Risk Management
(6 Minute Read)

What risks should you be thinking about as an Electrical Contractor?

If you run a small to midsize electrical contracting company, we can safely assume a few things about you: your organization faces a variety of risks and you, as a business owner, are wearing way too many hats. From marketing and competing for new business, to managing operations and finances, to hiring and training new employees, it takes a lot to keep the lights on. Out of necessity for simplicity, you’re probably just looking for the best price you can get for the basic coverage you need. Unfortunately, if risk is not properly assessed, your organization could face significant exposures. We work with a lot of electrical contractors. Though each electrical contractor (EC) has unique challenges and a different risk portfolio, we couldn’t help but notice that they had some risk categories in common. This breakdown can serve as a starting point for understanding the risks you face and developing a strategy to mitigate them.  

Primary Exposure Categories

Each electrical contracting company is unique. They are different in size. They take different jobs. Some have a company fleet while some let their employees use their own vehicles. Some work mostly commercial properties while others are almost exclusively residential. This variance means that each company will have different exposure to risk. However, by breaking down the categories of risk that they all face, we can create a foundation for assessing an individual company’s risk that will be a starting point for a custom risk mitigation strategy. For electrical contractors the most common risk areas are:  

  • Operational Exposure
  • Electrical Exposure
  • Equipment Exposure
  • Talent Exposure

Let’s dive into each of these in some more detail.  

Operational Exposure

The electrical contracting industry, like many contracting industries, is dominated by small to midsize businesses. A 2020 survey revealed that companies under 10 people and under $1 million in revenue account for over 60% of the industry as a whole. [1]  

Ross, C. 2020 Profile of the Electrical Contractor. Electrical Contractor Magazine. 2020. https://www.ecmag.com/section/your-business/2020-profile-electrical-contractor

Many small to midsize electrical contractors have humble origins. The founder and a small crew worked individual jobs and gradually built their business over time. But research shows that many of these smaller companies are growing. The survey referenced above also indicated that twice as many EC’s had added employees to their business than had decreased in size. [1] With growth comes added operational complexity. What was once a simple operation to keep track of gradually evolves into a team with multiple crews running multiple job sites. It means more contracts, more inventory required, and more risks:

Supply Chain Risk

The first operational risk to consider is your supply chain. Your relationship with component suppliers is crucial. If you receive inferior or counterfeit parts, the risk of fire or other damage on jobs increases drastically. It is also important to understand the volume and delivery times of your materials. If you can’t get components on time, you could experience job delays. If your primary supplier couldn’t get you your shipments for the next month, would you have enough inventory to get by, or secondary supplier relationships that could pick up the slack? Another key practice is testing components each time you get a new batch of materials and evaluating samples of components from any potential suppliers prior to adding them to your supply chain. A secure supply chain is a crucial element of risk mitigation for any EC.

Contract Disputes

Sooner or later you will run into contract disputes, or a customer who just doesn’t pay on time. This issue is compounded for smaller contractors. If you sink a significant amount of your crew and resources into one job that ends up having payment issues or disputes, you could be exposed to serious cash-flow issues. Practices like clearly laying out your terms (net 30,60,90), making the payment process simple and attaching payment information to every invoice are the starting point for mitigating the cashflow issues contract disputes can cause.  

Project Management

With more projects on your plate, managing designs, job sites, and contracts becomes increasingly complex. Many small contractors still operate on a paper filing system. This presents a risk of losing documentation and creating delays and stoppage of jobs. In a digital age it might be time to consider adding a tech stack to ensure more efficiency, and that nothing can slip through the cracks. Here are some of the top options EC’s should consider.

Electrical Exposure

One of the primary exposures for Electrical Contractors is their electrical work, shocking we know (pun very much intended). The Electrical Safety Foundation International (ESFI) tracks workplace electrical incidents in the United States and in 2019, there were 166 fatalities, and 1900 electrical injuries [2]. One might assume that electrical workers, who are around these risks on every job, would be hyper vigilant and make up a small portion of those incidents. That assumption would be incorrect. The construction, installation, and maintenance of electrical systems accounted for 65% of all electrical injuries. On top of injury and death, there are also significant risks presented by work that was substandard. Faulty electrical distribution is the third leading factor in over $1.3 billion of property damage, 500 deaths and 1400 injuries caused by 51,000 electrical fires in 2015 alone. [3]

If you are an EC, electrical exposure is something you can’t ignore. While you may have coverages for workers comp and jobsite liability, coverage is not a replacement for risk mitigation. ECs should have a strategy and training in place to mitigate and combat their risk whether it’s damaged insulation, improper grounding (the number 1 source of OSHA recorded violations), wet conditions, or just a general lack of accountability on jobsites. It’s all about creating a culture in which safety is a priority. For more on safety and how it is closely tied to your organization’s success—check out this short read.  

