Land Development Manual by olliegoblue28


									Land Development Manual
Policy > Insurance

1. Land Development Indemnity & Warranty

Since 1995, Barwon Water, City West Water, South East Water and Yarra Valley Water have required
land developers or owners to be responsible for extending water and sewerage infrastructure to service
the land to be developed and to provide „safety net insurance‟ prior to construction of any new works.

The „safety net insurance‟ is a stand-alone insurance cover for additional excess layer of Professional
Indemnity insurance with a $1,000,000 limit of liability. The policy covered design faults but did not cover
construction works defects. The policy only responded in the event that the developer‟s consultant policy
did not respond in the event of a claim. This insurance was the basis for developer five (5) year warranty

2. Need for Change

This stand-alone insurance program has, in the past been arranged by the insurance broker Marsh Pty.
Ltd. Over the past ten years Marsh has been the only provider of the “safety net insurance” in the market
place. The coverage that they provided was not for the full five (5) years but rather for two (2) years, and
Barwon Water actually self-insured for the remainder. The Marsh premiums ranged between from $20 to
$25 per allotment developed, and an additional amount for shared assets constructed by developers.

The process has been that Marsh arranged cover annually on behalf of Barwon Water. The premium was
paid at inception of the policy and Marsh would recoup the costs from the developers on an allotment
basis, and provide an adjustment at the end of the year. Marsh has recently advised that as a
consequence of changes in the Financial Services Act, they are no longer able to provide this insurance
product to the development industry on behalf of Barwon Water, therefore new arrangements are

The above water companies together with several rural urban water authorities met on a number of
occasions and have reviewed options for an agreed preferred approach. The outcomes have been
presented to two key industry associations, namely the Association of Land Development Engineers
(ALDE) and the Urban Development Institute of Australia (UDIA).

In the past the development industry has had issues with paying the “safety net insurance”, since there
has never been an event applicable to an insurance claim. Barwon Water‟s position is the current system
has lacked incentive for closing off minor faults, particularly after the developer has the release of the
subdivision titles. Presently it is both cumbersome and time consuming to have identified faults rectified.

Therefore it has been recommended Barwon Water adopt a consistent approach with the Melbourne
Water Companies with some minor modifications as an interim arrangement. The future intention is to
undertake a more detailed review, which will include consultation with internal and external stakeholders.
This consultation is expected to commence identifying all risks associated with these pending changes
and gauging feedback from local developers and consultants.

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3. INTERIM Arrangements from 1 July 2006

Effective from 1 July 2006, Barwon Water has adopted the following insurance arrangements:

           Insurance Type                Pre July 2006                            Post July 2006

           Indemnity for Liability for   Detailed clauses but basically Owner     No change
           Damage to Property            must accept liability and indemnify BW
                                         against damages

           Indemnity for Liability for   Detailed clauses but basically Owner     No change
           Injury to Persons             must accept liability and indemnify BW
                                         against injury

           Public Liability              $5,000,000 cover per event               $10,000,000 per event

           Works Insurance               Detailed clauses but basically Owner     Remove and replace with
                                         and all contractors and subcontractors   „Works Warranty Bond‟ as
                                         insure to cover all works against loss   detailed below
                                         and damage

           Professional Indemnity        Minimum coverage of $250,000             Increase to $1,000,000

           Work Cover                    Owner needs to ensure contractors        No Change
                                         registered as employer to the
                                         provisions of the Accident
                                         Compensation Act 1995.

           Safety Net Insurance –        $20 (Greenfield) or $25 (Brownfield)     Abandon and replace with
           Developer Contribute Assets   per lot paid to Marsh as insurance       „Works Warranty Bond‟ as
                                         described above                          detailed below

           Safety Net Insurance –        $2 per lot paid to Marsh as insurance    Remove and replace with
           Shared Assets constructed     described above                          „Works Warranty Bond‟ as
           by Developers                                                          detailed below or in cases where
                                                                                  Barwon Water reimbursement
                                                                                  applies by agreement with
                                                                                  developer hold part
                                                                                  reimbursement in lieu of „Works
                                                                                  Warranty Bond‟

4. Works Warranty Bond

A works warranty bond will be a bank guarantee paid to Barwon Water by the developer at practical
completion of works (generally when NCCs are paid & at subdivision release). A refundable 5% of works
bond for a 3 year warranty period which includes the initial 12 month defects liability period.

It should be noted that this is only recommended for works projects undertaken which are estimated to be
in excess of a value of $20,000 and a minimum bond of $1,000 is proposed. For projects under $20,000
no bond is required.

Any faults identified by Barwon Water are the responsibility of either the developer or their contractors or
agents and are to be rectified within 14 days of notice being issued (14 days notice applies except in
emergencies). If a developer fails to respond to a notice issued by Barwon Water to rectify a fault, Barwon
Water will drawn down on the guarantee or in the case of no bond Barwon Water will invoice the
developer the cost of the works. If the costs of the works are more than the bond, the developer will be
invoiced for the extra costs.

Subject to any fault rectification works costs, all or the remainder of the works warranty bond is returned
by Barwon Water to the developer at the end of the warranty period.

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5. Bank guarantees

The Banking Institution supplying the guarantee must be currently listed with the Australian Prudential
Regulation Authority and the following is required:

             There is to be no expiry date noted on the Bank Guarantee.
             The Bank Guarantee is to be for the correct amount as stated on the Offer of Conditions.
             The extension listed is the correct extension as listed on Offer of Conditions.
             The original document is to be submitted.

Save date 24/12/2009 1:15 AM                                                                    Page 3 of 3
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