Overview
This document is intended to assist with Contract Works that are conducted on behalf of UMAL Members. Contract Works are generally specific works or projects conducted by external contractors and involve a construction contract under which a UMAL Member employs a contractor to conduct Works.
The insurance of contract Works is generally covered under a Contractors All Risks cover. However, it should be understood that there are numerous methods to cover a construction project, and it is generally recommended that the advice of specialist legal counsel is sought at the early stages of the project, especially Works conducted at premises that are leased to a UMAL Member.
It should be understood that insurance arrangements for construction work can take multiple forms-there is not always a “one-size fits all” arrangement and complex projects may require customised insurance solutions.
Common Terms/Definitions
Contract Work Details Form
The UMAL document which needs to be completed for all contracts with a Contract Price in excess of £1m. Additional information may be required for larger and more complex contracts
Contract Price
The agreed contract price of the Works including all materials, including free issue materials, installed plant & equipment, labour, all professional fees and VAT.
Free issue materials
Materials that are supplied by the contractor as part of the contract
Existing Structure
The building(s) owned / occupied by the Member in which Works are being conducted
Works
The construction work as defined in the construction contract.
The Employer
Generally, the Member who will be defined in the construction contract.
Joint Names
Generally, a requirement that cover for Contractors All Risk Cover is placed jointly on behalf of the Employer and Contractor (including main and sub-contractors). Case law is complex on the issue of how the respective rights and interests of individual parties operate under contract and do not always obviate potential for subrogation. The term ‘Composite Names’ more correctly implies that any cover is for the respective rights and
interests of each name only.
Specified Perils
Damage resulting from fire, lightning, explosion, storm, flood, escape of water from any water tank, apparatus or pipe, earthquake, aircraft and other aerial devices or articles dropped therefrom, riot and civil commotion
Construction Contract
The contract entered into by the Employer and Contractor which defines the responsibilities and expectations for the completion of Works. Construction contracts examples are Joint Contractors Tribunal (JCT), Scottish Building Contractors Contract (SBCC but part of JCT), New Engineering Contract (NEC). There are various iterations of each contract which place differing responsibilities on the Employer and Contractor.
Insurance Options
The JCT and other construction contracts detail a number of pre-determined responsibilities for the Employer and Contractor. Commonly used JCT options relating to Works & Existing Structures are as follows;
– Option A. New build project, Contractor responsible to take out Works insurance in Joint Names with the Employer for All Risks
– Option B. New build project, Employer responsible to take out Works insurance in Joint Names with the Employer for All Risks
– Option C. Project involving Existing Structure. Employer responsible to take out:
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Works insurance in Joint Names with the Contractor for All Risks
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Insurance for damage to Existing Structure in Joint Names with the Contractor for Specified Perils
New Builds
As the name implies, the construction of a new building. It is generally recommended that JCT Option A is chosen which places responsibility on the Contractor to insure the building until completion. The contractor will provide a Certificate of Completion which should be evidence that the structure complies with current Building Regulations and has been completed to specifications with various systems in operational condition
(Fire/Security Protections). The option exists for Members to cover New Builds (JCT Option B) sometimes referred to as Owner Controlled Insurance Programmes (OCIPs) which has pros & cons that need to be determined prior to the tender process.
Existing Structures
Any part of a building/structure that is in place prior to commencement of new works, where the new works are to be undertaken to/on the Existing Structures. This would typically be a Fit-Out/Refurb/Extension. Under usual contract conditions, the Employer should provide the Contactor joint names cover for any damage caused to the Existing Structure resulting from Specified Perils. If this is not possible, the contract needs to be
amended accordingly, to pass liability to the Contractor or to the Landlord in the case of leased Premises. Legal advice should be sought in respect of this drafting and it’s advised the C.1 replacement schedule it utilised.
Public / Third Party Liability
Insurance cover in respect of damage to third party property and injury to third party persons. This is typically left as the responsibility of the Contractor to procure under the Building Contract and provide an indemnity to principal (the Employer). This indemnity would cover the Employer if any legal liability attached to the Employer from an act the Contractor was legally liable for. This would not cover any legal liability that attached solely to the Employer. See below reference to Contractor’s liability for further information on this and other liabilities.
Non-Negligent Liability
Sometimes referred to as JCT 21.2.1/6.5.1. The Contractor is legally liable for any damage caused to property (including existing structures) not forming part of the works as a result of undertaking the works, where they are negligent for causing said damage. The Contractors’ Public / Third Party Liability policy would look to respond in these circumstances.
