In its most recent quarterly findings, The Construction Products Association forecasts the construction industry to grow by 4.3% in 2022. This is a modest growth assessment and certainly doesn’t account for the events unfolding in Ukraine and the likely effect this is to have on business supply chains in months to come. That being said, the prognosis isn’t entirely bleak.
Construction and new housebuilding has proven incredibly resilient to external factors in recent times – think uncertainty of pandemic, land shortage, increasing cost of materials – activity on the whole remains buoyant in face of these challenges and this shows in the interactions we have had with clients over the first few months of the year.
Insurance can also be thrown onto this list of “challenges” when contractors are asked about things like Professional Indemnity cover or Performance Bonds. One of the most frequent questions we get concern JCT options – i.e., how should works be insured when working under a JCT template.
JCT options are as follows:
- Option A – The Contractor is responsible for taking out and maintaining joint names All Risk insurance in respect of new works.
- Option B – The end client is responsible for taking out and maintaining joint names All Risk insurance in respect of new works.
- Option C – Where there are existing structures, the end client is responsible for maintaining insurance on both the existing structure and new works.
Options A and B are straightforward and account for majority of examples under JCT concerning new works. So, is it preferable to insure under option A or B? This depends entirely on the relationship between Contractor and end client as the choice determines which party administers the policy and by extension will be in first receipt of all settlement monies should a claim have to be made for repair/reinstatement of the works. The end client may prefer option B to maintain control of the policy and limit exposure should the contractor become insolvent and fall into administration. In such a scenario, the end client can potentially lose out on part of insurance settlement should the Administrator allocate claims monies elsewhere to settle outstanding debts and so option C allows the end client to avoid such an outcome.
Alternatively, when existing structures are involved, it’s unappealing for a Contractor that works to fine margins to take on responsibility for new works as well as an existing structure. Option C would be the most practical solution for all parties involved, as whilst a contractors own Public Liability insurance will cover third party injury or damage there’s no guarantee cover will respond or meet costs in a way that is acceptable to the end client. This doesn’t mean to say Option C is a failsafe solution all of the time. The position can be complicated if the end client be a tenant of the existing structure and so the landlords own insurable interest and exposure must also be considered.
Ultimately, every option should be considered within context of the contract itself and so its recommended you utilise the expertise of your broker when considering the different options under JCT.
By Simon Wright Dip CII– Account Executive