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Capital Planning, Design and Construction November 4, 2008

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Presentation on theme: "Capital Planning, Design and Construction November 4, 2008"— Presentation transcript:

1 Capital Planning, Design and Construction November 4, 2008
Construction Insurance, Contracts, Mitigating Risk & Related Issues - Workshop Joe – services, emergencies, workshop – Q&A Capital Planning, Design and Construction November 4, 2008

2 Introduction and Agenda
Panelists What is Construction Risk Management Key Components Contract Relationships Property Preservation Insurance Information Sources Questions / Open Discussion Joe

3 Panelists Jim Castle, President, Driver Commercial Group, Alliant Insurance Services Girard Fisher, Esq., (of Counsel) Pollack, Vida & Fisher Robert E. Powers, ARM, Vice President – Liability, Gregory B. Bragg & Associates Joseph C. Risser, CPCU, ARM-P, California Polytechnic State University Craig Schweikhard, ARM, Liability Claims Manager, Gregory B. Bragg & Associates Raymond Szczucki, P.E., ARM, ACE USA Global Property & Specialty Lines Joe

4 Jim Castle President Driver Commercial Group
National Construction Practice Group Leader Surety and Insurance Services to Construction Industry Contractor Practice Policies Controlled Insurance Programs Joe

5 Girard Fisher, Esq. Pollak, Vida & Fisher Member of California Bar
California U.S. District Courts U.S. Court of Appeals, Ninth District & Supreme Court 45 jury trials, 40 appeals exposures in 7 figures, published opinions Author and Speaker Government, public entity liability Design Immunity, Tort Claims, Negligence Joe

6 Robert Powers, ARM Vice President – Liability
Gregory B. Bragg & Associates, Inc. Carl Warren & Company Public Entity and Nationwide Multi Jurisdiction Claims Administration Licensed Independent Adjuster Presenter: Public Agency Risk Management Association Risk & Insurance management Society Joe

7 Craig Schweikhard, ARM Ventura Liability Claims Manager
Gregory B. Bragg & Associates, Inc. Carl Warren & Company Critical Public Entity Account Manager Public Entity Liability and Administration Presenter: Public Agency Risk Management Association Joe

8 Raymond Szczucki, P.E. ARM
Account Engineer, Inland Marine ACE Global Underwriting Group Design Engineer – public & private projects Engineering Evaluation Construction Risk Management Services National and Local Professional Engineering International Bridge, Tunnel & Turnpike American Society of Civil Engineers Joe Stutzki

9 Joe Risser, CPCU, ARM-P Risk Manager
California Polytechnic State University University’s Insurance Programs - CSURMA Construction Contract Insurance Compliance Facilities Planning & Facility Services Contracts, Procurement & Risk Management Presenter: Public Risk Management Association University Risk Management & Insurance Association Public Agency Risk Management Association Joe – transition to Jim

10 What is Risk Management
Technical Component Identify, Analyze, Address Risk Practical Prevention & Response Contractual Transfer Purchase Insurance Jim

11 What is Insurance? Insurance is CASH!!! CASH for:
Replacing / repairing your property Replacing / repairing others property Medical Costs / Lost wages Defending you from others Jim

12 Traditional Project Structure
Multiple Parties Multiple Contract Types Various Skill Levels Gaps Hope WC GL BR WC GL BR WC GL BR WC GL BR WC GL BR WC GL BR Jim

13 Key Components Pre-Construction Construction Duration
Post Construction Jim

14 Pre Construction Project Evaluation The Contract Insurance
Project Safety Requirements Project Claim Procedures Jim

15 Project Evaluation Who is the Project Owner / Team
What are they Building When are they Building Where are they in the Process Why are they Building How??? Jim

16 The Contract Most Important Construction Document Scope & Timeline
Responsibilities Indemnification Language Insurance Requirements Project Safety Requirements Administration Requirements Transition to Contract Legal Relationships – Rob, Craig and Girard

17 Risk Management of Construction Projects and Managing Insurance Relationships
Robert Powers – Bragg & Associates Craig Schweikhard - Bragg & Associates Girard Fisher – Pollak, Vida and Fisher Rob, et. Al.

