Construction projects can be simple, short term tasks or
complex, multi-year endeavors involving millions of
dollars. In major projects, numerous outside contractors
(and subcontractors) are often hired, even if the overall
project is awarded to a large well-known engineering or
construction firm. Unless the project is insured in a Wrap
Up program (all contractors, subs and subs of subs are
insured under one contract for one job), then management
cannot presume that all of their contractors are insured
continuously through the period of the project.
Many Construction Projects Involve Multiple Tiers of
Subcontractors
In a major project involving multiple aspects such as
roadwork, foundations, electrical, plumbing or roofing, the
general contractor awarded the overall contract often hires
a variety of local contractors, assigning them small
portions of the job. These subcontractors may even hire a
second or third tier of subcontractors to perform specialty
work not within their area of expertise. Subcontractors
often work on vital aspects of the project. If an injury,
death or serious industrial accident involving hazardous
materials occurs, dealing with the consequences can be
daunting, even for a well capitalized firm. Recently a
settlement for $458 million was reached by contractors in
the Boston 'Big Dig' construction project due to the death
of a motorist from a tunnel ceiling collapse. Insurance
claims are the responsibility of the contractor and
subcontractor. However, if their policy has lapsed or
carries insufficient limits, the company could be held
liable- often for tens or hundreds of millions of dollars.
Despite Contractual Risk Transfers the Company May Be
Responsible for Uninsured Claims
Ultimately, the company is responsible for anyone who
enters their premises or performs any activities on their
behalf, leaving them basically three choices on how to
handle that risk:
* Avoid the risk - don't do the activity or let anyone on
their premises (often not an option)
* Assume the risk or part of the risk - large deductibles
and Loss Sensitive insurance programs are examples
* Transfer the risk - often done by contract and/or
insurance.
Even if the company has transferred the risk via contract
to someone else, such as a vendor or a contractor, they
need to be sure the vendor/contractor has the financial
resources to finance that risk, which often is by insurance.
Require Proof of Insurance - Certificate of Insurance Form
Most companies require proof of insurance prior to
beginning a project in the form of an Insurance
Certificate. Unfortunately, many companies stop there and
fail to monitor the ongoing coverage status. This can
result in policies expiring and not being renewed, changes
in limits, or other issues later on. Tracking those
insurance certificates is a basic Risk Management activity
and one that every company should do. Without this
function, the company or it's own insurance carrier assumes
their vendor or contractor's risk (even if they have signed
contracts transferring the liability). Manually checking to
see that each contractor is insured may be overwhelming,
however, companies which specialize in this service can
make the process easier.
Implement an Effective Certificate Tracking System
Tracking the insurance certificates can be performed by a
service or managed internally using software. Although
outsourcing hands off the daily responsibility, the
solution means on-going monthly fees and may limit your
control on what requirements you can track and how you
interact with your vendors/contractors on issues. Software
packages give you:
1) more flexibility,
2) greater control of your data and
3) are generally less expensive on an ongoing basis.
Regardless of which option you select, the minimum
requirements of an effective certificate tracking system
would include the following features:
* User defined Insurance Requirement Categories- used to
set vendor certificate policy, limit and additional terms
requirements.
* Compliance verified- for no certificate, missing
policies, insufficient limits, missing additional terms,
soon to expire and expired policy dates. Ability to
override individual policy, limit or additional term
requirements.
* Follow-up letters automatically generated- containing
detailed list of non-compliance issues. Letter template can
be customized. Reminder letters sent automatically.
* User defined fields to organize/identify vendors- for
filtering/sorting screens and reports.
* Attachments for electronic archival- of actual
certificates.
* Comprehensive insurance certificate tracking reports-
detailing non-compliance issues by vendor.
* Password access- with multiple levels of user rights.
* Audit Trail- created for certificate maintenance history.
Accidents Happen Despite the Best Safety Programs
Unfortunately accidents do happen! One of the ways to
protect your company from unnecessary costs is to ensure
your contractors have valid insurance that meets your
requirements. Don't wait until that first multi-million
dollar claim to discover your contractor's insurance lapsed
and you are now liable for their employee's injuries or
negligence. Implement an effective insurance certificate
tracking system as part of a comprehensive risk management
program.
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GG-One Software has been providing insurance certificate
tracking software since 1996. Their Fastrack Insurance
Certificate Tracking and Document Management product is
available in Web and Windows versions. Visit their website
to learn more.
http://www.ggonesoftware.com
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