FSA warns contractors against cutting corners to save money.

RSA has warned construction bosses trying to save money by “cutting corners” that they face harsh penalties and even imprisonment.

David Smith, power and engineering director at RSA, said: “Insurance will represent a cost which will be built into the tender price, so inevitably it will be strongly challenged. The industry, however, needs to guard against driving premiums to an unsustainable level to fund claims costs.

“This can ultimately result in subsequent price corrections or even a lack of capacity to support builders or projects in the future. RSA’s approach is to charge a consistent risk-based price, adjusting our rates gradually to deal with claims trends and inflation as needed.”

Research from the Royal Institution of Chartered Surveyors (RICS) shows the construction industry is facing a miserable time in the worsening economic climate.

RSA says material costs are rising while contractors cut prices for work they put out to tender for subcontractors. The squeeze could lead to subcontractors cutting corners and jeopardising health and safety to win work. But RSA warns that the consequences could be far more severe than just a rise in insurance premiums.

“We want them to avoid cutting corners on safety in order to win work. As we all know, the Health and Safety Executive has the same focus,” said Colin Hamlin, RSA’s construction director.

“Not only might you have more accidents but there is also a more punitive regime that goes right through to corporate manslaughter. If you do have a fatality, not only do you risk your insurance premium going up, but a considerable fine and even imprisonment.”

RSA has also urged the insurance industry not to drive up premiums too highly.

According to the Tender Price Index, compiled by the RICS Building Cost Information Service (BCIS), by the end of the year, private housing is forecast to be down 28%, with a further 14% fall in 2009. Commercial is set to fall 12.7% in 2009.

BCIS said the dire property market would mean contractors and subcontractors simply have to “bear the brunt” of increased costs.