18 The Need for a Clear Picture
Large Scale Projects are Very Complex They are “Generally” outside the Area of Expertise of Education Officials Contractor know how to manipulate the process to squeeze more money out of the State Robert, Craig & Girard

19 The Model by Jim Wiederschall
HANDOUT – The Model

20 Two Phases of Project Design Phase Construction Phase Other Contracts
Architect is primary contractor Numerous sub-contractors Construction Phase Main Contractor Other Contracts Construction Manager Inspectors Consultants Rob, et. Al.

21 Design Phase Contract Provisions with your Architect
Contractual Indemnity Additional Insured on GL Coverage Certificate of Insurance for all coverage E&O Insurance Certificate Rob, et. Al.

22 Subcontractors in Design Phase
Engineers Mechanical Engineers Soil Engineers Structural Engineers Subcontractor Engineers Usually no contractual or insurance relationship with these contractors Rob, et. al

23 Remedies v. Architect Breach of Contract Contractual Indemnity
Claim on GL as additional Insured Early Notice to carrier is essential. Defense costs are only reimbursed as of tender E&O Timely notice is essential Rob et. al

24 Construction Phase Primary Contractor will retain numerous Subcontractors. Subcontractors may have subcontractors Contractual Relationship between primary and subcontractors that may require indemnity to P.E. Entity may or may not have a contractual relationship with subs and their insurance Rob, et. al

25 Contract Provisions Contractual Indemnity
Additional Insured on GL Coverage Certificate of Insurance for all Coverage Bonds Performance Payment Bonds Rob, et. al

26 Remedies v. Contractors
Breach of Contracts Claim of Performance Bonds Claims on insurance coverage Contractual Indemnity Rob, et. al

27 Contractor’s Remedy Against You
Contractor’s thrown off of projects sue for constitutional taking. Conversion Coverage??? Contract Payment Claims Rob, et. al

28 Claims Filing Requirements Public Contracts Code Section 20104.2
Contractual Payments Due Breach of Contracts do require claims Claim must be in writing before final payment Public Entity has 45 or 60 days to respond Additional info requested within 30 days If contractor disagrees with finding a meet and confer will be scheduled within 30 days Claim statute is tolled from the time the written claim is filed until the meet and confer process is completed. Rob, et. al

29 Other Contractors Same contract provisions as Design Phase
Same Remedies as Design Phase Need for Close Supervision of these functions. Rob, et. al

30 Bonds Not Insurance but standing on their own Performance Bonds
Guarantee the specific performance of the contract or completion of the contract Payment Bonds Guarantees the payment of subcontractors on the project. Rob, et. al

31 Performance Bonds For use when the project is not completed as contracted. Bonds are not insurance and Bond holders will go after contractor for non-performance Goals of the Bond Holder may be Different than Yours Step in and defend Do not release bond too early Rob, et. al

32 Payment Bonds and Stop Notices
No mechanics liens on public projects Stop notices Must hold payments to cover stop notice until dispute is resolved Use “Stop Notice” Bonds to release payments Rob, et. al

33 Leverage Unfair Claims Practices act First Party “Bad Faith”
Bonding Capacity Rob, et. Al – transition to Jim

34 Insurance Insurer Requirements Coverage Requirements
Limit Requirements Premium / Deductible Responsibilities Documentation Requirements Jim

35 Traditional Project Insurance
Duplication of Cost Stack Markups Cross Litigation Gaps in Coverage Inadequate Limits Uninsured Contractors WC GL BR WC GL BR WC GL BR WC GL BR WC GL BR WC GL BR Jim

36 The OCIP Alternative One Program Control Consistent Coverage
WC GL BR One Program Control Consistent Coverage Dedicated Limits No Cross Litigation Consistent Services Decreased Markups Jim

37 Available Coverage Builders Risk Workers’ Compensation
General Liability Excess Liability Auto Liability Design Professionals Errors & Omissions Pollution Liability Surety / Subguard Jim

