WK4AM - Insurance & Bonds

Question 1

Q1. What are Excepted Risks?

Answer 1

Foreseeable risks – The reason why loss insurance is taken out in joint names to prevent subrogation.

Question 2

Q2. Explain the reinstatement procedure for works insurance Option A and B.

Answer 2

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?

Question 3

Q3. A Client has received notification from the contractor that terrorism cover has been halted by its insurance broker. How would you advise the Client?

Answer 3

To take out cover in his own name and recover costs at the next payment.

Question 4

Q7. How does NEC3 distribute risks between the Employer and MC? Does this differ from JCT SBC 16? How does this affect the MC?

Answer 4

NEC3 – allocates risks to client – everything else to MC from start date until defects certificate
JCT – Only up until practical completion (PC) – States what the MC is liable for and everything else is the client.
Contractors didn’t like NEC3 so was changed in NEC4

Question 5

Q8. How has NEC 4 addressed this situation?

Answer 5

Now has a listed for both of Employers and Main Contractors liabilities while still going to the defects certificate date.

Question 6

Q9. Under NEC what if there is loss / damage to the works after takeover? Who is responsible? What if the MC was not liable?

Answer 6

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.

Question 7

Q10. Is there a problem for the MC if he only takes out insurance for the minimum amount of cover?

Answer 7

MC would be liable under NEC for any shortfall if only use the minimum cover.

Question 8

Q11. What are bonds?

Answer 8

(Between C / E / F.I)
MC is instructed to take out a bond to secure any risk to the Client may have. If MC does not perform then bond will be awarded.
On demand – as soon as they ask for it.
Conditional – must demonstrate reasoning and follow procedure.

Question 9

Q12. Explain the different types of bonds available within the construction industry?

Answer 9

• Advance payment
• Retention
• Materials off site
• Performance
• Tender bond

Question 10

Q13. 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, ensuring if the contractor doesn’t perform the bond will cover it. Requires a new contractor in which liabilities may be argued and has a limit up to PC.
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. Limitation period?

Question 11

Q14. Is there a problem for the Employer who assists the contractor by making an advance payment?

Answer 11

Can be used to help aid cash flow. However, if C goes bust then you lose it unless you have an advance payment bond.