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Commentary: Commercial Spending Will Not Increase in Near Future

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There are a few bright spots on the horizon for the construction industry, though growth continues to be slow, according to the “2012 Construction Industry Report” from national insurance giant Aon Risk Solutions.

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The decline in the housing market has been so devastating that it will be a difficult recovery. The commercial market is a little better; however, a strong surge in spending in this area is still somewhat in the future.

More spending is evident in areas such as health care, energy, infrastructure, mining and natural gas. Natural gas exploration investment depends on the price of oil, which has been decreasing of late. This is all good news for heavy contractors that have maintained backlog throughout the sluggish economic cycle.

Businesses shouldn’t experience much change from Congress until after the 2012 presidential election, but some money is trickling out with the transportation bill and funds made available to states for specific transit projects. Efforts to pursue public-private partnerships are becoming more attractive in state and city government sector, since they can rely less on the federal government or rising tax revenues to manage even the most basic services for water, roads, courthouses, and the like.

Those contractors that have been studying this method of delivery and investing in the skill set to give themselves a competitive advantage will be sought after to collaborate with financial markets and public entities alike to support a win-win solution for the public.

From an insurance perspective, the right client can get the right deal, but insurers do see market correction on the horizon. Even though the insurance industry appears healthy after the first half 2012 results, most providers have not seen the impact of drought, fires and the series of earthquakes that have hit in the second half. It is likely that rates will continue to go up and capacity will shrink through at least the first half of 2013.

Contractors must work with their advisers to obtain the appropriate coverage and general contractors must be careful to review coverage terms provided by their subcontractors against contractual obligations. Insurers are both increasing rates and offering restrictive terms that may put a subcontractor in breach of contract before stepping onto the jobsite. Insurers still see many insurers tying coverage to written contracts relative to additional insured status; limits provided, aggregate treatment, etc.

Contractors are definitely in a changing insurance market, however short lived it might be.

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