38 OCIP Key Components Program Design Documents / Manuals / Forms
Insurance Placement Enrollment Process Claim Management Jim

39 Pending Legislation California SB 195 - Calderon
OCIP Disclosure Requirements Coverage Terms / Exclusions Exposure Basis of Policy Contractor Participation Deductible Application Design Professional Limitation of Liability Insurance Deductive Change Allows Contractor to Void Contract Jim

40 Insurance Summary Commercial General Liability
Bodily Injury, Property Damage Ongoing and Completed Operations & Products Business Automobile Liability Workers’ Compensation and Employer’s Liability Bodily Injury and Illness of employees, work related Professional Liability (Architects, engineers, construction managers, etc.) Injury or Damages due to errors & omissions Builder’s Risk (Property) Damages or Losses to Property under construction Jim/Joe

41 Insurance Placement Property / Inland Marine
Pays for damage to your “stuff” Building & Contents at Main Office Builders Risk Coverage Tools & Equipment Scheduled Equipment Miscellaneous Tools Leased and Rented Equipment Jim

42 CSU Construction Project Coverage Program
“All Risk” Builder’s Risk Insurance Property Damage Materials in Transit Off site storage Direct physical loss to Insured Project(s) Construction Reconstruction Renovation Joe HANDOUT – CSU Construction Project Coverage Program Summary

43 The Building Construction Process and Property Loss Exposures
Raymond Szczucki ACE USA Inland Marine Ray

44 Disclaimer Any information or discussion arising from this presentation shall not prejudice, waive or otherwise forestall any legal right of ACE USA Inland Marine, ACE USA or any of The ACE Group of Companies concerning the terms, conditions, exclusions or provisions contained in an issued policy of insurance. The information or materials provided herein shall not amend or alter in any way the terms, conditions, exclusions and limitations of any policy delivered. Please consult the policy for exact terms and conditions. The materials and information contained herein are not intended to offer or provide any legal advice concerning the topics covered. Ray

45 Topics of Discussion Building Construction Process
Property Loss Exposures Project Management Issues Project Constraints Property Preservation Management & Planning Property Preservation Assessments Construction Dynamics Economics Ray

46 Building Construction Process
Construction management demands have increased in past 20 years; major shift in last 10 years “Techno-time” vs. “steel and concrete time” Dynamic environment of construction Economic vs. exposure-based scheduling Ray

47 Property Loss Exposures
Water is a Primary Cause of Loss $$ Flooding from surface water Water penetration through incomplete building envelope or temporary openings Condensation/moisture Wind Rigging & Lifting Collapse Equipment Damage Fire Ray

48 Project Management Project management team that is proactive in management of subcontracts and property preservation. (Values the process.) Pre-construction planning to “eliminate” property loss exposures. (Schedule project to avoid loss exposures.) Implement plan to “control” property loss exposures during construction. (Mitigation of exposures that cannot be eliminated.) Ray

49 Project Constraints Maintenance of schedule is a priority
CP activities control schedule (“criticality” ) Time is more valuable than money Changes in schedule/scope of work create changes in property loss exposures Increasing complexity of construction Wide range of project stakeholders Ray

50 Project Constraints Ray

51 Project Constraints Ray

52 Property Preservation Management & Planning
Discuss property preservation (new and existing) at all project scheduling and coordination meetings. (Make it a formal part of the agenda.) 2. Require field supervisory personnel to evaluate property related exposures and monitor protection requirements. 3. Involve all parties (design, construction, operations) in planning process. Ray

53 Property Preservation Management & Planning
4. Confirm subcontractor management controls and require pre-installation reviews for critical equipment/materials. 5. Implement severe weather monitoring program and formal notification procedures with emergency response plans. Ray

54 Property Preservation Management & Planning
6. Identify weather sensitive equipment, materials and finishes during pre-construction planning and progress meetings with contractors. Monitor compliance with vendor/manufacturer required storage/warranty requirements. 7. Develop and implement contingency plans for delays in material delivery or schedule changes that impact contractor work completion and expose work in progress to damage. Ray

