Owners and developers often overlook the importance of taking a strategic approach to project insurance. We are often asked why companies would depart from the tried and tested approach of letting the contractor insure the project works – after all, the contractor carries the risk in the first instance, doesn’t it?

This assumption is not correct, and while a contractor controlled insurance program (CCIP) is often the path of least resistance, there is an alternative that can provide greater protection, control, and assurance. The advantages of a principal-controlled insurance program (PCIP) are numerous and can deliver real value to owners.

What is a Principal-Controlled Insurance
Program?

Most standard contractual drafting globally makes the contractor(s) carrying out the project construction works responsible for insuring the construction and third party liability risks:

• Contract Works (CW) is designed to insure material damage to the project contract works
• Third-party liability (TPL) insurance is designed to cover legal liability to third parties arising from the project, primarily arising from injury or damage.

A PCIP is an alternative procurement approach that can provide an owner with greater protection, control, and security. In its simplest form, a PCIP is an arrangement whereby you take control and purchase the CW and TPL insurances in the form of a bespoke, all-party cover for the project.

There are significant commercial benefits to you (or the project principal) in arranging these insurances yourself, which require minimal amendments to the standard construction contract form.

These amendments should not change any of the contractual elements regarding risk allocation. They would only concern the single party who procures the CW and TPL insurance on behalf of all project parties as part of a PCIP. It is important to note that the amendments should be made to the tendered construction contracts as early as possible if you are to obtain the full commercial benefits of such an approach – ideally prior to tendering the construction contracts. Imijelo Consulting is experienced at working with all major standard contracts and bespoke forms and assisting with the required.