CONSTRUCTION INSURANCE BONDS AND GUARANTEES
CONSTRUCTION INSURANCE
The act of construction implies risk
(possibility of loss)
Risks affecting the work
Risks affecting third parties
Risks require compulsory insurance coverage
that transfers the liability from the policy
holder to the policy provider
CONSTRUCTION INSURANCE
Legal Basis
An insurance policy is a contract whereby a
person, called the insurer, undertakes against
payment of one or more premiums to pay to a
person, called the beneficiary, a sum of money
where a specified risk materializes. (Article 654
of Commercial Code)
Contractual Basis:
Clause 21 – Clause 25 of FIDIC General Conditions
of Contract
Sub Clause 18:1 – 18:4 of FIDIC MDB version
CONTRACTOR’S ALL RISK (CAR)
INSURANCE
Standard form: Munich Re
Insurance for Works, Plant, Equipment and
material:
Insuring party (Contractor) effects and maintains
Insures in the joint names of the Contactor and
the Employer
Covers not less than full reinstatement cost
including cost of demolition & removal of Debris
Effective until the date of issue of taking over
certificate
…CAR CONTINUED
Sum Insured
Full value of Works (Permanent and Temporary)
Contract Price
Materials or items supplied by principals
Replacement Value of Plant and Equipment as well as
Machinery
Clearance and removal of debris
Third Party Liability
Bodily injury and/or Property Damage (up to limit under the
policy)
Settlement: value or condition immediately before the
occurrence
…CAR
FIDIC /Sub Clause 21.1/
The works together with material and plants
An additional sum of 15% to cover any additional
cost
Contractor’s Equipment and others brought onto
the site
Sub Clause 22.1
Damage to persons or property
• Death or injury to any person
• Loss of or damage to any property ( other than
works)
…CAR CONTINUED
Insurance against Injury to persons and
damage to property:
Covers loss, damage, death or bodily injury;
Limit per occurrence of the amount stated in the
appendix to tender; with no limit to the number
of occurrences;
…CAR CONTINUED
Insurance for Contractor’s personnel:
Contractor insures against liability for claims,
damages, losses and expenses arising from
injury, sickness, disease or death of contractor’s
employees and personnel.
Include Employer and Engineer except where
they arise from act or negligence of the
Employer’s or Engineer’s personnel
…CAR CONTINUED
Deductibles:
Amount to be borne by the insured in respect of
each and every occurrence for loss or damage to
contract works and / or construction plant and
equipment
… CAR POLICY
Exclusions listed in CAR Policy:
a) war, invasion, act of foreign enemy,
hostilities ,civil war, rebellion, revolution,
insurrection, mutiny, riot, strike, lockout, civil
commotion, ….
b) nuclear reaction, nuclear radiation or
radioactive contamination;
c) willful act or willful negligence of the
Insured or of his representatives;
d) cessation of work whether total or partial.
Special Exclusions (eg faulty design, defects,
non performance, wear and tear)
GUARANTEES AND BONDS
Advance Payment Guarantee;
Performance bond;
Retention money guarantee
Proffessional Indemnity
GUARANTEES AND BONDS
Conditional and unconditional
Unconditional:
On demand
Conditional
Subject to a condition: eg non performance
It is a condition for any claim and payment under
this guarantee to be made that …. /such and such
must be fulfilled/
GUARANTEES AND BONDS
Advance Payment Guarantee
The Public Procurement & Property
Administration proclamation no 649/2009;
Article 48 (2) requires that the Contractor should
submit Advance Payment Guarantee so as to
collect advance payment.
FIDIC (MDB) sub clause 14.2 requires that the
Contractor should submit advance payment
guarantee in order to collect advance payment.
Valid until the advance payment has been repaid
…GUARANTEES AND BONDS
Advance Payment Guarantee form
… we hereby irrevocably undertake to pay you
any sum not exceeding an amount of ___ up on
receipt by us of your first demand in writing
accompanied by written statement that the
contractor is in breach of its obligation under the
contract because the Contractor used the
Advance payment for purposes other than the
costs of mobilization in respect of the works.
…GUARANTEES AND BONDS
Performance Bond:
The Public Procurement & property
Administration Proclamation no 649/2009
Article 47 as well as the procurement directive
2010 Article 16.25 requires that the Contractor
need to produce performance security.
As per Sub Clause 4.1 (MDB) Contractor obtains
and deliver performance bond for proper
performance to the Employer with in 28 days of
receiving letter of acceptance.
…GUARANTEES AND BONDS
Performance Bond Form
…In default by the contractor the sureties shall
satisfy and discharge the damage sustained by
the employer thereby up to …. amount
…GUARANTEES AND BONDS
Retention Money Guarantee:
Tobe submitted by the contractor as a
replacement for retention money.
Retention Money Guarantee Form
… we hereby irrevocably undertake to pay you
any sum not exceeding an amount of ___ up on
receipt by us of your first demand in writing
accompanied by written statement that the
contractor is in breach of its obligation under the
contract because the Contractor failed to
execute works outstanding on the date stated in
Taking Over Certificate and remedying defects or
damages … with in the Defects Notification
Period.
…GUARANTEES AND BONDS
Professional Indemnity
Submittedby consultants to indemnify the
employer for breach of professional duty
With a coverage equal to the contract ceiling.
Thank you!