55 Property Preservation Management & Planning
8. Evaluate security and access controls to project sites. Fire Protection and Emergency Response Plans. 9. Focus on ‘elimination’ of property loss exposures. If not practical to eliminate exposures, implement and document ‘control’ of exposures. Ray

56 Property Preservation Management & Planning
10. Conduct periodic property preservation assessments (similar to safety assessments) of project site. Monitor property preservation controls at subcontract interfaces, project boundaries & temporary facilities/structures. Ray

57 Property Preservation Assessments
Construction & Erection Associated Hazards – Evaluate exposures and controls in assessment categories. Include future exposures that are anticipated as project progresses through completion. Ray HANDOUTS – Property Protection Recommendations for Subcontractors, Property Preservation Assessment Checklist

58 Property Preservation Assessments
1. Transit - Evaluate transit exposure and controls that are in place or required. 2. Storage - Review storage of materials associated with the project on and off the site. Exposure and controls to be implemented. 3. Security - Evaluate site access controls and theft and vandalism potential. Ray

59 Property Preservation Assessments
4. Fire Protection - Review adequacy of fire protection that is provided on the site. 5. Rigging and Lifting / Equipment Exposures - Evaluate rigging and lifting exposures and other equipment related exposures that exist on the project and controls to be implemented. 6. Collapse - Monitor collapse exposures that may exist on the site and adequacy of controls; e.g.: support of excavation, formwork/shoring, temporary bracing of structural members. Ray

60 Property Preservation Assessments
7. Adjacent Hazards – Evaluate adjacent exposures and required controls. 8. Water Hazards – Evaluate water damage exposures that may exist on the site. Work in progress or materials exposed to damage from water. Ray

61 Property Preservation Assessments
9. Flood - Review flood exposure to the project site and adequacy of control of surface runoff or underground utilities. Action plans to minimize damage and control flooding. 10. Severe Weather Exposures - Review controls to protect stored materials and work in progress from elements. Ray

62 Project Housekeeping Daily Clean-Up Dumpster Placement
Segregation of Materials Debris Removal from Building Ray

63 First-Aid & Fire Protection
Fire Extinguishers > Types & Use Other First-Aid Placement Training Maintenance & Inspection Ray

64 Fire Department & Emergency Services
Notification Scope of project Plans/Site Access Communication/Advise of Progress Ray

65 Control Sources of Ignition
Temporary Electrical Smoking Controls Hotwork > Firewatches Temporary Heat Ray

66 Flammable Liquids & Gases
Types & Uses Storage Dispensing Disposal Ray

67 Permanent Fire Protection
Alarm Systems Sprinkler Systems Standpipes Hydrants Ray

68 Flooding Exposures Flood Zones Site Grading, Drainage, Diversion Berms
Retention Basins Consideration of Project Stage Ray

69 Project Scheduling Charging of Water Lines Protection from Freezing
Weather Sensitive Systems Making Buildings Weather Tight Contract Coordination Ray

70 Project Scheduling Daily Weather Reports
Manage schedule of high exposure activities Materials for Weather Protection Severe Weather Plan Emergency Response Plans Ray

71 Site Security Considerations
Concentration of Values Target Property Job Stage & Size Neighborhood Labor or local area issues Ray

72 Site Security Controls
Limit Points of Vehicle Access Project Trailer Security Site Storage Inside Secured Structures Police/Guard Service & Communication Fencing Lighting Alarm Systems Ray

73 Construction Dynamics
Schedule compression & exposure accretion Closely monitor concurrent work activities Construction sequencing for optimum productivity Building envelope delays and increases in interior exposures Weather-dependent work activities CPM logic change vs. decrease time for critical items Ray

74 Construction Dynamics
Building envelope exposures Water, water everywhere…. Lack of construction industry awareness Potential problems for completed facility Ray

75 Construction Dynamics
Design & construction complexity Architectural/structural details Atrium space planning Shop drawings & fabrication delays New building materials/methods Ray