When there has been damage to property that has occurred as a result of the project, but negligence cannot be proven, legal liability would sit with the Employer as the owner of the project. This insurance can be taken out to protect the Employer in such circumstances. It is typically a requirement of the Contractor to take this out in joint names with the insurer, but it can be purchased in isolation by the Employer.
The risks that this provides cover for would be collapse, subsidence, ground heave, vibration, weakening or removal of support or lowering of ground water arising whilst carrying out the Works (but excluding damage to the Works).
The Employer is responsible for deciding when this cover should be purchased, which is typically when there is demolition, excavation, piling or other high impact activities that could unintentionally affect property that would not form part of the works. It should be considered not just based upon obvious property risk, however also considering such property as a Party Wall, hidden drainage or communal infrastructure, as examples.
What is Contractors “All Risks” (CAR) insurance?
The cover is for direct physical loss or damage to physical property and would be intended to cover fortuitous (accidental) loss or damage to property arising from “risks”(perils) such as fire, flood, theft, wind, lightning, etc. As with all contracts, there are various exclusions and conditions of cover which mean the not all circumstances that may result in a loss will be the subject of cover under the contract (e.g. Cyber, War, Terrorism, penalties, etc would not be standardly covered causes of loss).
Contractor Liability Insurance
(See JCT Clause 6.1/6.2)
As with all separate legal entities conducting operations or works at Members’ premises, third parties need to evidence that they have valid/current and adequate insurance for accidental injury or damage that they are responsible for in the course of performing their operations. Contractor’s evidence of insurance cover is normally in the form of a To Whom it May Concern letter or Evidence of Insurance certificate, normally provided by the contractors’ insurance broker. Covers should include Public Liability, Employers’ Liability and Professional Indemnity. The Member will normally have predetermined minimum limits that the contractor will need to hold for the whole contract term.
Contractor Liability cover should not be confused with Contractors All Risks Cover (as liability cover is intended for legal liability, generally the result of negligence, to third party property or third-party person and not the Works)
RIBA Plan of Works
The RIBA Plan of Works provides a framework for architects/designers to use on projects with the Member/Employer to bring clarity of the different stages (0-7) of the project and defines what outcomes the project team should achieve at each stage, but it does not define who should undertake the core tasks. Stage 1 documents would include initial requirements for Fire Safety/Health & Safety/Construction type and hence the potential involvement of UMAL Risk Engineering.
Works Requiring Special Consideration
Member Collections
Works which are conducted in areas or buildings that contain Fine Art (antiquities, paintings, sculptures, archives, etc) and Libraries require particular risk management to be undertaken by the Member and Contractor. All Works with a Contract Price in excess of £1m need to be notified to UMAL irrespective of insurance responsibilities under the construction contract.
Demolition
Demolition only contracts (for the demolition of existing structures) generally have a specific contract (frequently National Federation of Demolition Contactors form NFDC). It is generally recommended that the demolition contractors take full responsibility for such contracts. Main complications in demolition contracts occur when only partial demolition is required (i.e. sections of Existing Structures to remain). The general recommendation is that any demolition is included under the main Contractor programme.
Leased Premises
Works at leased Premises (for which the Member is not responsible to “insure” the building structure under the lease agreement) need different arrangements of insurance than Member owned buildings. The Landlord of the leased building should be informed of the intended Works and the general expectation is that the landlord will inform the buildings insurers of the proposed Works, and that cover will be extended to insure possible damage to the Existing Structure. If they cannot extend cover to the Contractor, the contract needs to be amended to pass liability on to the Contractor in respect of damage they caused to the Existing Structure. The Contractor can utilise the Project CAR insurance to cover the Works at the leased building. It is always recommended that any proposed Works at leased buildings (such as fit outs) are discussed with the Landlord prior to the Lease Agreement being signed in order that there is clear definition on the insurance arrangements for the works. If a JCT construction contract is utilized, then it would generally be the case that C1/C2 Replacement form would be utilized.
Risk Management
Two major risk management factors in construction are fire and water damage. To assist the construction industry in mitigating risks there are risk management documents on these subjects detailing a wide range of precautions to be taken, and assigning responsibility for this to specific job roles, together with ensuring competency standards expected of the Contractors and the local managers of the Contractors.
1. Fire
“The Joint Code of Practice on the Protection from Fire of Construction Sites and Buildings Undergoing Renovation, 10th Edition 2022, incorporating amendment 1, 2023.”
This is the best practice document which needs to be followed by the Contractor for all contracts with a Contract Price in excess of £2,500,000.
