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Wednesday, November 20, 2019

Growing complexity in large scale construction: The Increasing Importance of robust project policy

Blog post feature image Day 4 construction 1000x500

In the construction world, and particularly in the realm of large-scale projects, the insurance contract is king. Yet at no time in the past has the sovereignty of the contract been more important than now given the myriad forces impacting the construction market.

Consider first the macro and micro factors currently reshaping the foundations of the sector. From government-policy rethink driven by population expansion, to evolutionary changes in urban planning and urbanization, through to technology influences, supply-chain strains and globally low interest rates – forces are shifting.

Come up a level to view the dynamics of the sector itself and these forces for change are no less powerful, as Alex Radcliffe, technical head, Power, Energy & Construction, Global Technical Services (GTS) Australia explains.

“There are multiple factors pushing the boundaries of what is reasonably achievable in the construction sector,” he says. “These include the feasibility of the project itself; prototype construction methodologies; time and cost deliverables; increasing regulatory and environmental considerations; multiple interdependencies – with complex and strongly interrelated supply chains; complex financial funding; modeling; and project stakeholder relationships.”

Step up a further level to assess the potential increase in exposure that such a surging environment creates, and it is no surprise major incidents are on the rise. In fact, from 2013 to 2017, the global building and construction industry topped the list for the number of large and complex claims assignments managed by Crawford’s GTS, including a 43 percent increase over a two year-period for global large-loss claims managed.

For many projects, the contractual environment this creates is as complex and detailed as the project blueprints themselves.

“The multinational and industry specific layers that need to come together when managing complex construction projects and insurance claims are vast,” says Reubin Iqbal, head of construction, London Market, Crawford GTS. “It is vital to understand the contractual matrix in place to ensure that the parties understand their entitlement to any policy in force, which in turn will also manage expectations and ensure a swift claims resolution.”

That such contracts are so vast in scope reflects the range of stakeholders – spanning investors, landowners, developers, architects, construction managers, contractors etc. – as well as the complexity of the build environment and exposure potential that this creates.

“There is certainly an increased need to properly identify and understand the risk elements of any project – whether that is financial, physical or environmental,” explains Radcliffe. “This is key to ensuring a fair allocation of the risks to balance the interests of all parties and ensure successful project delivery. We are seeing a much greater focus on risk assessment and allocation through the key stages of tendering, construction planning, resource allocation and delivery strategies.”

Bespoke coverages for bespoke projects Project policies are designed to provide cover to all parties to the build. For that reason, their coverage remit is expansive.

Policy components will usually include: contractors-all-risks; erection-all-risks; delay in start-up cover – an increasingly common problem; employers’ liability; public liability; non-negligent cover and professional indemnity for defective design.

“Project-specific policies, whether owner-controlled or contractor-arranged, continue to be tailored such that they are offering far more than a traditional material damage reinstatement promise,” states Radcliffe, “and incorporate an extensive array of covers associated with consequential, contractual and financial losses.”

However, the nature of the construction policy for large-scale projects is different to that for other policies, as Iqbal explains: “A key difference is that access to the policy is determined by contractual entitlement. Such contracts have to be watertight and crystal clear with no ambiguity regarding the relationships that bind all parties to the contract. Any ambiguity will inevitably lead to multiple problems and delayed resolution in the event of a claim.”

For Crawford, such a complex environment can put significant stress on its ability to deliver, particularly given the rise in large-scale losses the firm has witnessed. However, the company has focused considerable investment on bolstering its construction foundations in recent years.

“The breadth of expertise that is required to effectively service the construction sector is constantly expanding,” explains Andrew Bart, global president, Crawford GTS. “That’s why we have made a major commitment to investing in training and development. We are bringing on board people with specific expertise across the construction arena and applying an accelerated training process and mentoring program to develop their insurance and loss-adjusting capabilities.”

Crawford is also in the process of creating a fully unified global construction practice, with centers of construction excellence in place around the world. “Construction spans virtually all of the specialist services that Crawford provides,” explains Iqbal, “and what we are creating is a dedicated capability that reflects the unique range of specialist expertise found within the sector, while allowing us to deploy those capabilities anywhere in the world quickly and effectively in the event of a major loss.”

“It’s about ensuring that we can provide a multi-disciplinary capacity,” concludes Bart, “where we have genuine subject matter experts and where we are focusing investment to ensure that we are not simply providing short-term solutions but rather long-term support which evolves with the expanding construction needs of our clients. Only by making that level of commitment can we guarantee consistency of service, quality of delivery and depth of capability no matter where our client is operating in the world.”

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