I have to agree with macgyvers2000. There are extremes in any situation and exceptions to most rules. And thiose arew what get generally thrown out as examples when they are just that - exceptions.
To counsel or advocate against having the proper business & personal insurance in place is akin to advising someone "no, you really don't have to pay taxes, it's not in the Constitution".
The following is what I recommend to clients (contractors) looking for ways to manage business & project risks (this is the insurance portion and insurance is a risk management tool) - note, this is all inclusive and some don't apply to most and most don't apply to some, well you know what I mean:
1. Put a Controlled Insurance Program (CIP) on a standard retrospective-rated plan or on a guaranteed cost plan, but not a high deductible plan.
2. Make sure all bidding subcontractors specifically identify the work disciplines which they intend to sub out and identify the specific sub-subcontractors. All tiers of subcontractors should be vetted for references and reputation and their estimated revenues and payrolls should be provided. All bidders must be advised that they will only be permitted to use sub-subcontractors who have been pre-approved by the Client.
3. Every tier of subcontractor should be required to provide their Workers’ Compensation Insurance Experience Modifier from the NCCI Bureau. Minimum standards should be set as to level of modifier that is acceptable, such as not accepting any subcontractors with a three-year promulgated modifier of 1.00 or greater.
4. Every tier of subcontractor should be required to submit a listing of all OSHA citations, along with safety statistics and man-hours for the past five (5) years showing all OSHA recordable injuries, all restricted work-day injuries and all lost-time injuries and the respective injury rates.
5. Have each subcontractor and potential sub-subcontractor of every tier sign a statement to the effect that they understand that a CIP may be required and agree to participate, if required. Make it clear that not all subs will be eligible to participate, but the final decision rests with the General Contractor (GC).
6. In the Instructions to Bidders, make it clear that any bidding subcontractors that do not submit the completed CIP questionnaires, experience modifiers and safety statistics from themselves and all tiers of sub-subcontractors by the date required or with their bids, on the required date of bid submission, will be considered non-responsive and their bid will not be opened. All bidders should also be required to submit with their bids Insurance Certificates evidencing their existing insurance programs.
7. Make it clear to all prime subcontractors that they are required to enter into formal written subcontracts with their subs on contract forms prescribed by the General Contractor and to incorporate in them all of the applicable requirements of their prime subcontracts. No subcontractors that do not have subcontracts approved by the (GC) should be allowed on the project, unless permission is granted by the GC in writing.
8. After award of subcontracts, make certain to recover the insurance premium deductions from the subcontractors’ payments for themselves and all tiers of their subcontractors within the first three such payments, or sooner, if term of work is less. Never wait until the end of a subs work or the end of the project and attempt to collect it or withhold it from retentions. The prime subcontractors are responsible for collecting the premium deductions from their subs.
9. When setting up the CIP General Liability and Excess Liability Policies, be sure to exclude claims or lawsuits filed by one participant against another participant alleging the commission of any of the following "Personal and Advertising Injury" perils:
a. False arrest, detention or imprisonment
b. Malicious prosecution
c. Wrongful eviction or wrongful entry into or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor
d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services
e. Oral or written publication of materials that violates a person's right of privacy
f. The use of another's advertising idea in your advertisement
g. Infringing upon another's copyright, trade dress or slogan in your advertisement
In addition to the above, also exclude such claims or lawsuits alleging “Tortuous Interference”.
10. Require all tiers of subcontractors to provide "Consent of Surety Letters" from acceptable surety companies confirming they will agree to issue Performance and Payment Bonds guaranteeing 100% of the work being bid. These letters must also accompany their bid packages to be considered responsive and eligible for bid opening. Be sure to include the premium cost for requiring all prime subcontractors to post performance and payment bonds for 100% of their subcontract prices in the project cost budget. Plan to try to limit reimbursement of any bond premiums to normal industry rates, in order to avoid having to pay high bond premiums charged to a subcontractor that is a marginal bond risk.
11. Make a deal with the CIP insurance broker to review all completed CIP questionnaires for accuracy and completeness and all Consent-of-Surety Letters for authenticity and viability of sureties.
12. Prepare a plan to deal with critical subs who are not bondable, but who can offer acceptable alternative performance and payment guarantees in the form of irrevocable letters-of-credit from acceptable banks. Do a due diligence check on the proposed banks and terms for acceptability.
13. Do not use the withholding of retained funds as a substitute for performance guarantees from sureties or banks. These are two different requirements for differing reasons. Retentions will usually not be sufficient to make a subcontractor perform if they get into trouble on the job. Retentions may also be insufficient to cover a subcontractor's unpaid bills for materials, equipment rental, labor and other costs, which could likely be the source of liens being filed against the project.
14. Be sure to include adequate funding for a qualified proactive safety manager and sufficient safety staff to adequately cover the project.
15. After all underwriting information is received and ready for review by Risk Management and the competitively selected CIP insurance broker, make sure the requirements for the insurance companies bidding for the CIP are thoroughly thought out and included in the insurance bid packages. One of the most important is the commitment the insurers are prepared to make to support and monitor the project safety effort and help achieve the safety goals set for the project.
16. When all of the insurance bids for the CIP are in, careful analysis must be done to prove that the CIP is beneficially priced and will provide the value added which will enhance the project cost factors and ensure a safer project.
Greg Lamberson, BS, MBA
Consultant - Upstream Energy
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