Many WA local governments are bringing forward infrastructure projects to support their communities and kick-start the economy after the coronavirus pandemic. Now more than ever local governments need to ensure that their projects have the right protection and should consider the benefits of principal held construction works insurance.

An Owner Controlled Insurance Program (OCIP) solution meets the needs of all stakeholders involved in a project. Construction and redevelopment projects for local government can be highly complex undertakings with many different elements of work to be co-ordinated into the finished project. 

The local government's project team is committed to displaying exemplary control and management of construction processes to ensure delivery is on time and on budget and meets the needs of the community. Such control and management is just as important for the insurance program which wraps around the construction process, providing a layer of financial protection for transferred risks.

This is where LGIS can help members with our Public Sector Construction Facility which is backed by JLT Public Sector and Marsh.

Construction facility benefits to local government

Control of coverage

Local government knows what its' risks are and how it wishes to manage them. Points of concern for local government may not rank so highly on a contractor's list of priorities, who may arrange cover simply to provide for their own contractual or technical risks. The program must aim to take account of all parties' needs, but procurement of the insurances by local government allows the cover to be tailored to ensure their specific aims are satisfied.

Control of claims

The primary function of any insurance policy is the payment of claims, yet any claim has the potential for complexity. From first notification and loss adjuster site visits, through to production of supporting information, negotiation and eventual settlement of the claim, the local government will be keen to see that the process runs smoothly and promptly. Having a direct relationship with insurers and loss adjusters, established during the procurement process, can prove critical to successful conclusion of difficult claims.

Control of deductibles

Almost all insurance policies will require the insured parties to bear a deductible, the purpose of which includes incentivising the project participants to manage risk and avoid losses. The local government led procurement of insurances permits the ability to select a suitable deductible level, balancing the need to incentivise contractors without being overly punitive.

Compliance with lending requirements

Financiers may seek certain securities over the insurance program effected for a project. It is highly likely, in such a circumstance, that financiers will insist that the insurances are controlled by the local government, so that financiers can step-in to the rights of the local government in the event of default under the lending agreements.

Avoidance of cross-claims and disputes

A common panel of insurers across the project removes the potential for claims between parties and their respective insurers, as each seeks to protect its own interests.

Optimum levels of cover

The ability to arrange advance loss of profits insurance to cover lost rent or fixed costs including debt servicing and the potential tenant's alternative accommodation during the rebuild period following delay as a result of damage to the works.

Elimination of on-costs

With direct control of the procurement process, the local government can ensure that no additional 'handling costs' are passed on to the project. Furthermore, even if the insurances were to be placed by others, the project team would still need to expend considerable time ensuring that the insurances had been effected to their satisfaction – effectively duplicating work.

Protection from contractor default

In the event of a contractor being unable to fulfil their contractual obligations due to breach of conditions, contractual disputes leading to termination or a contractor insolvency, local governmentl retains ownership of the policy and remains protected whilst they re-bid the project and replace the contractor. This greatly reduces the risk exposure to council from a contractor default and avoids difficulties associated with a new contractor insuring the partially completed works.

More information

For more information about how the Public Sector Construction Facility can help your local government with their capital works projects talk to your LGIS Account Manager on 9483 8888 and admin@lgiswa.com.au.