Guidance for Quantity Surveyors 2 by oecc

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One of the primary functions of a construction contract is to allocate certain risks to one or other of the parties. This may be done by providing that one party (X) shall be liable to the other (Y) if a particular kind of loss or damage occurs, thus placing the risk of that loss or damage on X. It occurs equally under a provision that X shall not be liable to Y for a particular kind of loss, since this effectively places the risk of that kind of loss on Y.

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									Guidance for Quantity Surveyors 2
Construction Insurance
Insurance
Introduction:

One of the primary functions of a construction contract is to allocate certain risks to one or other of the
parties. This may be done by providing that one party (X) shall be liable to the other (Y) if a particular
kind of loss or damage occurs, thus placing the risk of that loss or damage on X. It occurs equally under a
provision that X shall not be liable to Y for a particular kind of loss, since this effectively places the risk of
that kind of loss on Y.

In view of the enormous size of some of these risks in financial terms, it is obvious that the party to
whom a risk is allocated may want to cover it by means of insurance. What is not so obvious, however, is
that a party to whom a risk has not been allocated May still insist on insurance backing for that risk. This
is simply because, while the contract may say for instance that the contractor shall be liable to the
client for certain kinds of damage, that client’s right to sue the contractor will be of little use if
the contractor cannot afford to pay any damages awarded. In such circumstances, the client will only be
protected if the contractor has either ‘liability’ insurance’ or a ‘guarantee’ of performance.

General

The risk of damage and injury associated with construction projects are often high. Insurance
provision is therefore an essential requirement in construction contracts to protect the interests
of those involved. There are two types of insurance in the construction industry:

    a) Liability insurance; providing financial cover for legal liabilities owed to others
    b) Loss insurance; providing cover for losses which fall directly on the insured parties

Under a liability insurance policy, an insurer undertakes that, if the insured person (the client) becomes
legally liable to someone else (the ‘victim’), the insurer will indemnify the client against damages and
legal costs which become payable. A familiar illustration of this type of policy is ‘third party’ insurance
for a car driver.

By contrast, under a loss insurance policy, the insured person is entitled to be compensated by
the insurers for loss or damage which that person has suffered, whether this is caused accidentally or
by someone else’s negligence. Such a policy may even provide cover in respect of loss or
damage caused by the insured person’s own negligence, although this is sometimes excluded or
restricted by special terms in the policy. A ‘comprehensive’ motor insurance policy is an example of
this type of policy.

 A contract of insurance is a legal contract, and therefore the general criteria relating to the existence of
a contract pertain. To take out insurance cover, a person or organization must have an insurable interest
(e.g. ownership of a house). The principle of utmost good faith requires the insured to disclose to the
insurers all material information in respect of the risk being insured. The principle of indemnity means
that insurance will put the insured back into the position they would have been in had the risk not
occurred (i.e. no loss and no gain). Subrogation is the insurers’ right to pursue claims that the
insured may have against third parties in respect of the insurers’ indemnification.

‘Standard’ insurance policies do not exist. It is therefore essential to check that the insurance
provided by a policy gives the protection required. This can be difficult, as many of the terms used
in insurance policies can be open to different interpretations. It should also be borne in mind that the
insurance market is not static: insurance policies and products are continually being updated to take
account of new technologies and new risks. Policies must therefore be carefully scrutinized.

Contractor’s All Risks (CAR) Insurance Policy

General Conditions of Contract as published by then Ministry of Public Works of the State of
Qatar (Qatar Conditions) Clause 20 – Care of Works and Excepted Risk stipulate that the contractor is
responsible for care of the work from commencement on site until the construction is handed over to
the government (employer) and certificate of completion is issued. The contractor further
responsible for taking care of any outstanding work to finish during maintenance period until
such work is completed as well as putting right defects, imperfections and faults. However the
contractor is not responsible for the “excepted risks” contained in Sub Clause 2 of this Clause.
The responsibility for cost of repair, making good or reinstatement required due to incidences of
excepted risks falls upon the employer.

CAR Insurance policy falls under both of above insurance categories i.e. loss and liability, which
has been tailor-made to cover the contractor’s obligation upon the contract with pursuant to the
following clauses of Qatar Conditions:

    •   Clause 21 – Insurance of works etc.; requires to insure works against all loss or damage
        from whatever cause arising (other than the excepted risk as detailed in Clause 20.2) for;
        a) The full value of work executed in time to time plus additional 10% to cover any additional
            expenses of and incidental to the demolition, removal, restoration or repair of any such
            loss or damage
        b) The materials, constructional plant and other things brought on to the site for its full value
        c) All plant equipment and material of any kind being provided under separate contract
            or by nominated sub-contractors for incorporation in the works (if required by
            Government)
    •   Clause 23 – Third Party Insurance; requires to insure against damage, loss or injury to any
        person or property which may arise out of or in consequences of the execution of the works or
        temporary works, but without limiting his obligations/responsibilities under Clause 22 –
        Indemnifying against damage to persons & properties. The liability limit of this insurance is
        fixed for standard government contracts for an amount of QR. One million for any one
        incidence (number of incidence unlimited) as stated in appendix to the form of contract.
The above insurance policy is required to be obtained in the joint names of contractor including
any sub contractors to be involved and the employer (principal) to avoid possibility of back-claim
(subrogation) by the insurer against one party to the contract in case of a claim made by the other party.
Further for the government contracts the policy was required to be obtained from one of the five
nominated insurance firms. In addition the insurance must be valid for the construction period to cover
the work plus additional 400 days to cover risk during maintenance period.

