Construction Insurance and UK Construction Contracts
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CHAPTER 21
Contract insurance under JCT Management Building Contract 2011
General
21.1 The Management Building Contract is an unusual form of contract as the management contractor does not carry out any construction work, but manages the project for a fee, employing ‘works contractors’ to undertake the physical construction works. It is appropriate for large-scale projects where an early start is required on site, where the works are to be designed by the employer but where it is not possible to prepare full design information before the works commence or where much of the detail design is of a sophisticated or innovative nature requiring proprietary systems of specialist design. It should not be confused with construction management: the client appoints a team of consultants to prepare the design and a specialist construction manager, whose principal role is to manage the construction of the works by a team of specialist trade contractors. This form of contract is addressed in .Relevant provisions in the contract
21.2 The main provisions in MC11 relevant to insurance are summarised below.- Clause 6.1: the management contractor is to indemnify the employer against claims in respect of death or personal injury arising out of the works, except to the extent that the employer is itself at fault.
- Clause 6.2: a similar indemnity is to be provided by the management contractor to the employer in respect of property damage, other than damage to the works and to site materials, but only in so far as it results from the fault of the management contractor.
- Clause 6.4.1: the liability of the management contractor in respect of the above indemnities is to be insured by the management contractor.1
- Clause 6.4.2: The management contractor shall ensure that each works contractor takes and maintains insurance in accordance with clause 6.5.1.
- Clause 6.5.1: the employer may insist upon insurance in the joint names of the employer and management contractor being procured by the contractor
in respect of loss of or damage to property not caused by the fault of the contractor.Page 289
- Clauses 6.10-6.11: address the provision of terrorism cover, and the effect of the same being unavailable.
- Clauses 6.12-6.13: where there is a contractor’s designed portion, the contractor is required to take out and maintain a professional indemnity policy for the period stated in the contract particulars.
- Clauses 6.14-6.17: require both parties to comply with the Joint Fire Code.
- A and B: in the case of new buildings, insurance of the works is to be effected either by the contractor (option A), or by the employer (option B), under an all risks policy in the joint names of the employer and contractor, which leave the residual risk of any under insurance with the contractor and the employer, respectively.
- C: where there are existing buildings, insurance is to be effected by the employer in the joint names of the employer and contractor of the existing structures against specified perils and of the works, against all risks.
Specific clauses
21.4 In terms of insurance, the provisions of the insuring obligations within MC11 are materially the same to SBC11, save for the substitution of “management contractor” in MC11 for contractor in SBC11; and “works contractor” for “sub contractor”. To avoid repetition, these differences are assumed in each paragraph below.Section 6 - clauses 6.1 to 6.3
Injury to persons and property
21.5 Clauses 6.1 to 6.3 of MC11 are identical to those of SB11.2Section 6 - clauses 6.4.1 to 6.6
Insurance against personal injury and property damage
21.6 Apart from references in clause 6.4.4 being to the employer rather than the architect/contract administrator, clause 6.4 of MC113 is identical to clause 6.4 of SB11, the key difference is that the management contractor is to ensure that each works contractor takes out and maintains insurance in accordance with clause 6.5.1 of the works contract conditions. It is not clear how the management contractor is to “ensure” the same, and the issues surrounding breach in relation to “maintaining” insurance that are discussed in are obviously magnified.4Page 290
Section 6 - clauses 6.7 to 6.11
Insurance of the works
21.8 The insurance options of MC11 are identical to those of SB11.5 21.9 Clauses 6.8 to 6.11 are identical to those of SB11.Section 6 - clauses 6.12 to 6.13
21.10 Clauses 6.12 to 6.13 are identical to those of SB11.6Section 6 - clauses 6.14 to 6.17
21.11 Clauses 6.14 to 6.15 are identical to those of SB11.7 21.12 Clause 6.16 of MC11 differs slightly from clause 6.16 of SB11 in that the contractor is required to carry out the required remedial measures consequent upon a breach of the Joint Fire Code in any event (whereas under SB11 the obligation may be dependent upon the issuing of a variation). 21.13 Clause 6.17 is identical to clause 6.17 of SB11.The insurance options
Schedule 3 - Option A
21.14 Option A concerns the insurance of new buildings by the contractor and is in materially identical terms to option A of SB11.8 21.15 Save for the reference to the architect or contract administrator being replaced by references to the employer, clauses A.2 and A.3 are in materially identical terms to clauses A.2 and A.3 of SB11. 21.16 Again, save for the reference to the architect or contract administrator being replaced by references to the employer, clause A.4 is in materially identical terms to clause A.4 of SB11. 21.17 Clause A.5 is in identical terms to its counterparts in SB11.Schedule 3 - Option B
21.18 Option B concerns the insurance of new buildings by the employer and is in materially identical terms to option B of SB11.9Page 291
Schedule 3 - Option C
21.20 Option C concerns the insurance of existing structures and works or extensions to them by the employer and is in materially identical terms to option C of SB11.10Works contractors
21.21 The provisions of MC11 in relation to works contractors are in materially identical terms to those of SB11 in relation to subcontractors.11 As already noted, the subcontractor’s protection is limited to specified perils and is therefore narrower than the cover provided by the all risks policy.
1 By clause 6.4.3, the employer has the right to request that each works contractor provide documentary evidence that the insurances require by clause 6.4.1 have been taken out. In the event the management or works contractor(s) defaults in taking out or maintaining insurance in accordance with clause 6.4.1, by clause 6.4.2 the employer may himself insure those liabilities with the cost of the premiums being recoverable either under the contract or as a debt.