When talking about potential threats to development in New York City, most observers mention economic shocks, terrorist attacks or an end to Fed bond-buying. But according to some, rising insurance costs are just as damaging.
To keep costs down, developers are trying harder than ever to make construction sites safe — sometimes by unconventional means.
Drug testing and video surveillance in now being employed at building sites in a bid to limit injuries.
“Years ago, insurance used to be an afterthought. Now it’s a significant part of the project cost,” said developer Michael Stern, managing partner at JDS Development Group.
Largely to blame are New York’s strict labor laws, which hold owners responsible in case of injuries to workers. At the Steven L. Newman Real Estate Institute’s panel “Building Better – Boosting Your Construction Project’s Bottom Line,” several industry leaders voiced their worry over rising insurance rates.
“Insurance costs used to be three to five percent of construction costs in New York, now they make up six to ten percent,” said Christopher Franks, executive vice president at the insurance firm Willis of New York. “I know several projects in 2012 that were stopped because of insurance costs.”
“The main driver is labor law. New York is the only state with a liability law that doesn’t allow discussion over responsibility,” Franks said.
New York’s labor law states that an owner has a non-delegable duty to provide a safe work environment at a construction site. In practice, this means the owner is almost always liable for certain injuries, for example if workers fall off scaffolding or are hit by falling objects — regardless of whether the owner is actually at fault.
Laws in other states aren’t as strict, and it comes as no surprise that insurance rates in New York are significantly higher. According to Franks, insurance rates in New Jersey are only a third of those in New York.
In an effort to keep a lid on these costs, developers are placing more emphasis on construction-site safety in their agreements with contractors. “We are seeing a real safety culture emerging that wasn’t as prevalent five or six years ago,” said Stern at the panel.
Josh Shuster, principal at DHA Capital, added that his company hires safety consultants for all its construction sites.
Willis’ Robert Azarian, who helps contractors and owners create safe construction sites, has noticed that developers are increasingly willing to go beyond minimum safety requirements.
For example, Azarian told the Real Estate Weekly that vertical netting to prevent falling objects is required to be 60 inches high. But nowadays, these nets often span all the way to the ceiling, just to be safe.
Moreover, developers and contractors have come up with new measures to limit injuries. Azarian said that tool tattering — tying up tools to prevent them from falling — is a recent innovation in contracts between owners, insurance companies and contractors.
Testing construction workers for drugs is another practice that has become more common. After all, drunk or high workers are more likely to fall or drop something.
“Developers of a lot of your larger high rise buildings are starting to consider this,” said Azarian. “But it’s still in infancy. We went from drug testing not even being considered, to it now being considered.”
Developers are not just doing more to prevent injuries, they are also increasing efforts to stop abuses of the law. Christopher Franks recounted how a construction worker for one of his clients fell without hurting himself, but later claimed that the fall played a role in a different condition — which played out to his financial advantage.
“We need to do everything we can to limit abuse, that’s why video cameras are more common now,” said Michael Zetlin, a senior partner at the law firm Zetlin & De Chiara LLP.
“Some of our high-profile jobs have cameras,” said Azarian. “If anything happens, we have it on tape. This helps us defend the claims.”
But Azarian cautioned that cameras are rarely installed on every floor of a high-rise building, limiting their use. Moreover, methods such as drug tests and video cameras are often curtailed by labor agreements with unions.