Design & Construction

Design and construction or Design and build policies affords cover for the design element of build works and is rated in the same context as Engineers for this element of works. Rating is divided between:

Turnover where the firm designs and constructs from its own design and provides full technical supervision:
Full design responsibility where the contractor has architectural design factions within its operations and will formulate the design within its own entity rather than contract out. This falls under consideration for full rate in consideration of the principal exposure for a contractor. It is recognised that the turnover value is not reflective of the actual exposure given that this figure will contain materials sold on and generally a 10% of turnover figure is taken to reflect profit and actual works of the Insured.

Fees where the firm provides design and technical services only and no construction is undertaken.
This assumes the same liability as an Architect responsible for full design that is used by third parties, and supervisory exposure may also be assumed. The direct fee value is a rateable figure. The rating consideration is similar to full design above.

Fees where the firm provides project management or supervision of construction services only and no construction is undertaken.
Project management and coordination of subcontractors with a supervisory role invokes lower rating consideration as there is no direct design exposure. There is however the danger of supervision and omission to detect breaches of implementation of design provided by a third party. Here, design failures can be brought in through the back door to the Insured when it should remain with the Architect.

Turnover where the firm constructs from ‘other’ design performed on behalf of the firm and is contingent in design liability.
Design undertaken by a contracted external architect contracted typically by the developer. The Architect is primarily responsible for the design and supervision of the project works. The contractor becomes a builder and implementer of construction where workmanship is the main concern of the contractor. This is a contingent exposure to the contractor and the rating factor is considerably lower as exposure sits behind the Architect for any design liability. The cover does not insure workmanship which will fall to Contract All Risks insurance. This aspect of work attracts a very low rate in comparison to full design.

Other works or ‘duty to warn’ where other co-contractors and parties are operative on the project, but are not under the control or supervision of the insured contractor.
This category of exposure attracts minimal rate as there is no direct exposure to the contractor in either design or implementation. The threat of joint and several liability does not disappear and the contractor can be implicated in failure to act if in proximity to other parties to the contract who are identifies at fault.

Beyond the base rating of a contractor’s risk the focus of consideration in assessment of risk will turn to operations percentage split. There is a considerable difference between a small turnover contractor typically building private homes, schools and universities and modular buildings and a contractor involved in full design of heavy Civil works. High risk operations are considered to be nuclear works, airports, rail track, chemical works. Below this there is environmental works, topographical works, foundations and piling, hydro works and industrial plant. Civil works fall into highways, dams, bridges, tunnels, harbours and jetties. Over time claims in these areas have been substantial due to the obvious remedial costs and high contract values.

There has always been the worry of series losses from a design proximate cause that than then concertina through many units affected by the same design fault. This is where aggregation of losses s in a contract will can impact on the policy. This would be typically seen in larger commercial contracts where a repeated feature in numerous buildings contains the same design fault. Policies in the market have traditionally been aggregated and costs inclusive in the limit of indemnity. At the small contractor end of the market dealing in the lower risk spectrum of private housing there have been changes in limits to ‘any one claim’ basis by endorsement to the policy. The larger higher risk contractor undertaking high contract values still largely remain aggregate.

The Design and construct wording differs from Engineers and Architects by carrying a mitigation of loss clause to pay out in event of pre handover faults to avoid costly disputes post hand over where there are identifiable errors. The policies are Civil or Legal liability basis. There is also inclusion of a ‘vicarious liability’ clause to cover sub contractors under the policy. The nature of all projects require the contractor to act as pivot to engage specialist sub contractors. Typically, insurers may impose a sub contractors PI warranty clause to insist on these sub- contractors carrying their own policy protection. This then gives in many situations a more contingent risk where the subcontractor is at fault. Mention should be made here of ‘joint and several liabilities’. In most construction disputes the main contractor will be first line of defence in defence of claims from developers and purchasers even though the cause of loss is from another party to the project. The policy is often most use here in dealing with costs of defence which can often exceed the claim settlement.

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