Construction industry

 

The construction industry is one of the basic sectors of the economy, on the one hand having its direct impact on other industries, and on the other heavily influenced by changing economic, social and political factors. This translates into specific risks of a variable nature which the construction industry is constantly exposed to.

 

Among them, the primary risks are, of course, acts of nature leading to the destruction of property and resulting in the disruption or interruption of the construction process - such as extreme weather events, fires, but also actions of third parties such as theft or vandalism. Another risk is liability to third parties during the construction process in terms of personal injury and property damage, as well as environmental damage. There are also risks associated with proper performance of contractual obligations - both in terms of the quality and timeliness of the work performed, as well as warranty liability associated with the removal of any defects or faults after the completion of the project. Another special risk is also the risk associated with errors or omissions in the design phase which may not become apparent for a long time, but have negative effects in subsequent stages of project implementation or even long after completion.

 

The construction industry is also heavily exposed to all external risks associated with the volatility of legal and tax regulations, as well as the macroeconomic situation and the economic climate. Also indicated are possible problems with the availability of experienced workers, construction materials, disruptions in supply chains, delays in meeting the agreed schedule, and budget overruns.

 

All parties to the construction process, that is, investors, general contractors, subcontractors and suppliers, designers, must be aware of the aforementioned risks, be prepared for them, and be able to respond quickly and appropriately to emerging risks. Attis Broker, as an experienced insurance broker specializing in securing construction projects, offers comprehensive services in assessing risks and arranging adequate insurance coverage to minimize the uncertainties associated with the complex construction process. We analyze and understand the needs of each party to the contract and the conditions arising from different types of projects (industrial construction, volume construction, road construction, energy construction, underground infrastructure and others).

 

The basic insurance indispensable in the construction process is an adequate construction/erection risks (CAR/EAR) policy based on the "all risks" model providing protection against property damage resulting from fortuitous events related to both natural forces and human activity.

 

Complementary to construction risk insurance is Advanced Loss of Profit (ALOP) insurance which provides coverage for the gross profit that the policyholder would have earned from the manufacture of products or the sale of goods and services, but was prevented from doing so by the interruption, delayed commencement or disruption of business operations due to the occurrence of a covered event.

 

As an insurance broker specializing in the insurance of construction projects, we offer our services additionally in the field of:

• adapting provisions of contractual agreements to requirements of parties to investment process in order to find the optimal solution between the broadest possible protection and what the insurance market offers,
• giving opinion on terms of construction insurance (CAR/EAR) presented by contractors to the developer,
• giving opinion on contractors' liability policies to ensure the broadest possible investor protection,
• adjusting policy terms and conditions to meet contractual requirements - not only in terms of insurance policies for construction risks or construction machinery, but also for civil liability (including professional liability) in the broadest sense.

 

A peculiarity of construction contracts is the special requirement to secure the risk of non-performance or improper performance of a contractual obligation. In some cases, the obligation to provide collateral stems directly from the law, in others from the demands of the contracting party. The creditor has a choice of many forms of security for the risk of non-performance or improper performance of an obligation, and the best security from creditor’s point of view will be that which is as certain and as liquid as possible. Ideally, security should be obtained in the form of cash - a cash deposit or a block of funds in a bank account.

 

If the debtor is unwilling to provide collateral in the form of cash, the best solution is to use an insurance guarantee which introduces a third party guarantor - an insurance company - into the relationship between the creditor and debtor.

 

By issuing a guarantee, the insurance company undertakes to pay a specified amount of money to the beneficiary of the guarantee if the debtor (the principal of the guarantee) fails to fulfill the obligation covered by the guarantee.

 

In practice, there are several types of insurance guarantees, depending on the type of interest being secured:

• guarantee for payment of bid bond - secures the coverage of losses of the tender organizer when the obligor whose bid was selected: refuses to conclude the contract, fails to pay the required performance bond or when, due to organizer’s fault, the contract is not signed,
• performance bond guarantee - lodged at the stage of contract execution, secures potential claims of the client (e.g., the investor) dues to failure of the order taker to fulfill contractual obligations,
• guarantee for removal of defects and faults - refers to the last phase of the contract, i.e. the quality guarantee or warranty period. It secures proper fulfillment of the warranty obligations assumed, consisting in the timely and proper removal of any defects or faults,
• advance repayment guarantee - protects the interests of the grantor of the advance in a situation where the counterparty uses the funds obtained in a manner contrary to the contract,
• guarantee of payment of trade receivables - the beneficiary of this type of guarantee is the entity selling goods or services with deferred payment; it allows to cover possible losses in case of non-payment on the agreed date.

 

Attis Broker, as an expert in the field of insurance guarantees, offers a comprehensive and professional service for this type of product including:

• analysing economic situation of the entity applying for a guarantee,
• negotiating attractive terms for the provision of guarantees by insurance companies in the form of a framework agreement with an allocated guarantee limit with a minimum level of required collateral,
• verifying content of insurance guarantees for compliance with beneficiary's requirements,
• providing opinions on the provisions of tender specifications and contracts with regard to insurance guarantees,
• monitoring of expiration dates within the entire guarantee portfolio and the status of commitment to individual guarantee limits.