What does $3.4 million in liens filed against a oncesuccessful construction company and Construction Risk Management have incommon?

It was reported by The Florida Times-Union that a oncesuccessful and prominent construction firm, in business for 78years, had 20 liens in excess of $3.4 million filed against them ina period of 3 months. It was noted in the article that a key factorin these filings was that the firm had five major projects nearingcompletion at nearly the same time. Additionally, the firm wasquoted as saying that disputes over payment and several costoverruns had aided in the default of payment to its subcontractors.This combined caused the firm to fail on its obligations andeventually dissolve. The financial shortcomings of the constructionfirm meant that a bond insurance company had to be called in tohelp complete the projects. Unfortunately, stories of thisnature happen all too often.

So you may be asking what does this story have incommon with Construction Risk Management?

Simple: Construction Risk Management, specifically fundscontrol and construction progress monitoring, could have helped toprevent the issues that occurred during the construction firm’sprojects. Funds control and construction progress monitoring,when used in conjunction, accomplish the following:

• Ensure that there is no comingling of a project’s funds withanother project’s,
• Monitor the construction process to ensure that progress is ontrack,
• Help to minimize overruns by tracking change orders; and
• Payment of the subcontractors directly each month forthe amount of work completed during that draw period.

What exactly is Construction Risk Management and howdoes it differ from a Bond?

Construction Risk Management is comprised of severalaspects to help ensure that the construction process goes smoothlyand to ensure that a project is not halted prior to completion. CRMis a recognized bond alternative by many banks and governmentagencies. Additionally, construction risk management costs less tothe client than a bond. A bond usually costs 1-2% of the projectcost, while CRM will cost significantly less – typically about 1/3to