Bonds and Megaprojects Part 1
The recent surge in “megaprojects” across the nation isn’t just a phase. These behemoth construction projects, which require more manpower, time, and money than their smaller-scale contemporaries, are pushing the envelope of what we believe can be built. It’s also advancing the notion that, perhaps, bigger IS better when it comes to the development of new construction in both the public and private sector.
While some construction professionals are still arguing about the precise definition of a megaproject, most will concede that it includes projects valued in excess of $1 billion. Therefore, projects involving large-scale infrastructure, such as airports, bridges, tunnels, highways, power, and rail are typically considered megaprojects. Additionally, commercial structures like skyscrapers and hospital complexes qualify as megaprojects due to their sheer scope and complexity.
Due to the complex nature of these projects, there is an inherent risk associated with getting your firm involved; however, with considerable risk comes substantial rewards, and successful provisions of labor or materials can result in significant profits. To mitigate risk, bonds are typically employed to keep all parties responsible, owners and contractors alike. In this four-part series, the Miami construction lawyers at Cotney Construction Law will discuss bonds and megaprojects. Remember, as you take on increasingly complex building initiatives, a Miami construction lawyer can help you maintain compliance with all relevant laws.
High Risk, High Reward
The construction industry is changing to accommodate the needs of wealthy investors. These owners require large-scale projects to advance through the building process quickly without a dip in quality. To meet their needs, contractors are turning to cutting-edge technology and reworking their processes to incorporate fast-tracked delivery methods and partnerships between public and private entities. Many contractors are treading unfamiliar territory, which heightens the risk of failure if they are unable to engage with others and form cohesive strategies for taking on megaprojects.
Megaprojects can become derailed for a broad range of issues. Typically, the accelerated pace of construction and reliance on multiple parties is the catalyst for these problems, but with proper risk management from the initial contract negotiation to the final day of construction, such crises can be averted. That said, megaprojects are a high risk, high reward undertaking for contractors and owners alike, especially when you consider the fact that “a very significant percentage of major infrastructure projects are under-insured, some grossly under-insured or even lacking necessary coverage instruments.”
Good News for Builders
If there’s one thing working in favor of contractors, it’s that when owners are unable to have a risk covered or allocated, they are forced to self-insure the cost associated with that risk. One recent claim made against an owner on a project valued at $721 million resulted in a $297.8 million settlement for the contractor.
The reason? According to an article published by Risk & Insurance:
“The component of the claims attributable to alleged design and program management error dwarfed available coverage from the owner’s professional team, rendering the owner the insurer of a significant percentage of the risk of loss.”
This is good news for builders as long as the owner can cover the cost. If they can’t, it could lead to a drawn-out legal battle. If an owner refuses to pay you for the work you’ve contributed to the improvement of real property, consult a Miami construction lawyer from Cotney Construction Law.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.