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Managing Risk in a Boom Market

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Breaking Ground - May/June 2018

Cohen Seglias partner Lisa Wampler is quoted in the Breaking Ground article, "Managing Risk in a Boom Market". Lisa gave advice for contractors on how to handle the 2018-2020 market boom for construction in Western PA.

By: Breaking Ground

Contractors don’t go out of business from not having enough work; they go out of business from having too much bad work. That (or some variation of that) is an old adage that is repeated because it’s true.

Pittsburgh has seen how this adage holds up over the past few business cycles. The majority of contractors in business before the 2008 crash remained in business throughout the recession and slow recovery that followed. Companies downsized and survived. Those that didn’t survive followed a similar path out of business: they bid too aggressively, landed a lot of no-profit work and failed when they ran out of money before completing it. That’s not a Pittsburgh phenomenon. It’s a universal recipe for disaster that happens when markets change across the globe.

The market in 2018 is one that has changed. While the past two construction seasons have been good to most firms designing or constructing, this year marks a jumping off point for construction in Western PA. As firms involved in construction prepare for a marked increase in activity during the next two to three years, there are different kinds of risks associated with a boom market that have to be considered. And while it’s true that profits should increase (and more profit always helps mitigate risks), there will be different kinds of risks associated with the 2018-2020 boom than Pittsburgh firms have faced in a generation. Some of them are indeed existential risks.

Lisa Wampler, managing partner for the Pittsburgh office of Cohen Seglias Pallas Greenhall & Furman, considers the timing of the surge in activity as beneficial to contractors. She sees that clients have had solid years in 2016 and 2017, building backlog coming into this year.

“I think the best advice to give in this kind of market is don’t drop your guard,” Wampler observes. “Mitigating risk is always important whether there’s a back log or not. Contractors should make sure they are still reviewing and negotiating their contracts, making timely notice of and preserving claims, and getting signed change orders for the work. You don’t want to give anyone an easy out to not pay you. Also, other busy markets have found themselves running out of labor. So, with an uptick in work, it’s a good idea for contractors to have a strong working relationship with the source of their labor.”

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