76 Construction Dynamics
Building systems exposures Building systems technology improvements Sensitive systems (dust, moisture, vibration, heat) Start-up testing and coordination Multiple contractor involvement in complex systems LEED or “Green Buildings” Ray

77 Construction Dynamics
Craftsmanship & quality assurance Craft shortages Craft expertise Work-force development takes time Formal QA programs Project management oversight Ray

78 Construction Dynamics
Construction coordination & project interfaces Project boundaries and contract interfaces Overlapping responsibility Coordination of all stakeholders Maintain sequencing and account for variances Ray

79 Construction Dynamics
Project delivery systems Traditional, design-build, fast track, turn-key Opportunities & challenges Incorporate property preservation planning into project design development and project schedule Ray

80 Economics Economic effects of losses Direct & Indirect Loss Costs
Productivity & quality issues Employee and public injury exposures Schedule delays Loss cost reduction benefits with PPP Ray

81 Property Preservation Management & Planning
SUMMARY Pursue elimination of exposures; if not possible, implement controls to mitigate exposures. Evaluate the construction efforts at the project site from a macro perspective. Maintain controls across project boundaries and disciplines. Ray

82 Property Preservation Management & Planning
SUMMARY Evaluate changes in loss exposure as project progresses. Monitor contract interfaces, work coordination and construction sequencing. Review subcontractor management controls and impact of schedule/scope changes. Ray

83 Property Preservation
Property preservation planning should be an ongoing component of construction project management. Include “property preservation” when estimating, planning and scheduling the project work. Ray

84 Builder’s Risk Application
Project Enrollment Form Builder’s Risk Application General Building Supplement Ray HANDOUTS – Project Enrollment Form, Builder’s Risk Application & General Building Supplement Transition to Jim

85 Insurance Documentation
Certificates Endorsements Declaration Sheets Claims Reporting requirements Entire Policy NOTICE OF CANCELLATION - 30/10 Jim

86 Insurance Limits Occurrence and Claims Made Annual Aggregate
Policy vs. Project limits Deductible vs. Self Insured Retention(SIR) What Limits? Why $1, 2, 5, 10 Million? What Deductible? 1%, 2%, 5%, 10%..... Jim/Joe HANDOUT – CPDC CGC Insurance Limits and Requirements

87 Insurance Placement Business Auto Coverage
Auto Liability Limit $1,000,000 Include Owned, Hired & Non-Owned vehicles Uninsured & Under Insured Motorists - $1,000,000 Medical Payments - $5,000 Auto Physical Damage Coverage Endorsements Additional Insured Waivers of Subrogation Primary Wording Non Contribution Jim

88 Insurance Placement General Liability Limits:
$1,000,000 Per Occurrence $2,000,000 General Aggregate $2,000,000 Products / Completed Operations Agg $1,000,000 Personal & Advertising Injury Provides certain project requirements Additional Insured Waivers of Subrogation Primary Wording Non Contribution Jim

89 Insurance Placement General Liability – Major Exclusions
Pollution Liability Mold (Fungus) Subsidence Asbestos Professional Products and Services Liability Employment – Related Practices Operations covered by a Wrap-Up Environmental Enforcement Action - FINES Jim

90 Insurance Placement Workers’ Compensation
Provides medical and disability payments to an injured employee Limits: Part A: Statutory Part B: $1,000,000 (Employers Liability) Rate Basis: Payrolls Insurer Rates Experience Modification Factor Waiver of subrogation endorsement Jim

91 Insurance Placement Excess / Umbrella Liability
Provides extra protection ($$$) in the event of a severe claim. Provides Limits Above Business Auto Liability General Liability Workers’ Compensation – Part B Declaration Sheet Jim

92 Insurance Placement Professional Liability
Addresses the Design Liability assumed by Prime Architect either directly or through the use of Sub-Consultants. Declaration Sheet Retro Date Reporting Period Claims reporting procedure Jim

