LG Manager : AUTUMN 2014
Who is ensuring your major infrastructure projects are appropriately protected? For more information please contact JLT www.jlta.com.au PRINCIPAL CONTROLLED CONTRACT WORKS Some additional benefits of Principal Controlled Contract Works include: ✔Coverage is specifically designed to suit the needs of council rather than accepting the pre- set conditions of any particular contractor’s insurance ✔Council will have control over the adjustment and settlement of losses (including receipt of claims monies) ✔There will be continuity of coverage throughout the duration the works ✔ If, for some reason, any party associated with the project is discharged or is unable to complete their obligations, council will not be left with a site with no insurance in place There can be some issues that arise between the differences in cover elected by council and that which would have been arranged by the contractor. Council should always seek advice from their insurance advisor when considering the options of taking out Principal Arranged Contract Works Cover. SCENARIO ONE Council initiated a three stage construction project. The first stage was completed satisfactorily and council engaged a different contractor to complete the second stage of the project. However the second stage contractor did not meet the desired deliverables and was sacked by council for underperformance under the contract. As a result, the contractor who was engaged to complete the third stage was brought in to also complete the second stage. Because the contractor was only engaged originally to complete the third stage, the contractor needed to extend the insurance to cover the completion of the second stage which then led to the contractor presenting council with an additional bill for $150,000 in order to cover the insurance for the completion of stage two. SCENARIO TWO Council engages a contractor for major build project. The contract stipulates that the contractor will arrange the appropriate insurance cover for the construction works. The contractor subsequently goes out of business after completing demolition of part of the existing structure and removal of debris. Council is then forced to engage a new contractor to complete the works and chooses to take out a Principal Controlled Contract Works Policy for the remainder of the project which also covers the existing structure. Nearing completion of the project, the new builder is slipping on meeting all of the deliverables and deadlines and council considers utilising a further contractor to complete the project. This time, there are no insurance concerns due to the implementation of the Principal Controlled Contract Works Programme. A major role for councils throughout Australia is to ensure that the councils, municipals and shires are well maintained with appropriate infrastructure to support the communities they serve. These projects would often likely serve as councils greatest budgetary spend. Why then, is it common practice to leave the mitigation and risk transfer of such projects up to a third party? When engaging construction experts to design and construct infrastructure for councils it is common practice to also pass risk mitigation and risk transfer to the third party. In doing so, this leaves the design and purchase of such strategies open to be implemented with the third parties objectives in mind rather than councils. The following scenarios are real scenarios faced by councils and highlight some of the reasons why taking control of the risk transfer can more effectively mitigate against the risk exposures of major infrastructure projects.