Over the years we have produced several publications highlighting the significant areas of risk faced by construction consultants. Our aim is to help control the cost of professional risk by sharing examples of actual claims so that lessons can be learned.

Our risk management publication ‘Reinforcing the Simple Messages’ highlights some of the professional risks most commonly encountered in the construction sector.

Although the idea is an anathema for many professionals, the most basic cause of claims against them is a defect in the services they have provided – many years of handling claims on behalf of our clients have shown that problems arise today from much the same sources as they have in the past.

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Although there is no legal requirement under Irish law for a contractor to hold adequate Construction Insurance it is extremely important that adequate cover is in place.

One of the most important reasons is the high injury & mortality rate on Irish Construction sites. One major positive of the recent construction boom is the fatality per thousand ratio has fallen in recent years although it is still at an unacceptable level.

For example, in 2001 28% of workplace fatalities were Construction related and the Irish Construction industry is consistently second only to the Irish Agriculture& Forestry Industry.

As many primary contractors require their subcontractors to hold Construction Insurance the reality is that although Construction Insurance is not a legal requirement it is usually a prerequisite to obtaining work on the majority of the countries construction sites so the need for construction insurance is a necessity in everything but law!

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With that in mind, we have gathered a few of the most common protections with brief descriptions:

All Risk Insurance As a purchaser, you should ensure that your contractor takes out an All-Risk or Builder’s-Risk policy in which he names you as one of the beneficiaries. This type of insurance policy is project specific – meaning that the policy is for your building construction only. This policy would be in addition to the contractor’s general business insurance and his liability policy. (You can – and should – request proof of these last two policies.) All-Risk insurance fees are based on the project cost, length of construction, contractor’s experience etc. The policy normally covers work in place, materials and equipment on site, in transit, even in some cases stored off-site. The cost of this insurance policy is often downloaded to the consumer either directly or in-directly.

Bid Bond At the time of soliciting bids fro your construction project, you can require bidders to provide a bid bond. This is a form of prequalification for the purchaser. In order to get bonding, contractors are scrutinized very carefully by bonding companies or their insurance brokers. The bid bond ensures that anyone submitting a quotation for your project will in fact sign a contract – even if their bid is quite low. If they do not sign a contract, the bonding company will pay the difference to have the next lowest bidder complete the project. In this case, the contractor who would not sign a contract will not likely ever be able to get another bond.

Performance Bond When a bid bond or other type of bid deposit used, Performance and Labour & Materials bonds are often required. The performance bonds protect purchasers from contractors not finishing a project. If a contractor backs out of a project fro which he was bonded with a performance bond, the bonding company steps in and provides the necessary funding to complete the original contract. Again, that contractor will not likely get bonding in the future.

Labour & Materials Bond Labour & Materials bonds are most often used in tandem with the performance bonds. They also protect the purchaser from an unscrupulous contractor. If a contractor does not pay his suppliers or subtrades, a great deal of litigation can follow, including liens against the property placed by law-suits. Should this happen with a labour & materials bond in place, the bonding company takes the burden from the purchaser and works to clear up the problem.

Of course once the construction work is complete, you will want to get your completed building insurance in place and add contents insurance as required.