93 Insurance Placement Pollution Liability Significant Increased Limits
Additional Insured Waivers of Subrogation Primary Wording Non Contribution Significant Increased Limits Transportation Auto liability coverage – MCS-90 Sudden and Accidental Pollution Disposal Sites Jim

94 Project Safety Requirements
Contractual Responsibility for Design Application of Requirements Inspection Adjustments Jim

95 Environmental Requirements
Owner or Contractor responsible Owner or Contractor statutory liable Air Pollution Water Pollution Hazardous Materials Not Covered by Insurance Jim

96 Construction Duration
Contract Administration Insurance Documentation Process Safety Program Administration / Adjustments Claim Administration Jim

97 Introduction What is Insurance Why Request Insurance Documentation
When Subcontractor Insurance is Inadequate How to Prevent Inadequacies Communication Compliance Methods Subcontractor Pre-qualification Jim

98 Owner Responsibilities
Understand Contract Requirements Indemnification Clause Insurance Requirements Communicate Insurance Requirements Transfer of Owner Requirements Accuracy in Set-up of Document Minimal Acceptable Contractor Insurance Compliance Jim

99 Contractor Responsibilities
Understand Contract Requirements Properly Price Insurance Requirements Provide Appropriate Documentation Certificate of Insurance Additional Insured Endorsement Primary / Non-Contributory Language Waiver of Subrogation Endorsements Other Coverage Language in Policy Blanket Endorsements Jim

100 Certificates of Insurance
What is a Certificate of Insurance Reviewing a Certificate of Insurance Standard Limits Attachment A - Compliance Cancellation Clause Jim

101 Additional Insured Endorsements
What is an Additional Insured Why Attach the Endorsement Types of Endorsements Your Work Ongoing Operations Contractor Cost for the Endorsement Range $0 to $1,000 Typically $0 to $250 Jim

102 Primary Language What is this Endorsement Why Attach the Endorsement
Contractor Cost for the Endorsement Same as Additional Insured Endorsement Jim

103 Waiver of Subrogation What is this Endorsement
Why Attach the Endorsement Contractor Cost for the Endorsement GL: Same as Additional Insured Endorsement WC: Flat Charge or Percentage of Project Premium WC Cost Example: Subcontractor Project Payroll: $100,000 Subcontractor WC Rate: $10 per $100 Project Premium: $10,000 Waiver Charge (3-10%) $300 - $1000 Jim

104 Other Insurance Items Owner Operators & Workers’ Compensation
No Owned Vehicles Professional Liability Coverage Environmental Coverage Others Jim

105 Compliance Methods Sample Contractor Insurance Packet
Standard Operating Procedures Contract Standardization Checklist / Deficiency Letters Non- Compliance Situations What to Expect from the Contractors What to Expect from their Brokers Jim HANDOUT – Generic Insurance Requirements

106 Post Construction Project Close Out Transfer of Risk / Insurance
Claim Management Documentation Storage Results / Lessons Learned Jim

107 Additional Information Sources
Contact your Risk Manager or Agent Insurance Risk Management Institute Construction Risk Management Reference Courses / Designations Available Annual Convention Alliant Construction Team Jim Castle (619) Jim

108 Resources “Insurance Requirements In Contracts Manual” – Alliant Insurance “Construction Risk Management”, “Design-Build Insurance”, “The Wrap-Up Guide” - International Risk Management Institute – IRMI Materials and Presentations on Surety Bonds - The Surety and Fidelity Association of America Joe

109 Downloads Presentation Power Point Handouts
The Model – Contract Relationships CSU Builder’s Risk Coverage Summary CSU Builder’s Risk Project Enrollment Form CSU Builder’s Risk Application & General Building Supplement ACE Property Protection Recommendations for Subcontractors ACE Property Preservation Assessment Checklist Joe

110 Downloads ACE Builder’s Loss Control & Prevention Series Fire Hot Work
Indirect Controls Temporary Heating Theft & Vandalism Water Wind Crane Outrigger Pads Joe

111 Questions? Q & A and Wrap-Up - ALL

112 ALL


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