In contract of building and installations, it is subject to certain practice and procedure of Builder’s Risk Insurance in Contract. Thus in areas of contract, to handle several contracts for supply and installation of Audio Equipment it is very important.
REASONS FOR RISK INSURANCE IN BUILDER’S CONTRACTS
Generally, by reasons of the project’s huge size and value running into Billions of currencies at risk of project owner. However, depending on jurisdiction Builder Risk Insurance in contract plays roles to curtail certain risk. In some cases contracts involving many foreign as well as Local Firms/Contractors.
Thus, all aspects of the project particularly payment of contractors are always subject to the standard practice, procedure, concepts and norms. It is such generally applicable to Contracts for supply and installation (i.e. Contract Administration for Projects); especially the requirements of Insurance Bond, Completion, Retention and other practices.
BUILDER’S RISK INSRUANCE IN CONTRACT STANDARD PRACTICES AND PROCEDURES
Hence, the standard practices and procedures in Builder’s Risk insurance in Contract specifically refer to using the appropriate and usual terminologies. To wit:“Insurance Bond,” “Completion”, Retention and inspection and evaluation.”
Most times, contract owner does not give a blanket approval for the amounts payable for such contracts considering the nature. Rather same are subject to the terms and conditions of the standard practices and procedures.
The payment for such contract award comes in ratios: 50% as Advance and Mobilization payment upon production of Insurance Bond by a contractor. Also, 45% upon Completion of work and 5% as Retention and such payable after joint inspection of the project by parties.
BUILDER’S RISK INSURANCE BOND
Generally, the practice of production of Insurance Bond and Advance Payment Bond by a Contractor is one such standard practice. In a supply and installation contract it is basically to protect and insure the project owner’s money being paid to the Contractor. Wherefore, the insurance bond is usually limited to the specific amount stated in the Bond itself.
BUILDER’S RISK INSURANCE PRACTICE OF COMPLETION
The practice of tying payment to Completion is a general and standard practice in Builder’s RISK Insurance in contracts. In Supply/installation contracts, it is indeed a commonsense requirement whereby the payments for such contracts are subject to confirmations, verification, evaluations and or certifications of completion of the contracts. However, the Project owner/its Principal Consultant upon a joint inspection of the work by the Project owner and the Contractor issues certificate of completion.
Also, report upon Completion can either be specific or implied in Builder Risk Insurance in Contract. Where it is clearly specific or either implied, the Contractor is under a duty to specifically report completion.
Equally, it is the practice for the contractor to request for inspection of its work. Also or give an account of completion to the project owner. However, such step would then trigger a Joint Inspection of the work by the Project Owner and the Contractor itself.
BUILDER’S RISK INSURANCE IN CONTRACT INSPECTION STAGE
Importantly, the inspection and evaluation stage affords the Project owner and its Consultant the opportunity to make its complaint or observation on the Contractors’ work. Whilst it also gives the Contractor the privilege to defend and justify any aspect of its work commented upon by the Project Owner.
The exercise enables both parties to confirm and agree on the Contract’s completion status and extent vis-a-vis what is to be done. Also, what was actually done or outstanding from both parties in the contract terms and conditions.
Generally, after the inspection the project owners confirm or issue a Certificate of Practical Completion. It is applicable, where the work is found to be free of snags or errors. The project owner’s Certificate of Completion is the Contractor’s proof of completion.
Confirmation of due execution of the contract entitles a contractor to Payment and Certificate or Recommendations for payment/Final Payment.
BUILDER’S RISK INSURANCE AND IMPORTANCE OF CONFIRMATION OR DUE REPORT OF COMPLETION
Confirmation and due report of completion or completion Certificate is especially necessary in the subject contract between the parties. However, such is due to the huge value thereof and the fact that the Project owner and contractors are mostly not individual but artificial persons whose activities are always on records. More so, as such contracts itself are not oral.
BUILDER’S RISK INSURANCE PRACTICE OF RETENTION
The concept of Retention expressly mention in any contract Letter such percentage of retention is a common practice. In Builder’s Risk Insurance Policy with respect to supply and installation contracts whereby certain percentages of the contract sum due to the Contractor would be withheld for a certain period. It is always pending the clearance of any issue that might subsequently arise on the work after completion.
Also, the period of retention is usually part of things in the Certificate of Practical Completion.
DIFFERENCE BETWEEN CERTIFICATE OF PRACTICAL COMPLETION AND INSURANCE BOND
The Insurance Bond is not equivalent to a Certificate of Practical Completion and Bond. Generally, Bond is actually for the protection of the project owner from Advance Payments to the Contractor. Also, it is only with respect to the value of the Advance Payments. Therefore, the percentage of the Advance Payment on the whole contract-50%. Equally, such did not cover the balance payments on the rest of contracts which were subject to Completion and Retention.
HOW TO MANAGE DISPUTES IN BUILDER’S RISK INSURANCE
The best way to manage dispute of such nature is to invite the parties for a meeting to sort out the issue of Completion. Intentionally, it is for the parties to “reconcile their accounts of the work”. Importantly, at the point of reconciliation both parties can inspect, verify, confirm, evaluate and certify the each others claim.
However, if this does not work out then either party can approach the appropriate court with respect to Builder’s Risk Insurance contract in the country.
CONTRACTOR AS AN ACCOUNTING PARTY
The Contract between the parties for deliveries which involves Shipping, Custom, Air Travels, Hotel accommodation, Local Transportation and ancillary expenses accounting is necessary. Generally, it is one that automatically and by necessary implication carried with it the basic responsibility of due return, or basic account, report or analysis of expenditure on the part of the Contractor.
This is because the Contractor is by the very nature of the contract activities, merely a Transmitting Agent. As such, acting on behalf of the Principal who is under the duty to present the Original receipts, Flight Tickets, Invoices, Shipping documents, Custom papers, Bills and other Payment documents issued by the Service Providers.
Equally, together with a Report, Return or basic Account by the Contractor of the money. Generally, the particulars of the expenses , the balance thereof if any. Importantly, what was left which need to be refunded. Also, any Short-fall thereon with respect to reimbursement and other things for balance up by the project owner.
BUILDER’S RISK INSURANCE requires strict compliance with the above practices and procedures in respect of huge contract. Generally, this will proof the work of the contractor worthy anywhere after joint inspection by the parties. Equally, it can attract more recommendations for the contract that did not breach the terms.