OWNER CONTROLLED INSURANCE PROGRAMME IN CONSTRUCTION CONTRACTS

Transcription

1 Seminar 27 November 2015 OWNER CONTROLLED INSURANCE PROGRAMME IN CONSTRUCTION CONTRACTS Procurement Fact Sheet No. 001/14 Presented by Adrian King Senior Consultant Construction, Aon Hong Kong Limited Representing The Hong Kong Confederation of Insurance Brokers

2 INTRODUCTION Background experience The Owner Control concept How it has developed Facts and anecdotes Review of the Fact Sheet 001/14 2

3 BACKGROUND EXPERIENCE 1980s Caltex Terminal Redevelopment, City Polytechnic 1990s Airport Core Programme, PAA and NAPCO 2000s KCRC Railways, Route 8 etc. highways Cyberport, Disneyland, Macau Casinos AAHK Projects, WKCDA 3

4 THE OWNER CONTROL CONCEPT Multi-contract, multi-discipline linear projects Single-site, multi-contract projects Main contract plus specialists and fit-out Common high-limit TPL Delay in Start-up (DSU) or Advance Loss of Revenue (ALOP) Annual minor works and maintenance/tpl 4

5 WHY OWNER CONTROL If OCIP, there is control and certainty If contractor arranged, there is no control Only the owner has complete overview Only the owner will ensure adequate protection for the owner s interests. Contractors have other priorities. Corporate governance, board responsibilities 5

6 RESPONSIBILITY TO OTHER PARTIES Development Agreements Construction project agents Lender s Finance Agreements Project finance conditions precedent Compliant insurance provisions Delay in Start-up debt service costs 6

7 CONTROL, ADMINISTRATION, MANAGEMENT Contract conditions, owner s obligation All contractual parties are protected Interfacing, overworking, fit-out, tenants Standardised administration, broker handles/advises Otherwise multiple, non-conforming policies 7

8 BENEFICIAL CIRCUMSTANCES/FACILITATION Inter-contract disputes Inter-contract resultant work delays Contractors insurers can hold project to ransom Changes ordered by owner Partial take-over/occupation Incorporate project marine risks 8

9 REVIEW OF FACT SHEET 001/14 Extensive discussion of differing views Result is fair and balanced view Possible negatives have mitigating factors Benefits will likely outweigh any limitations Overcomes existing misconceptions 9

10 3. COVERAGE OF OCIP FOR CONSTRUCTION Contractors All Risks (CAR) Third Party Liability (TPL) Excess Third Party Legal Liability (XSTPL) Specialist Liabilities Marine Liabilities Aviation Constructors Liability 10

11 FURTHER COVERAGES Project Wrap-up Employees Compensation (PWEC) Delay in Start-Up (DSU) Project Professional Indemnity (PI) Environmental Impairment Liability Terrorism 11

12 4. BENEFITS OF OWNER CONTROL Ensures continuity and uniformity of cover Avoids gaps between multiple contracts and policies Reduced policy premiums for bulk buying Reflects spread of risk and project management Reflects imposition of site safety Removes insurance cost from tender pricing 12

13 POSSIBLE LIMITATIONS OF OCIP Owner may have increased admin costs but offset checking multiple policies OCIP may duplicate contractors annual cover but contractors can exclude particular contract Possibly less safety/risk management incentive for contractors but owner can impose and enforce obligations on site 13

14 5. CONSIDERATIONS TO ADOPT OCIP Party best able to manage/identify risks Broader scope/cost effective coverage Large or small projects, multi-contracts, fit-out Able to intervene in claims process Better comprehensive disclosure to insurers loss record, site control, loss prevention 14

15 6. FACTORS TO CONSIDER FOR IMPLEMENTATION Specific insurance and indemnity clauses in contracts Appoint specialist, experienced construction broker Full and detailed information disclosure Prequalification of suitable contractors Implementation of effective site risk management 15

16 7. APPLICATION OF OCIP OVERSEAS Europe, North America, Middle East, Asia Infrastructure, development projects, multi-use high rise Power stations, oil and gas, petrochemical Macau casino projects Governments practices vary from uninsured to OCIP 16

17 8. APPLICATION OF OCIP IN HK MTRC, ACP, KCRC, HyD, Power companies Theme Parks, Entertainment venues Single site utility/commercial infrastructure Multi-use high rise complexes Annual minor works covers Application to smaller projects 17

18 TO SUMMARISE Gradual recognition of benefits of OCIP Not just major infrastructure Total project wrap-up Multi-contract interfacing and overworking Benefits with small contracts, tenants fit-out Cost beneficial and administratively effective 18

19 OCIP THE WAY FORWARD Recognise the advantages Increasingly complex projects simplify the insurance OCIP is the NEC of insurance practice Well established procedures and administration Proven in practice over many years 19

20 Thank you! 20