acig safety

1. ACIG Safety/ClaimsManagement Workshop Risk Transfer - Contract Administration Upstream & Downstream Contracts

3. Types of Contracts Upstream Contracts - Contracts entered into with Owners, Developers, Public Entities, General Contractors and Construction managers for whom work is to be performed. Downstream Contracts - Contracts entered into with subcontractors, service providers, trucking owner/operators, etc., and any other entity who will perform work on your behalf.

4. Contract Administration Process Contractual Risk Transfer 1. Is a technique for allocating risks associated with construction between the contracting parties. 2. Takes place in many types of contracts, including owner agreements, subcontract agreements, purchase orders, equipment rental agreements, etc. 3. Can take place in any section of a contract, but typically takes place in: Indemnity agreements Insurance requirements

5. Key Issues in Upstream Contracts Builder�s Risk Contractor�s Liability Insurance Obligations Additional Insured Parties and Forms Indemnity Agreements

6. Builder�s Risk Covers loss or damage to the work and building materials used in the construction of a structure during the course of construction. Many things may not be covered: High deductibles - which party is responsible for the deductible and is that deductible reimbursable to the contractor? Earthquake and land movement Flood Windstorm Delay Existing structures

7. Builder�s Risk (cont.) There is no �standard� Builder�s Risk form. Will the Owner reimburse the contractor for a DIC (Difference in Conditions) Builder�s Risk if the Builder�s Risk for the project is inadequate?

8. Contractor�s Liability Obligations Is there an A.M. Best Rating indicated in the specs for the Contractor�s insurance carrier? Are the limits of liability required within the Contractor�s program in place, both underlying and excess?

9. Contractor�s Liability Obligations (cont.) Are all coverages required in place, or is there a need to secure additional coverage? (Pollution, Professional, etc.) Does the Owner request the right to select counsel for the Contractor should there be a claim?

10. Contractor�s Liability Obligations (cont.) What is the length of coverage required for completed operations? Is there a problem if the Contractor�s policy contains a large deductible or SIR? What type of requirements are passed onto the Contractor�s subs?

11. Additional Insured Requirement An additional insured endorsement shall be provided to the Owner naming the Owner and all other parties required by the prime contract, using ISO additional insured endorsement (CG 2010), edition date 11/85, or an equivalent (e.g., CG 2010, a later edition, plus CG 2037). Said insurance shall be written on an occurrence basis, and shall be primary and non-contributing.

12. Additional Insured Endorsements Certificate does not confer coverage to an Owner! 1. CG2010 (11/85 edition) a. Covers additional insured for liability arising out �your work�. b. Additional insured is covered during course of construction and for completed operations. c. Increasingly difficult to obtain from insurers.

13. Additional Insured Endorsements 2. CG2010 (various editions 1993-2001) a. Covers additional insured for liability arising out of �your ongoing operations�. b. No coverage for completed operations. c. Completed operations coverage for the additional insured can be obtained by adding CG2037 endorsement.

14. Additional Insured Endorsements 3. CG2010 (07/04 edition) a. No coverage for additional insured�s sole negligence. b. Applies only to �ongoing operations�. c. Completed operations can be covered by adding CG2037 endorsement (which now excludes sole negligence). 4. Manuscript Endorsements a. Increasingly prevalent in insurance marketplace. b. Some provide coverage similar to various editions of CG2010, but some provide even less coverage for additional insured. Interpretations of AI Status changing constantly. (EXHIBIT A)

15. Indemnity Agreements Limited Form Indemnity The Contractor is responsible for defending and paying a claim only to the extent of their negligence. Intermediate Form Indemnity If the Contractor is at fault to any degree, they are responsible for defending and paying the entire loss. Broad Form Indemnity The Contractor assumes an unqualified obligation to hold the Owner harmless for all liabilities even if the injury or damage is due to the sole negligence of the Owner.

16. Contract Administration Recommendations Upstream Contract Checklist Have a properly executed contract in the file. Qualify, within reason, those insurance requirements that are found to be onerous. Transfer or minimize liability whenever and wherever possible. Limit the contractual indemnification in the contract to a specific dollar amount, if possible.

17. Contract Administration Recommendations (cont.) Upstream Contract Checklist Have a Builder�s Risk certificate in file, protecting the Contractor and all tiers of subcontractors. Secure a copy of the policy as soon as possible. Have a copy of the Contractor�s certificate of insurance furnished to the Owner in file in order to verify the limits and coverages originally required by the Owner. Have a monitoring system in place to review any contract changes.

18. Conclusion Contractors should minimize the economic risks that are in the path of a profitable project. An equitable allocation of risks should be the contractor�s prime goal.

19. Conclusion (cont.) A contractor who understands risk allocation can do a lot to maximize their ability to manage risks in contracts while preserving their right to recover losses.

20. Owner/Contractor Risk Matrix An Upstream Contract Matrix is included in the workbook as Exhibit �B� for reference of �Preferred� and �Fall Back� positions in Upstream Contract negotiations relative to insurance coverages.

21. Types of Downstream Contracts Standard subcontract agreement Short-form agreement Limited to dollar threshold Purchase orders Same insurance requirements Same indemnity provisions Equipment lease/rental Trucking/hauling agreements Service provider agreements

22. Primary Goal of Subcontractor�s Contracts and Insurance Protect upstream party (Contractor). Subcontractors insurance; first dollar coverage. (Exhibit C) Defense coverage. Provisions for any variances to the contracts.

23. Subcontract Requirements Signed, executed by subcontractor prior to mobilization. Indemnity provisions deemed �non-negotiable�. Who can sign subcontractor agreements? President VP/Division Managers/PM�s Equipment Manager Others? Who approves any changes to the indemnity provisions and/or insurance requirements?

24. Subcontractor Risk Transfer Challenges Unsigned Subcontract Agreement Subcontract Terms Amended Subcontractor Insolvency Aggressive Subcontractor lobby on Indemnity Limitations Subcontractor Insurance Carrier Insolvency Exclusions to their policy Providing the correct additional insured endorsement (See Exhibit A)

25. Subcontractor Insurance Challenges Quality of subcontractor coverages/exclusions: EIFS/Mold Subsidence Residential Subcontractors resisting broad risk transfers Subs to accept sole negligence. Sub must anticipate to defend and settle GC claim not connected to their work.

26. Solutions/Recommendations Aggressive Subcontract Prequalification/Selection Include insurance requirements, financials QA/QC programs Tight Document Control(Exhibit D) No subcontractor mobilization without a signed subcontract and insurance certificate and additional insured endorsement Use of letter of intent (signed) incorporating indemnity provisions and insurance requirements (Exhibit E)

27. Solutions/Recommendations (cont.) Tight Document Control (cont.) No subcontract insurance modifications without risk management approval Document storage and retention through the statute of repose Strong/Consistent Enforcement of Insurance and Additional Insured Requirements Don�t set pattern of compromise Regularly audit processes

28. Solutions/Recommendations (cont.) Educate PM�s, division managers, etc. on the importance of contract administration and consistency. Expend your effort at the front-end of the project to clearly define all requirements of the contract.