How Contractors Leverage AI Could Provide Key Risk Management Insights

BY CARL OLIVERI

When someone mentions “technology,” what comes to mind? Your answer likely varies based on your habits, preferences, and knowledge of current trends—reflecting how uniquely we all experience technology in our daily work and lives.

In the construction industry, which typically adopts technology 6-18 months behind other sectors, each firm defines and implements technology differently. As one construction executive remarked recently, “Let everyone else figure out how it is supposed to work. Then we can adapt it into construction,” reflecting a cautious approach to innovation common throughout the industry.

However, according to Grassi’s Construction, Architecture & Engineering 2024 Conditions and Outlook Report, many firms expressed serious interest in upskilling technology:

For 62% of General Contractors and 46% of Subcontractors who are actively exploring technological investments, Artificial Intelligence is the second-ranked investment priority among those listed:

From a surety perspective, understanding how contractors define and approach technology tells a larger story about their risk management and innovation approaches. The Artificial Intelligence adoption curve provides a critical window for surety providers to become experts on how AI usage impacts contractors’ risk profiles.

When evaluating contractors, consider how these key technology applications can impact operations and risk:

Key AI Applications And Their Impact On Risk Assessment:

Cost Reduction

AI offers contractors powerful opportunities to optimize cash flow and maximize ROI. AI-powered financial forecasting enables more accurate job costing and company-wide budgeting. These advanced forecasting capabilities signal stronger financial health, better resource planning, and greater project stability. As a result, sureties may become more comfortable extending credit due to the increased accuracy of project estimates and financial projections.

Design and Planning

While Building Information Modeling (“BIM”) has been common practice for years, AI modules further streamline design processes, helping contractors create more optimized building plans. This technology reduces costly change orders and resource strain that sureties should consider when assessing a contractor’s project management capabilities.

Project Management

Contractors increasingly use AI to run predictive analytics for projects, considering historical data, resource allocation, and external factors like weather to anticipate risks. From a surety perspective, more accurate project schedules will enable contractors to adjust timelines in real-time while minimizing delays and risks, leading to timely project completion and reducing the likelihood that a surety would need to intervene.

Resource Allocation

When resources are limited, a contractor’s ability to optimize the distribution of labor, equipment, and materials directly impacts working capital. AI can predict when and where resources will be needed, helping contractors allocate resources more stably and strategically. This leads to greater financial transparency, fewer surprises, and improved ability to track performance for sureties.

On-site Automation

AI can help contractors meet workforce challenges despite industry-wide labor shortages. Contractors can use it to streamline repetitive tasks like bricklaying and material handling or enhance autonomous construction vehicle fleets with real-time “decision making,” creating a key consideration for bond producers assessing contractors’ ability to fulfill obligations.

Safety

When assessing contractors, strong safety practices indicate broader risk management capabilities. Contractors can use AI-driven wearable technologies to track laborer health and fatigue better or leverage AI-powered monitoring systems to detect hazards and prevent accidents.

Quality Control

From broken sheetrock to defective curtainwall components, waste and defects are inevitable in construction work. AI-powered visual inspection systems can identify quality issues in real-time, helping contractors avoid expensive rework and delays while improving project completion timelines. Additionally, AI will soon be utilized to monitor structural integrity throughout the construction process.

Sustainability

As owners increasingly demand more energy-efficient construction, AI is helping contractors develop optimized designs and integrate smart building systems that monitor consumption and improve resource management. Contractors embracing these technologies demonstrate adaptability and high potential for long-term viability in a sustainability-focused market.

Technological investments should be considered in the surety’s underwriting strategy as they represent a key component of their approach to risk management and innovation. Over the next few years, contractors who strategically implement AI will demonstrate greater efficiency and adaptability and accomplish greater project stability and successful completions. By understanding how contractors define and apply technology to address business challenges, surety professionals can gain valuable insights into which partners are positioned for long-term success.

Carl Oliveri is the Construction Practice Leader and a partner at Grassi. He possesses over 25 years of experience advising owners and executives within the construction industry, particularly in regards to project-centric and companywide financial modeling, operational strategy development, financial statement attest services and income tax method analysis. Oliveri is a participant on the NASBP CPA Advisory Council. He can be reached at [email protected] or 212.223.5047.