Risk Planning Instruments Flashcards
What is a guarantee
A promise to answer for the debt, performance or miscarriage of another party. Open promise
What is a bond
This is a promise by deed whereby the party making the promise promises to pay another party a sum of money. This is limited by a financial extent, usually about 10% of contract value
What is the difference between a conditional bond and unconditional bond
Conditional= Inly payable upon actual proof of default and damages
Unconditional=Payable on demand, without proof of default or damage
Why do clients try and avoid on demand bonds
Contractors will increase their tender price
Who is often the guarntor
Parent company
What are the different options for bonds
X13= Performance Bond- Insuring client against contractor failure
X14= Advanced Payment Bond- to cover mobilisation costs
X16=Retention Bond- in case of defects arising
Tender Bond= Ensures winner of tender doesn’t back out
What is indemnification
contractual obligation of one party to compensate the loss incurred by another party.
Risk transfer from one party to another- but doesn’t reduce net loss in the project and therefore often used in conjunction with insurance
Indemnification: Employers Risk
o Unavoidable results of the works or Employer default
o Loss of/damage to Contractor’s plant and materials in transit for which the Employer is responsible
o Loss of/damage to works and any plant and materials due to a Specified Peril (including radioactive contamination)
o Loss of/wear or damage to defect-free parts of the works taken over by Employer
o Loss of/wear or damage to works and any equipment, plant and materials retained on site by Employer after termination
o Any other Employer’s risk stated in Contract Data
Indemnification: Contractors Risk
o claims from third parties
o loss or damage to works, plant, materials and equipment
o loss or damage to client property
o death or injury of employees
What are the 2 different types on insurance
-Liability Insurance
- Loss Insurance
What is liability insurance
o The insurer will indemnify (compensate) the insured against any damages and legal costs arising from an established legal liability towards a third party
o Result mainly from indemnity provisions in contracts- e.g. professional indemnity
What is professional indemnity for
Required by consultants and contractors with design responsibility to back up indemnities to employers against liability for professional negligence.
Usually subject to a financial limit. Consist of a series of annual written contracts on a claim made basis
What is loss insurance
o Reduces both the total economic loss and the net risk and uncertainty in the project
o Instead of incurring a risk of a large loss, the insured party incurs a specified smaller loss (the premium) in return for the insurance coverage should the large risk materialise
o More effective if insurer’s right of subrogation is waived or a joint names policy is taken out,
What different types of loss insurance can you get
-Construction all perils
-Specified perils
-Terrorism cover
Who is responsible for taking out insurance
Contractors
What does right of subrogation mean
the right of insurance companies to go after directors, other employees and subcontractors for money
What is a dictum
a genuine pre-estimate of loss likely to result from the foreseeable breach and that is payable regardless of the actual loss
What do delay damages set out
out the compensation due to the employer, the type of delays which are compensable, a duty by the innocent party to mitigate a loss
When is the client not entitled to delay damages
The Contractor does not receive extension of time for excusable or compensable delays (e.g., damage resulting from a Specified Peril)
A condition precedent notification (e.g., non-completion certificate) is not issued or
If the completion date is no longer applicable (i.e., time is at large
What are collateral warranties
create a contractual link between parties who do not directly have a contract with each other.
Without this can cause difficulties if there is a dispute over the work that is or has been done or if one of the parties goes out of business
- Contracts (Rights of Third Parties) Act 1999
Creates a statutory right of a third party to enforce a contractual term
By express provision in the contract
An alternative to collateral warranties
Which is preferred a bond or guarantee
Always prefer a guarantee as long as a good guarantor, because it covers the entire debt and doesn’t impact the tender price
Whats the difference between insurance and liability
Insurance provides protection for your liabilities
