and Insuring Agreements
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Dear Readers:
Obtaining public works payment and performance bonds as well as various insuring agreements is vital to protecting your project. Interestingly enough, while payment and performance bonds issued by a U.S. Treasury insurer are mandatory (for all public works projects which exceed $25,000 for payment bonds and $100,000 for performance bonds), there is no mandatory general liability or property insurance. On the other hand, workers compensation and automobile liability insurance are mandatory.
Texas Government Code Chapter 2253: Public Work Performance and Payment Bonds
Texas Civil Practice & Remedies Code Section 101.021: Governmental Liability
Texas Civil Practice & Remedies Code Section 101.023: Limitation On Amount of Liability
Most written construction contracts, whether they are Stipulated Sum, Competitive Sealed Proposal, or Construction Manager at Risk, require the builder to produce bonds and insurance. The cost of these requirements is huge even if the builder has an excellent safety record. Most of the time, the cost of the insurance is directly passed through to the building owner. However, this issue becomes more complicated when one considers that active builders typically add and/or subtract several owners to their policies over the course of their projects; as a result, builders allocate among the buildings and owners the cost of the builder's premium. Typically the premium cost is passed through to the owner with an accompanying percentage multiplier, either in an administrative overhead cost (which the owner typically does not see with a stipulated sum contract, although he is certainly entitled to assuming he writes the specification properly), or as a cost of the work in a Construction Manager at Risk Contract.
While this background information is relatively complicated, it leads us to the following simple points:
1. Don't let a contractor begin work on site unless or until he has produced adequate evidence that the bonds and insurance that the owner has required match the owner's specification and are confirmed. Every year we see several outright forgeries of these all-important documents, let alone more than a few serious mistakes that, if not caught before a costly accident or loss, will result in difficulty for the owner in obtaining the coverage for which he has paid. These problems can be outright avoided by taking the time to carefully confirm your documents in advance.
2. It is equally important that the builder should not activate the policies (i.e. start the coverage running on a particular insured) until activity in the field has begun in earnest. When the contract is stipulated sum or competitive sealed proposal, there is no work to be done by the builder until the contract is awarded and a notice to proceed has been issued. In contrast, a Construction Manager at Risk typically will perform all manner of tasks for weeks or months under the preconstruction phase of the contract. But these are not activities that are normally covered by Builder's Risk or Payment and Performance Bonds. The clear wording of the Builder's risk policies makes coverage inapplicable to non construction-related causes. It is a waste of funds to ask the builder to activate the coverage in a Construction Manager at Risk contract at a date before construction related activity by the builder and its subcontractors and suppliers commences. Additionally, there would be no coverage by the builder's risk policy and, prior to commencement of construction, the Owner should not be shouldering the cost of the Construction Manager's activities. Rather, the Construction Manager should have its own general liability insurance, automobile insurance, and worker's compensation that covers injuries and damages until such time as construction begins.
Rarely do owners or builders review the language in the builder's risk policies. Your author often finds that a builder first reads the policies when a serious accident occurs and a claim must be filed. The clear wording of these policies, most of which are issued by major insurers admitted by the Texas Department of Insurance with non-negotiable wording, is to cover "construction related' activities. But repeat this mantra: pre-construction activities are not construction!
In your every construction insurance adventure, we wish you the very best.
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Laura Fowler and THE FOWLER LAW FIRM P.C . are so grateful to so many of you who have helped to make our firm a success. The Fowler Law Firm P.C. is a full service law firm whose attorneys have many years of experience in the handling of education institution issues, both public and private, non-profit associations, real estate, family law, probate and estate, business formation and taxation and all aspects of copyright, trademarks and patents. We never charge a client a fee or incur any expense until the client understands and agrees. In addition, we often counsel with your clients and friends and give them the information they need at no charge when we cannot truly be of service. For more information or to refer a matter to us please contact us at (512) 441-1411 or visit our website at www.thefowlerlawfirm.com .
This information is
provided by Laura S. Fowler, Attorney at Law with
The Fowler Law Firm PC. It is not intended as a
substitute for careful review by legal counsel of
your choosing. We would be most honored to assist
you in your every real legal need.
Contact Laura
Fowler at lfowler@thefowlerlawfirm.com
or
call (512) 441-1411.
As with any legal
issues, please consult your attorney with
questions.