Equipment Exposure

Like many types of contractors, ECs have a significant exposure when it comes to the specialized equipment required to complete their work. Just a few examples of these tools would be circuit analyzers, circuit finders, voltage indicators and calibrators. Naturally, these specialized tools come with a price tag. Your organization may have insurance to protect you against loss or theft but your exposure isn’t limited to the cost of replacing tools.  

Lost Productivity  

Some specialized equipment, on top of being expensive, may have a long lead time for replacement or maintenance. This is especially true if you do any work that requires custom machinery or equipment. If your business relies on your equipment but does not have a replacement/backup plan in place, you could face long periods of downtime and be unable to complete jobs. If you are reliant on any individual piece of equipment, carefully consider what could happen if it stopped working.  

Malfunction  

Equipment that is improperly maintained can pose a liability that could cost your company more than replacement costs. Imagine your tech goes into the field with a voltmeter that is old in a bit of disrepair. That tech is now at risk of serious injury every time they test electrical components. Add to that the liability of completing a job improperly and creating future hazards that could cause property damage, injury, and more. It is important to have a strategy in place to ensure that inventory isn’t just safe from loss, but maintained properly as well.

Talent Exposure

Let’s talk talent. In our conversations with a broad variety of contractors, we found that a vast majority of small to midsize contractors shared one primary concern: how do we find, and then retain great employees. Many skilled labor industries are wrestling with this challenge and it poses a risk to both the short term growth of a company and its long term success.  

For ECs, the risk posed by attracting and retaining talent is very tangible. Let’s break it down. Electricians industry wide are approaching retirement age, with the bulk of the workforce sitting between the age of 55 and 64. [1]

Ross, C. 2020 Profile of the Electrical Contractor. Electrical Contractor Magazine. 2020. https://www.ecmag.com/section/your-business/2020-profile-electrical-contractor

To compound an aging workforce, fewer new electricians are entering the workforce. Projections show that a net deficit is developing that could find companies struggling to fill over 85,000 positions by 2024. [4] This shortage makes it all the more vital to attract quality employees and retain them for as long as possible. The industry is highly competitive, but the answer is not as simple as paying more than your competitors.  

Don’t get us wrong, ECs will need to strategize to provide competitive benefits. However, there are several other key elements to building an organization that attracts and retains the best of the best. We don’t want to give away all our secrets, but one secret weapon you should know about is organizational health. To learn more about how your culture can help you attract, retain, and empower your talent check out our post on organizational health.  

Where do I go from here?

The four primary risk categories we just discussed aren’t comprehensive. As previously mentioned, they serve to get you started on your risk management journey. As you think through the risks you face in these categories and beyond, you may find yourself asking “where do I go from here?”

If that’s you, welcome to the start of risk management: understanding that there is room to grow. As a business owner, it’s highly likely you wear enough hat’s already, and worrying about your risk portfolio and how to mitigate it may be a daunting prospect. We would recommend looking for a partner that understands the ins-and-outs of your industry and brings you real solutions to the challenges you face. Insurance hasn’t done a great job of that historically, but here at Ledgestone we are changing that. For more about our approach to breaking the status quo, feel free to check out our post on modern risk assessment.

We would love to learn more about you, your organization, and the challenges you face. Follow this link to get in touch.

References

  1. Ross, C. 2020 Profile of the Electrical Contractor. Electrical Contractor Magazine. 2020. https://www.ecmag.com/section/your-business/2020-profile-electrical-contractor
  1. ESFI. ESFI Occupational Injury and Fatality Statistics. Electrical Safety Foundation International. 2019. https://www.esfi.org/workplace-injury-and-fatality-statistics
  1. ESFI. ESFI: Home Electrical Fires Facts, Statistics and Safety Tips. Electrical Safety Foundation International. 2015. https://www.esfi.org/resource/home-electrical-fires-184  
  1. Bloom, S. & Mazur, J. Workforce of the Future: Attracting Young Talent to the Electrical Contracting Field. Electrical Contractor Magazine. 2018. https://www.ecmag.com/section/your-business/workforce-future-attracting-young-talent-electrical-contracting-field