CAR insurance policies in Qatar usually exclude the liability against the damages due to the work to
employer’s (principal) existing adjacent properties. It is therefore important especially in case where the
work has to be performed to an existing building or in a site with adjacent existing buildings owned by
the employer, that requirements to cover risk of damaging those properties must be included in the
tender documents under the insurance clauses.

In case of heavy constructional plant or equipment like tower crane etc required for works then
CAR policy should include insurance cover for these equipment. However construction equipment/
land vehicles such as trucks, tractors, backhoe/excavators, and pay-loaders are not required to cover in
CAR policy, as these are usually insured under the Traffic Department’s rules to have license for the
intended purpose/ general road use.

 The Project Quantity Surveyor (PQS) must be careful especially in respect of exclusions to the
usual/standard terms of the insurance policy enclosed under attachments/ endorsements to satisfy
himself, as to the exclusion of any required liability to be covered under the contract conditions,
before recommending the insurance certificates to the client for acceptance. Therefore it is advisable
to scrutinize particularly the endorsements to the standard clauses in the CAR Policy for the inclusions/
exclusions of the contract requirements.

Workmen’s Compensation Insurance

In addition to the requirements of CAR policy, Clause 24 of Qatar Conditions makes it clear that the
contractor must insure for any accident or injury to his own workmen or other person in his
employ, or any sub-contractor working on site, except where such injury comes about due to any
act or default of the employer or his agents or servants. Sub-contractors are also required to produce
their own insurance and indemnification to the engineer or engineer’s representative. Points to note
that, therefore, are that the contractor or his sub-contractors generally insure but the employer must
make sure that it has full cover for any occasion when employer or it’s agents, etc cause the injury.

Qatar Labour Law (Labour Law No 3 of the Year 1962 Chapter Nine and Ten and subsequent
amendments) spells out the obligations of owners/ sponsors towards employee benefits and
claims for damages because of bodily injury, occupational sickness or disease or death of the
employees. Adhering to the requirements of Qatar Labour Law, the contractors are usually
maintaining yearly renewable workmen compensation insurance, which are sufficient to cover the
requirements of the Qatar Conditions. Therefore the PQS should satisfy himself as to the contractor’s
compliance with the requirement of Clause 24 by checking the validity of endorsements / premium paid
receipt for the current year. It is also important to keep a track of expiry dates of those insurances for
each project and reminders should be sent in advance to renew the policy and submit evidence of such
renewal to prove the validity.

In case the contractor fails to effect and keep in force such insurance requirements, Clause 25 –
“remedy on contractor’s failure to insure” provides the employer the opportunity to take out
required insurance, and reduce such money expended from any monies due to the contractor.

Professional Indemnity Insurance

Professional Liability is a term used to recognize the obligation of a person or firm to
compensate those who suffer loss or damage as a result of the negligent performance of the
professional services they have provided. Professional Liability Insurance, more commonly referred
to as Professional Indemnity Insurance (PII), is a mechanism to transfer all or part of the risk to
an insurance company for payment to those who are entitled to be compensated for their losses
due to the negligent performance of a duty of care by the professional. For liability to apply, there
must be a duty to other party, whether by contract or by operation of law, a breach of that duty by
the professional and damage to the other party arising from the negligent conduct of the professional.

It is worth noting that most professional indemnity policies are written on a ‘claims made’ basis.
This means that they cover claims actually made against the professional person during the period
of insurance, regardless of when the negligent act took place. As a result, it is essential that insurance
cover is maintained, even after the retirement or death of the professional concerned, and this
can usually be arranged on a single premium ‘run off’ basis.

The various professional members of a design and construction team, such as the architect,
specialist engineers and quantity surveyor, should each have their own insurance policy to
indemnify them against liability for professional negligence. It is a compulsory requirement for
the members of most of the internationally accepted professional institutions to take out and
maintain a specified level of indemnity insurance. On the other hand some standard terms under
which professionals are engaged in the construction industry requires to take-out and maintain PII.

In order to register in the Qatar Chamber of Commerce as a professional organization to provide
consultancy services the firm must take out and maintain an acceptable PII to cover the
intended services to be provided and under which they are categorized. This registration is
compulsory to enroll and engage in providing services for all government and private sector
construction projects.

According to the terms of standard government’s Professional Services Agreement (PSA) General
Conditions of Engagement, the consultant is required under Section 3 - Obligations of the
Consultant to maintain at all times a current insurance policy in their name indemnifying themselves in
relation to claims and / or liabilities due to any negligent act or omission resulting in defects or
faults in the services carried out by the consultant. Further it spells out that this insurance policy must
be affected with a Qatari insurer approved by the government.
As per the requirements of the above General Conditions, the policy must cover the following;

        The minimum cover for any incidence and the number of incidence being unlimited, which was
        QR. 3.5 million as required in the Appendix to the PSA
        The services for the project being carried out by the consultants, as detailed in the
        Schedule A to the Agreement
        The premium were paid and the insurance cover in force
        The benefit of the policy were available to any party without any restriction

Further, the conditions required the consultant to maintain the policy in full force and effect and
not to make any amendment, modification etc. without prior written agreement of the government,
provided that such agreement shall not unreasonably withheld.

Conclusion

It is important that PQS is fully aware of the insurance requirements for the construction activities
enforced by the law or as applicable by particular conditions of engagement since is usually falls
under the PQS’s duty to effectively take care of are effectively maintained by the parties
responsible. The duty of taking care of in order to safeguard the employer’s interest and to mitigate the
risk

								
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