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The Moral Hazard Problem in Construction
Moral Hazard is simply defined as "having the ability to pay will make it more likely that you will be made to pay"
In common parlance, if someone is very rich, he or she is more likely to get sued. Alternatively, if a doctor has a substantial malpractice insurance policy, he will more likely have a suit brought against him.
The Moral Hazard Problem is a paradox in construction. It follows the same logic, insured contractors are looked to solve a project problem. Those owners who are “additional insured" and those "held harmless" will not (cannot) be sued.
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Matt Stevens is a management consultant who works only with construction contractors. He has performed training and business consultation for the contracting community since 1994. Matt can be reached at mstevens@stevensci.com.">mstevens@stevensci.com.
search terms: Pre-construction, post-mortem, lessons learned, Managing a Construction Firm, Profit Strateg, Estimating, Project Manage, Accounting, Bidding, Pricing, Labor Rates, Insurance, Claim, Worker's Comp, liability
Posted by Matt Stevens at October 25, 2005 9:31 PM