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Comment from a Contact - Andy Sinclair ACII, PIB Limited

August 2016 - Issue 84

Insuring the risks of Development & Construction Projects

Identification and management of legal and commercial risk is an integral part of the role of each of the members of our team at Prettys; it’s part of the fabric of what we do and informs each and every piece of advice we provide.  The uniform adoption of such an approach across your multidisciplinary team of advisers (including both your lawyer and your insurance adviser) offers you the best chance of maximising a project’s potential. 

In this month’s “Comment from a contact” Andy Sinclair of PIB Limited provides insights into one insurance-driven option available to you when deciding how best to manage the specific risks of your next venture:

It’s a great Project

You’ve found a great project to invest in, plans are established to draw up contracts and commence the build. Completion of the project on time is critical and failure to do so impacts on your investment proposition.

Risk

There is always risk in investment and any commercial venture, it’s just a question of quantifying it and exploring and deploying risk avoidance, mitigation and transfer strategies.

OCIP

Establishing an Owner Controlled Insurance Programme is one very effective risk transfer strategy. This is an insurance policy that reflects both the project and the construction contract and covers all parties involved in the project.

A construction insurance broker should be involved prior to the project contract drafting and will assist the project owner/investor by identifying the risks and agreeing what covers and limits to insure. They will then assist the lawyer in drafting the insurance clauses in the contract.

The broker will also assist by amending the cover as the project timelines, scope or parties to the contract change and should work closely with the project managers and Lawyers.

Why have an OCIP?

The project owner will have control over the insurance protection for the whole project ensuring that there is no under insurance or gaps in cover. They set any level of self-retention, controlling cost and contractors discipline.

Claims settlements are direct to the project owner and with no delay caused by different parties arguing over settlement. The risk of contractors going into liquidation with outstanding claims settlements is removed. Any third party claims are dealt with more quickly avoiding involving several insurers and insureds. Subrogation actions are avoided further saving time which would delay the project.

There is no overlapping & duplication of cover amongst contracted parties keeping cost down and saving time. Gaps in cover through partial handover are avoided.

Financial exposures through late project completion can be included, this cover cannot be purchased in isolation.

The financial security of insurers providing this protection may allow investors and lenders to consider offering a more competitive rate of funding helping to secure the project over other potential investors.

Who can help

Seek out Insurance brokers who are specialists in construction who can correctly draft an OCIP. It’s a highly technical area requiring not only the in depth insurance knowledge but also a thorough understanding and wide experience of construction projects, contracts and the right contacts with insurers to arrange the correct cover.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, views or policy of Prettys LLP.

Andy Sinclair ACII

PIB Limited

T: 07399 549488
andrew.sinclair@pib-insurance.com

 

 

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