Insurances and Bonds Flashcards
What are Excepted Risks?
risks that are expressly excluded from the contractor’s responsibilities
The excepted risks (that is, no indemnity required to be given or insurance effected against the excepted risks defined under clause 6.8.)
Explain the reinstatement procedure for works insurance Option A and B.
Option A
– Give notice to client
– Client sends out PQS to get a true valuation of the site prior to the damage
– Insurer goes out and asses damage & value – client receives money as MC waives the right for the money – MC reinstates work and paid in variations
– if reinstatement costs more then MC must pay the shortfall
Option B – If damage occurs on site to works what procurement does the contract state to make good?
A Client has received notification from the contractor that terrorism cover has been halted by its insurance broker. How would you advise the Client?
To take out cover in his own name and recover costs at the next payment.
can continue with works however will no longer be covered but can if under option a: instruct the Contractor to effect and maintain any
alternative or additional form of Terrorism Cover then reasonably obtainable by the Contractor;
the net additional cost to the Contractor of any such cover and its renewal shall be added to
the Contract Sum.
that on the date stated in the Employer’s notice (which shall be a date after the date of the insurers’ notification but no later than the cessation date) the Contractor’s employment under this Contract shall terminate.
if no notice given then terrorist act occurs contractor will restore and repair… but as a variation and will be paid for the works carried out.
Q6. What is meant by the term subrogation? What can you do to safeguard against it?
Subrogation is a term describing a legal right held by most insurance carriers to legally pursue a third party that caused an insurance loss to the insured. This is done in order to recover the amount of the claim paid by the insurance carrier to the insured for the loss.
in construction one can agree in the contract to waiver the subrogation rights to ensure that if one will not be sought out by the insurance company due to third party negligence.
How does NEC3 distribute risks between the Employer and MC? Does this differ from JCT SBC 16? How does this affect the MC?
NEC3 – allocates risks to client – everything else to MC from start date until defects certificate: The Employer’s contractual risks are listed under clause 80.1, and clause 81.1 provides that all other risks are carried by the Contractor until the defects certificate is issued.
JCT – Only up until practical completion (PC) – States what the MC is liable for and everything else is the client.
alot more risk on the MC in NEC 3 and far too broad this was changed in NEC 4
How has NEC 4 addressed this situation?
“Employer’s risks” and “Contractor’s risks” now “Employer’s liabilities” and “Contractor’s liabilities”
each party now know what they are liable for rather than only employers risk and everything else is the contractors risk
Under NEC what if there is loss / damage to the works after takeover? Who is responsible? What if the MC was not liable?
Falls under MC if before the defects certificate unless it’s the employer’s fault. Problem must be rectified loss or damage promptly.
If later found to be employers’ fault, then raise a compensation event.
Is there a problem for the MC if he only takes out insurance for the minimum amount of cover?
MC would be liable under NEC for any shortfall if only use the minimum cover.
What are bonds?
Bonds are a means of protection against the non-performance of the contractor. Meaning that if the contractor does not fulfil their obligations they will have to pay. The cost of the bond is usually borne by the contractor, although this is likely to be reflected in the contractor’s tender price.
two types: on demand and conditional: conditional meaning that the client will have to prove non performance.
Explain the different types of bonds available within the construction industry?
• Advance payment- client agreeing to pay in
advance
• Retention 5% held back to ensure MC does a
proper job
• Materials off site
• Performance
• Tender bond
What is a performance bond? What are the advantages and disadvantages of Parent Company Guarantees v Performance bonds?
Performance bond 10% of contract value usually held back until contractor has performed obligations in case of non performance
PCG – part of a larger company, take responsibility of their subsidiary company. PC do work, cheaper as don’t have to go to FI but PC could go under to.
Bonds may be more secure than parent company guarantees, but they are likely to have a limited duration and do not provide for completion of the contract, only for recovery of losses up to a certain value. PCG can last up to 12 years in regards to defects… if a deed.
Is there a problem for the Employer who assists the contractor by making an advance payment?
Can be used to help aid cash flow. However, if C goes bust then you lose it unless you have an advance payment bond.
Explain retention bonds and advanced payment bonds – how do they work?
Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate that is retained by the client. The purpose of retention is to ensure the contractor properly completes the works required under the contract.
Half of the amount retained is released on certification of practical completion and the remainder is released upon certification of making good defects.
Advanced bonds:
client agreeing to pay in advance if prelims or work carried out is costly and might effect MC cash flow. in place so that money is recoverable if C doesn’t meet obligations.
Why must a % for retention be included in Contract Particulars? Why should a retention statement still be produced?
to know how much is being retained over the course of the project so it can not be altered or changed, no dispute.
retention statement: how much has been deducted from interim payments keep track of deductions over period of project
How do you claim under a retention bond?
Only if practical completion is not achieved by the subcontractor or if they prevent a certificate of making good defects from being issued will the retention bond take effect. The contractor is then able to ‘call’ on the retention bond.
What is project insurance? What advantages does it offer?
Project insurance policies combine Contract Works, Public Liability and JCT Non-negligence, and can be extended to include Advanced Loss of Profits (ALOPS) and losses due to delay in start-up following any covered material loss or damage.
all in one package ensuring that you are really well covered and can become integrated to insure all people who are working under/with client
What is latent defects insurance? How much does it cost? What advantages does it offer?
Latent defects insurance provides cover for new buildings (or new works to existing buildings) in the event that latent defects become apparent. Latent defects insurance is seen to provide more complete cover for defects than other methods, (such as collateral warranties) which may require proof of breach of contract.
0.5- 1.5% of the construction cost of the building.
that any latent defects will be covered and not come out the client pocket and can find cover for 8-12 years and can include structural mechanical electrical etc…
What is a collateral warranty and why do we use them?
Collateral warranties are used as a supporting document to a primary contract where an agreement needs to be put in place with a third party outside of the primary contract. Sometimes an architect, contractor, or sub-contractor will need to warrant to a funder, tenant or purchaser that it has fulfilled its duties under a building contract.
Collateral warranties often contain obligations that affect the consultant or contractor, such as using materials of an appropriate quality, and carrying out work in a professional, workmanlike manner. It can also provide the third-party contractual rights enabling it to claim for losses which would not otherwise be recoverable.