2. Escape of Water Prevention
The Joint Code of Practice on the Prevention and Management of Escape of Water on Construction Sites and Buildings Undergoing Renovation
A best practice protocol for the prevention of escape of water for buildings undergoing construction or renovation. It sets out design considerations, installation standards, quality management, testing/commissioning, risk mitigation and emergency procedures expected. The Contractor also needs to produce and follow a plan that sets out defined duty holders and the details of the water systems and risk management factors mentioned above (see template in Appendix 1) prior to the start of any Works, for any Works with a Contract Price in excess of £2,500,000
Escape of Water losses growing in magnitude
Experience shows that occurrences of water damage, especially from water systems, continues to increase substantially, both in frequency and severity, and is currently one of the most prevalent causes of claims on construction sites. To amplify the issue with losses, the prevalence of high value research and medical equipment which may be in-situ during works are frequently exposed to leaks, often resulting in the complete write-off of equipment worth hundreds of thousands if not millions of pounds as original equipment manufacturers will no longer certify the equipment as providing accurate results. Libraries and galleries are also particularly vulnerable to water losses-it is not uncommon for Members to have rare books or paintings that are worth several million pounds. Escape of Water losses can also significantly impact the delivery of projects with delays causing logistical issues, especially for time critical “summer works”.
3. Hot Work Permit
Contractors frequently need to use heat during construction work, e.g. pipe soldering, brazing, welding, cutting, torching roof felt, etc. Heat used by Contractors is a common cause of fire losses and the Hot Work Permit is intended to improve contractor risk management with respect to the use of heat. Dependent on the susceptibility of the building and values at risk to the application of heat there may be required additional precautions advised, such as extended fire watch periods for heritage buildings undergoing renovations.
Smoking on site / In the workplace
Although smoking is not allowed in the workplace, provisions may be made for staff who wish to smoke outside the premises. When considering the provisions, the following recommendations should be observed. Every site should introduce a clear policy with regard to smoking at work. This should be set out to confirm compliance with legal requirements and company philosophy. The policy should be prominently displayed and communicated.
Arson Attacks
Arson risk management programmes should be devised following an arson risk assessment for the premises in compliance with the Regulatory Reform (Fire Safety) Order 2005. When devising the arson risk management programme it should be remembered that the legislation is primarily aimed at minimising loss of life and that additional measures, which may not necessarily be costly, may well be beneficial in providing additional protection to the property and ensure business continuity. The arson risk assessment should include:
Identifying potential reasons for setting fire to the premises, including:
– whether malicious attacks have occurred in the neighbourhood lately
– the susceptibility of the building
– the type of occupancy
– the security measures adopted, both internally and externally
– the crime profile of the area
– people who may be affected by a fire
– the combustible materials present and ignition sources that could be used to
Security
A security risk assessment should be undertaken. This should include:
– What property could attract criminals
– What are the target assets
– When are they present? e.g. permanently or temporality
– Where they located
– What ae the high/low risk periods e.g. during or after trading hours / site occupancy
– The likelihood/nature of expected crime for example: theft, burglary, robbery, vandalism
There are several security strategies mentioned below that can be adopted and, whilst they may be considered in isolation, they are often used to best effect if considered alongside each other
Deterrence affects all criminals, and typically results from measurements that are clearly visible e.g. a perimeter fence, well-constructed /secure buildings, a guard presence or an electronic security system. However, measures that are not readily visible e.g. forensic marking, disguised CCTV cameras etc. can still be effective, but ideally such measures need be ‘advertised’.
Detection of criminals can be achieved through use of site personnel, security guards or an electronic detection system. The aim, always being to recognise an incident requiring intervention early on, to prevent or otherwise minimise loss or damage.
Delay of criminals typically occurs when a series of measures increases the amount of time taken for them to reach their objective. For example, the use of several strong physical barriers, requiring criminals to penetrate deep inside premises, and or storing assets in a way that demands time and effort in removal.
UMAL Risk Management
UMAL Risk Managers can assist with specific risk management advice for construction works. Ideally, UMAL would be advised of significant works (such as new builds or major refurbishments) at the earliest design stage, and typically no later than RIBA Stage 3, to make recommendations on the type of construction materials used, compartmentation of higher risk processes or storage, fire protection and detection systems for general protection and protection of individual hazards, design considerations for pipework in relation to the use and layout of rooms, and protections required for the mitigation of natural hazards, such as fluvial flood and surface water flood.
PDF documents referred to within this memorandum can be found in the Document Library in the Members Area of the UMAL website. Login Credentials can be obtained by request to underwriting@umal.co.uk
This document should be considered as guidance only and not legal advice. Construction contracts and insurance for construction tend to be complex legal arrangements and it is always recommended that experienced and competent legal counsel is sought for such arrangements.
