Insurances 2

Question 1

What are excepted risks?

Answer 1

Areas where insurance is not required e.g. terrorism

Question 2

Explain the reinstatement procedure for works insurance option A and B?

Answer 2

Option A - reinstates work through interim valuation

Option B - treated as a variation

Question 3

A client has received notification from the contractor that terrorism cover has been haltered by its insurance broker. How would you advise the client?

Answer 3

Tell them to take out insurance cover from another provider. If they can’t take out cover then they have to notify the client - the client can then take the cover out and deduct it from the next payment.

Question 4

What is meant by the term subrogation? What can you do to safeguard against it?

Answer 4

Subrogation is the legal right of insurance provider to legally pursue a third party that caused an insurance loss to the insured.
Joint names helps to safeguard against it.

Question 5

How does NEC3 distribute risks between the employer and MC? Does this differ from JCT SBC 16? How does this affect the MC?

Answer 5

It allocates risks to the client and will list these. All all risks will belong to the contractor until there is the defect certificate.
Differ to JCT as they are opposite way around - contractor gets certain risks and all rest are with the client and it only carries on until the completion date.

Question 6

How has NEC4 addressed the situation?

Answer 6

Lists employers liabilities and the main contractors liabilities - it still goes on till the defect certificate.

Question 7

Is there a problem for the MC if he only takes out insurance for the minimum amount of cover?

Answer 7

MC will be liable for any shortfall if insurance is greater than that they have taken out.

Question 8

What are bonds?

Answer 8

A means of protection against the non performance of the contractor.
Can be on demand or conditional.
Cost of a bond is normally borne by the contractor.

Question 9

Explain the different types of bonds available within the construction industry?

Answer 9

Performance bond - commonly used as a means of insuring the client against the risk of a contractor failing to fulfil obligations. Typically set at 10%.
Advance payment - secures against default of the contractor if an upfront payment is made
Maintenance bond - protects against defects and faults in materials
Off Site Materials bond - contractor may make a large payment for plant and materials that have yet to be delivered to site;bond might be up to the value of materials which are offsite.
Retention bond - client agrees to pay the amounts which would otherwise have been held as retention
Defects liability bond - used to ensure the contractor continues to provide services

Question 10

What is a performance bond? What are the advantages and disadvantages of Parent Company Guarantees V Performance Bonds?

Answer 10

Performance bond - relates to the contractor; if the contractor does not perform the the bond will cover the losses.
Adv- if you use a small contractor then the main contractor will provide the guarantee.
Disadv - bond may directly impact on the tender price, however the guarantee may not

Question 11

Is there a problem for the employer who assists the contractor by making an advanced payment?

Answer 11

Advance payment will help the contractors cash flow.
Problem would be if the contractor was to go bust before carrying out or completing any works. To prevent this, the employer should take out an advance payment bond (under JCT).

Question 12

Explain retention bonds and advanced payment bonds - how do they work?

Answer 12

Retention bond - is a % of the amount certified as due to the contractor on an interim certificate that is retained by the client. Used to ensure the contractor completes the works.
Advanced oayment bond -

Question 13

Explain retention bonds and advanced payment bonds - how do they work?

Answer 13

Retention bond - is a % of the amount certified as due to the contractor on an interim certificate that is retained by the client. Used to ensure the contractor completes the works.
Advanced payment bond - upfront payment to contractor, bond can be used to secure the payment by default.

Question 14

Why must a % for retention be included in the contract particulars? Why should a retention statement still be produced?

Answer 14

Must be included in order to ensure that the contractor properly completes the activities required of them under the contract.
Statement should still be produced as retention must be released as required for each individual trade contract.

Question 15

How do you claim under a retention bond?

Answer 15

Can only claim if practical completion is not complete or if they prevent a certificate of making good defects from being issued.

Question 16

What is project insurance? What advantages does it offer?

Answer 16

Collectively insures the client and all other alliance partners.
Advantage is that it should offer openness and honesty.

Question 17

What is latent defects insurance? How much does it cost? What advantages does it offer?

Answer 17

Covers against unexpected defects which are not discovered until the work is complete. It is limited to defects in the structure.
Runs from date of practical completion for 6,10 or 12 years.
Advantage - speeds up resolution for the client.

Question 18

What is collateral warranty and why do we use them?

Answer 18

Provide duty of care which is extended by one of the parties to a third party who are not part of the original contract.