The Dark Secrets of Catastrophic Loss Response
By Brandon Burton and Mickey Lee
When nature unleashes historic rage on our civilization, the restoration community mounts an unbelievable effort to preserve, stabilize, and ultimately restore billions of dollars of infrastructure, property, and life in general. The calling is heard by a unique subset of restoration professionals: catastrophic loss response providers. These seasoned, veteran contractors have become accustomed to uprooting their lives on a moment’s notice, literally leaving their families and homes in the rear-view mirror for weeks and months on end. They abandon the normal, daily regimen and dive headfirst into a world of slightly organized chaos where expectations, demand, production, and exposure are highly escalated.
Many in the water damage restoration industry have considered joining the effort in the aftermath of a CAT event. The sheer volume of potential work is an enticing proposition. Walking in blind, however, has been the death of many restoration firms. Roughly half of contractors that participated in CAT events say they wish they never had.
That’s because there are a tremendous number of complications associated with catastrophic loss response, many of which simply do not occur when working typical projects. These can include establishing and managing a base of operations, financial burdens from over extension, and the logistics of remote mobilization. Identifying and maintaining adequate infrastructure and resources in the wake of a catastrophe is an art in and of itself.
Likely one of the greatest complexities, however, is the management of people resources to do the work. Is your staff ready to leave their homes and families behind for weeks or months on end? How will you manage morale, housing, food, and the other basic needs to keep your team safe, healthy, and engaged?
Take the great north Texas freeze of 1990 as an example. The call came in just before Christmas that year, requiring those that responded to completely abandon the holiday, and a drive home for the holidays suddenly became several weeks away from home. These events aren’t planned, and it will be upsetting to many that are asked to mobilize. Anniversaries, birthdays, holidays — significant events in personal lives will oftentimes be missed.
These challenges make performing in a CAT environment difficult. Many also create risk to the contractor’s business financial health. Especially when you consider that pulling significant resources from the home market can leave the base business vulnerable and may cause regular clients to use competitor businesses. They may find good service with your competition, and you will have lost them as clients.
So, how do those that deal in this space do so successfully? First and foremost, planning is key. Each and every CAT event is unique and will require specific preparation. Hurricanes, major freezes, earthquakes, regional fires, tornadoes, heavy rain, rising water, and flooding — some will impact area infrastructure and eliminate basic services like restaurants, hotels, etc. Some will not. Decide which types of events you will respond to and which you will not based on their unique requirements.
Investment must be made into the necessary infrastructure ahead of time, and relationships with suppliers of temporary labor, equipment, and other resources must be vetted and locked down. Consider utilizing those resources at some interval within the normal business. This will allow you to maintain the relationship and manage through the logistics and ensure the process will flow properly when it’s “go time” for a catastrophic loss response.
The list of resources to plan for is extensive. Take any given project in your local market and think through each step of the workflow.
- What is required to complete each task?
- How many people will you need and at what skill level?
- What equipment will you need and how much power?
Document every asset that is required to complete the step, and then solve how you would supply that asset away from your home market. Resources to plan for start with people.
- Who is ready and willing?
- Will you compensate or bonus them differently for their work?
- How will you supplement your staff to meet the needed capacity?
- Where will you source equipment? How will you power it?
You won’t have house power in most cases, and fuel will be a challenge; where will you source it?
Lastly, look to the legal risks to your business. Licensing requirements, mold regulations, contract structure requirements, and other legal obligations should be reviewed by a business attorney familiar with the region you plan to respond to. Decide where you’ll respond and secure the legal instruments and licensing necessary for that area.
Then, work to presell contracts whenever possible in your target markets. Consider only responding if you can secure an anchor project: A secured contract where you know you have the work when you arrive. This may require a dedicated resource to presell contracts in the off season or to send as initial boots on the ground in the onset of the event. In either case, having an anchor project with a secure contract will alleviate much of the potential financial risk. Once you secure an anchor project you can do “missionary” projects in the area for additional work. Your initial mobilization costs will be your highest ones.
Just because the work is there doesn’t mean you want to take it either. Look for the red flags and be willing to turn down work. Look for customer issues, such as difficult or impossible expectations or unrealistically demanding timelines. Look for financial flags. Building issues are also a major red flag. Do an inspection before entering a contractual obligation. Does the building have signs of chronic water, contamination, or environmental issues that can lead to significant complications and risk? How responsive is the customer to their financial obligations within your contract, and what limitations are they suggesting or imposing?
Cash flow becomes a tremendous monster to manage in a catastrophic loss response and is one of the leading reasons many who make the attempt end up failing as a business. At the end of the day, your response must be funded, and you must have a plan to manage an extended balance on accounts receivable. Ensure your credit lines and cash reserves are healthy and that your systems to secure responsibility for payment are structured properly.
Many go into an event with a residential mentality wherein the insurer is the customer. If you’re taking on commercial work in a CAT event, you must be very clear who the customer is and get a contract. Consider running a credit report on the customer, especially for larger projects, and require stage payments to manage cash and exposure.
Then, when you do respond, be prepared to learn from the experience. It will be critical to be honest with your self-assessment. A catastrophic loss response “post mortem” at the end of a CAT season is crucial: What did we do well? What did we do not so well? Then use the answers to those questions to inform preparation for the next season.
Mickey Lee, WLS, CSDS, has over 35 years of experience in construction, structural drying, and restoration services. In addition to serving as chairman of the ANSI/IICRC S500 Standard and Reference Guide, Fourth Edition, consensus body, he also served on the original advisory committee of RIA’s Water Loss Specialist certification program. His career has taken him to nearly 40 major catastrophe and multiple large-loss operations throughout North America, Europe, and Australia.
Brandon Burton is vice president of technical applications for Next Gear Solutions. He has spent more than 22 years working in technical roles within the restoration industry. He served as the ANSI/IICRC S500 Standard and Reference Guide chapter chair as well as an RIA restoration council member.