Construction Insurance and UK Construction Contracts

Marshall Levine and Roger ter Haar KC

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APPENDIX 16 I Mech/IEE MF/1 (Rev 6)/2014

46.1 Despite the fact that the Contractor may have been granted under sub-clause 33.1 (Extension of time for completion) an extension of the Time for Completion of the Works, if by virtue of sub-clause 46.2 (Notice of force majeure) either party is excused the performance of any obligation for a continuous period of 120 days, then either party may at any time after, and provided that such performance or punctual performance is still excused, by notice to the other terminate the Contract. 46.2 If the Contract is terminated under sub-clause 46.3 (Termination for force majeure) the Contractor shall be entitled to:

(a) the Contract Value of the Works executed prior to the date of termination (to the extent not already paid);
(b) the Cost of materials or goods reasonably ordered for the Works or for use in connection with the Works which have been delivered to the Contractor or of which the Contractor is legally liable to accept delivery. Such materials or goods shall become the property of the Purchaser when paid for by the Purchaser. The Purchaser shall be entitled to withhold payment of such materials and goods until they have been delivered to, or to the order of, the Purchaser;
(c) the amount of any other expenditure which in the circumstances was reasonably incurred by the Contractor in the expectation of completing the whole of the Works;
(d) the reasonable Cost of removal of Contractor’s Equipment and the return of Contractor’s Equipment to the Contractor’s works in his country or to any other destination at no greater Cost; and
(e) the reasonable Cost of repatriation of all the Contractor’s staff and workmen employed at the Site on or in connection with the Works at the date of such termination.

Insurance

47.1 The Contractor shall, in the joint names of the Contractor and the Purchaser, insure the Works and Contractor’s Equipment and keep each part of the Works and Contractor’s Equipment insured for its full replacement value against all loss or damage from whatever cause arising, other than the Purchaser’s Risks. Such insurance shall be effected from the date of the Letter of Acceptance (or if there is no Letter of Acceptance, the date of the Agreement), until 14 days after the date of issue of a Taking-Over Certificate in respect of the Works or any Section, or if earlier, 14 days after the date when responsibility

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for the care of the Works passes to the Purchaser in accordance with the provisions of sub-clause 43.1 (Care of the works) upon expiry of notice of termination. 47.2 The Contractor shall so far as reasonably possible extend the insurance under sub-clause 47.1 (Insurance of works) to cover damage which:

(a) the Contractor is responsible for making good pursuant to clause 36 (Defects liability);
(b) occurs whilst the Contractor is on Site for the purpose of:
- (i) making good a defect or carrying out the Tests on Completion during the Defects Liability Period;
- (ii) supervising the carrying out of the Performance Tests; or
- (iii) completing any outstanding work; or
(c) arises during the Defects Liability Period from a cause occurring prior to taking-over and for which the Contractor is liable under sub-clause 43.5 (Injury to persons or damage to property after responsibility for care of the works passes to purchaser).

47.3 All monies received under any such policy shall be applied in or towards the replacement and repair of the part of the Works lost, damaged or destroyed but this provision shall not affect the Contractor’s liabilities under the Contract. 47.4 The Contractor shall, prior to the commencement of any work on the Site by the Contractor pursuant to the Contract, insure in an amount not being less than the amount stated in the Appendix against his liability for damage or death or personal injury occurring before all the Works have been taken over to any person (including any employee of the Purchaser) or to any property (other than property forming part of the Works) due to or arising out of the execution of the Works. The terms of the policy shall include a provision whereby, in the event of any claim being made against the Purchaser in respect of which the Contractor would be entitled to indemnity under the policy, the insurers will indemnify the Purchaser against such claims and any costs, charges and expenses in respect of such claim. 47.5 The Contractor shall insure and shall maintain insurance against his liability under sub-clause 43.6 (Accidents or injury to workmen). The terms of any such policy shall also include the provision to indemnify the Purchaser mentioned in sub-clause 47.4 (Third party insurance) provided always that in respect of any persons employed by any Sub-Contractor, the Contractor’s obligation under this sub-clause shall be satisfied if the Sub-Contractor has insured against the liability in respect of such persons in such manner that the Purchaser is indemnified under the policy, but the Contractor shall require such Sub-Contractor to produce to the Engineer when required satisfactory evidence of insurance cover and receipts for the premiums. 47.6 All insurances shall be effected with an insurer and in terms to be approved by the Purchaser (such approval not to be unreasonably withheld or delayed) and the Contractor shall from time to time, when so required by the Engineer, produce satisfactory evidence of insurance cover and receipts for the premiums. The Contractor shall promptly notify the Purchaser of any alteration to the terms of the policy or in the amounts for which insurance is provided. 47.7 The insurance policy may exclude cover for any of the following:

(a) the cost of making good or repairing any Plant which is defective or work which is not in accordance with the Contract;
(b) the Purchaser’s Risks;
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(c) indirect or consequential loss or damage including any deductions from the Contract Price for delay;
(d) fair wear and tear; shortages and pilferages; and/or
(e) risks related to mechanically propelled vehicles for which third party or other insurance is required by law.

48.1 If the Contractor fails to effect and keep in force the insurances referred to in the Conditions the Purchaser may effect and keep in force any such insurance and pay such premiums as may be necessary for that purpose and from time to time deduct the amount so paid by the Purchaser from any monies due or which may become due to the Contractor under the Contract or recover this amount as a debt from the Contractor. 48.2 Wherever insurance is arranged under the Contract in the joint names of the parties, or on terms containing provisions for indemnity to principals, the party effecting such insurance shall procure that the subrogation rights of the insurers against the other party are waived and that such policy shall permit either:

(a) the co-insured; or
(b) the other party to the Contract,

to be joined to and be a party to any negotiations, litigation or arbitration upon the terms of the policy or any claim under the policy.

Contractor’s default

49.1 If:

(a) the Contractor assigns the Contract, or sub-lets the whole of the Works without the consent of the Purchaser;
(b) the Engineer has rejected the Works or a Section under sub-clauses 28.5 (Consequences of failure to pass tests on completion) or 35.8 (Consequences of failure to pass performance tests);
(c) the Contractor suffers an event of insolvency as defined under sub-clause 50.1 (Bankruptcy and insolvency);
(d) the Engineer certifies that the Contractor:
- (i) has abandoned the Contract;
- (ii) has without reasonable excuse suspended the progress of the Works for 30 days after receiving from the Engineer written notice to proceed; or
- (iii) despite previous warnings in writing from the Engineer is not executing the Works in accordance with the Contract, or is failing to proceed with the Works with due diligence or is neglecting to carry out his obligations under the Contract so as to affect adversely the carrying out of the Works; or
(e) the Purchaser is entitled to treat an infringement under sub-clause 42.4(a) (Infringement preventing performance) as a default by the Contractor,

then the Purchaser may give 21 days’ notice to the Contractor of his intention to proceed in accordance with the provisions of this clause or, in the case of sub-paragraph (c) above, immediate notice in accordance with sub-clause 50.1(b) (Bankruptcy and insolvency). Upon the expiry of such notice the Purchaser may without prejudice to any other remedy under the Contract forthwith terminate the Contract and enter the Site and expel the Contractor from the Site but in doing so without releasing the Contractor from any of his obligations or liabilities which have accrued under the Contract and without affecting the rights and powers conferred by the Contract on the Purchaser or the Engineer. Upon such termination

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the Purchaser may himself complete the Works or may employ any other contractor so to do, and the Purchaser shall have the free use of any Contractor’s Equipment for the time being on the Site.

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