Friday, April 14, 2017

Integrated Project Insurance v Integrated Project Delivery

How does integrated project insurance differ from integrated project delivery?

Posed twice in the last week, I tackled that question via email correspondence with colleagues in the UK and in Canada. A modified version of those two email responses follows.

How does Integrated Project Insurance differ from Integrated Project Delivery?

Integrated project insurance (IPI) protects integrated project delivery (IPD) teams from risks related to catastrophic natural disasters or project related accidents. Integrated Project Delivery, by contrast, is a project centric method for procuring design and construction services from a integrated team that includes designers and constructors. Accordingly, IPI is a risk mitigation tool and IPD is a delivery model mounted on a new - and purportedly improved - legal framework. In the US that legal framework is provided by customized contracts, referred to elsewhere as bespoke contracts, or form integrated agreements offered by ConsensusDocs or the AIA. In the UK and the broader European market purportedly standard collaborative or integrated agreements are offered by multiple entities including the Chartered Institute of Building (CIOB) the Joint Contracts Tribunal (JCT) the Association of Consulting Architects (ACA) the New Engineering Contracts (NEC) and the International Federation of Consulting Engineers (FIDIC). All of these entities, in the US and Europe, offer collaborative agreements that integrated teams tasked with delivering in an IPD environment can utilize as a starting point for a customized agreement. However, none of these instruments can be pulled off the shelf and signed as is. The same is true of insurance products available to integrated teams.

The bottom line is that the legal framework required to support IPI and IPD must be customized to fit the needs of the project and the integrated team delivering the project. Care must be taken in selecting and customizing the insurance products used to protect the project and the team and IPI is the tool / process for doing so. Similar care must be taken to select and customize the legal agreement that details the rights and obligations of the integrated team and a good IPD process engages all key stakeholders in the negotiation of that agreement.

How does Integrated Project Insurance differ from an Owner Controlled Insurance Program or a Contractor Controlled Insurance Program?

After the UK government mandated the use of Building Information Models (BIM) on all projects beginning in 2016, insurers in the UK construction market began exploring alternative methods for insuring those projects. Integrated Project Insurance (IPI) appears to be a response to that mandate. In the US market Owner Controlled Insurance Programs (OCIPs) or Contractor Controlled Insurance Programs (CCIPs) are often used to obtain and administer project insurance on large private commercial projects.

An OCIP is construction wrap-up insurance program whereby the owner procures insurance, freeing constructors on the project from that burden purchasing separate insurance coverage. Wrap-up programs often incorporate safety programs to prevent accidents and injuries, thereby lowering the risk of claims. General liability and workers' compensation coverage are two forms of insurance offered to all enrolled contractors and subcontractors under an OCIP program. Sometimes umbrella coverage for claims in excess of other policy limits may be available as well. In most instances contractors remain responsible liability insurance on equipment and autos.

The goal of an OCIP is to lower costs and increase protection by enabling the owner to control the insurance program and claims process. Project owner can avoid lapses in coverage or inadequate insurance coverage resulting from individual contractors' and subcontractors' purchasing inadequate or improper insurance. Typically, a single insurance carrier processes all claims, increasing efficiency.

A CCIP is another form of wrap-up coverage but here the general contractor sponsors the insurance program. As the sponsor the general contractor secures insurance coverage for the project, pays the premiums and administers the program. In many jurisdictions use of a CCIP is barred on projects contracted by a public entity. 

Properly procured and administered, wrap-up policies save time and money by increasing the efficiency of the insurance program on large construction projects. However, gaps in insurance, sufficiency of limits and other issues must be carefully considered. 

What is a Collaboratively Controlled Insurance Program?

At Collaborative Construction we advocate the use of Collaboratively Controlled Insurance Programs which blend the benefits of traditional OCIPs and CCIPs and, importantly, provide coverage for design professionals and the IT teams required to administrate BIM on modern projects. Traditional wrap-up insurance programs typically exclude coverage for designers and until the advent of BIM, insurance related to digital disruption was largely ignored in construction. A Collaboratively Controlled Insurance Program tackles the entire scope of the risk and covers key stakeholders and project assets on an as needed basis from inception through completion and beyond. An effective Collaboratively Controlled Insurance Program ought to include coverage for Automobiles, Workers Comp, Liability, Professional Malpractice - aka Errors and Omissions - a variety of IT related insurance products, Construction Risk, Property & Casualty Insurance and others. The cost of administration should be shared on a pro rata basis. 

The image below highlights the integrated nature of the risks against which an integrated team must be protected.

Very few insurance companies or insurance agencies in the world recognize the value of this emerging market, but a few are beginning to pay attention. The scope and nature of their involvement is the topic for another day. The bottom line for IPD teams is that the legal framework that supports your project must be carefully crafted and the legal agreements and insurance products you negotiate are both critical portions of that legal framework. 

An Extended View of IPD 

At Collaborative Construction we actually take an extend view of IPD and advocate its use from the planning phase through to the end of the useful life of the facility and any accompanying infrastructure. 

Below is an excerpt, from a copyrighted presentation, that details how broadly Collaborative Construction views (IPD)X

Thoughts on Dispute Resolution

The first generation of legal agreements intended to support IPD were far too project centric and always required modification. With respect to the waiver of claims and the pursuit of claims Collaborative Construction typically encourages the parties to waive certain claims and agree to certain caps / limits on damages. More importantly, however, Collaborative Construction clients agree IN ADVANCE on the mediator / arbitrator and they pick someone they all know and respect. And that persons is paid a modest retainer to be on call to mediate any disputes the parties fail to resolve themselves. And if mediation fails the mediator becomes the chair of a three person arbitration panel, with one additional arbitrator picked by each aggrieved party. 


The forgoing summarizes the differences between Integrated Project Insurance, Integrated Project Delivery and Collaborative Construction's broader approach to IPD. 

If you or anyone in your organization has any questions about implementing IPI, IPD or the broader version of (IPD)X do not hesitate to call.

Welcome to the Golden Rule Alliance

James L. Salmon, Esq.
Collaborative Construction
300 Pike Street
Cincinnati, Ohio 45202
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Office 513-721-5672
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