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Rahul Sharma: "We strongly encourage employer clients to consider insuring the works themselves, as this provides certainty and control of the insurance"

Selecting the right JCT insurance option

Rahul Sharma from Marsh offers best practice advice on JCT building contracts

Posted by Stephanie Broad | September 20, 2016 | People, policy, politics, money

Since 1931, the Joint Contracts Tribunal (JCT) has produced standard forms of contract, guidance notes, and other standard forms of documentation for the UK construction industry, which can be used to avoid conflicts and disputes. 

In the UK, JCT is the most common form of building contract and facilitates the process of delivering a building project. In simple terms, it sets out the responsibilities of all the parties within the process and their obligations. 

By providing a framework and protection for both employer and contractor, these contracts can be used to manage responsibility for disputes, deadlines, insurance cover, delays, and negligence. The contract can determine potential friction points before the works start and can therefore easily identify the party responsible, if a conflict should arise. 

The contract will specify how the project is to be insured. There are three insurance options. Options A and B are for new buildings and Option C is for works involving existing structures. For the JCT Standard Building Contact, the options are defined as: 

  • Option A – Requires the contractor to take out and maintain joint names all risks insurance of the works.
  • Option B – Requires the employer to take out and maintain joint names all risks for the insurance of the works.
  • Option C – Requires the employer to take out and maintain joint names specified perils insurance in respect of the existing structures and contents and all risks insurance of the works. 

While the default option for new build projects is often Option A, this approach is not necessarily always in the best interests of the employer. It is therefore recommended that employers seek guidance regarding alternative methods which can be adopted to control cost and de-risk projects from their perspective. 

We strongly encourage employer clients to consider insuring the works themselves, as this provides certainty and control of the insurance. After all, it is their asset which is being built and, by procuring the insurance, they have confidence of insurance coverage, certainty of placement and timelines, control over cost, and the way in which claims payments are handled. 

Employers should carefully consider their insurance options before signing a contract

In addition, in a situation where an employer has selected Option A and the contractor which is arranging the insurance has gone into administration during construction, the employer may be left with a partially complete asset that has no insurance coverage. 

Finally, taking responsibility for insuring the works allows the employer to insure consequential financial loss as a result of a delay in completion. This can protect the balance sheet in the event of major fire/escape of water claim which leads to a significant delay to practical completion, where liquidated damages may not be payable. 

These are just some of the reasons why employers should carefully consider their insurance options. There are several other potential benefits of taking an alternative approach to insurance, which employers should think about before a building project starts.

For more information please contact:
Rahul Sharma, Marsh Construction & Real Estate Practice
Tel: +44 (0)20 7357 2966
Mob: +44 (0)75 8580 3786
Email: 
rahul.sharma@marsh.com

www.marsh.com 

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