the likelihood of significant losses. In addition, they should emphasize keeping track of change orders, supervising the subcontractors and doing regular inspections.

While premises liability for general contractors is going to be limited to their offices due to the lack of public access, there are job-site risks that must be considered. Job sites can be particularly attractive to children and vandals, especially if they can enter the job site after hours.

    • Precautions: Job sites must be secured. Visitors should have to check in. Even authorized visitors should be checked in to help reduce premises liability concerns.

General contractors may take on contractual liability whenever they enter into a contract with a subcontractor. Typically, a subcontractor will agree to indemnify or reimburse the general contractor if they are sued. If contracts are not written correctly, the general contractor could be responsible for significant losses.

    • Precautions: General contractors should consult with an attorney for all subcontractor agreements. All subcontractors should sign the contract and provide an accurate insurance certificate with limits as established in the contract before being allowed on the job site.

 

Recommended lines of coverage: General liability, inland marine, property, workers’ compensation and commercial auto

Sources