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ACH 216 Lecture 05 (Insurance And Bonds)
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ACH 216 Lecture 05 (Insurance And Bonds)

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ACH 216 Lecture 05 (Insurance And Bonds) ACH 216 Lecture 05 (Insurance And Bonds) Presentation Transcript

  • Insurance and Bonds What are they? Types of Bonds Sureties and Insurers
  • What are they?
    • INSURANCE
      • Device to provide a monetary payment when property loss, accident or death occurs
    • BONDS
      • Agreement by one party (surety) to guarantee something to a second party (Contractor) for benefit of a third party (Owner)
  • Why are they required?
    • Both owner and contractor are REQUIRED to insure the project:
      • Owner is to provide insurance for “all risks” which may affect project:
        • Natural causes
          • Earthquake
          • Floods
          • Fire
        • Bankruptcy or Financial Ruin
        • Death
  • Why are they required?
    • Contractor is to provide insurance for parts used to construct project
      • People
      • Labor
    • Should owner not provide insurance, contractor must provide in order to provide a complete project
      • May not be possible if project is not insured
        • Contractors costs will be charged to Owner
    • Each party must provide proof that insurance has been obtained
  • Bond Types
    • Performance
      • Protects owner by guaranteeing completion of construction
    • Labor and Material Payment
      • Protects creditors (subcontractors and suppliers) so they will be paid
      • Protects Owner by paying liens placed on project by creditors
    • Bid
      • Guarantees that a bidding contractor will provide a performance bond if successful in winning bid.
      • If winner bidder does not enter into agreement with owner, then bid bond covers costs of awarding bid to next highest bidder
  • Sureties and Insurers How they differ:
    • Insurers will accept all customers, knowing that there will be risks
    • Insurers usually do not act to prevent client risk taking .
    • Insurers only consider risk they insure
    • Insurers serve policy holder
    • Sureties will only accept those customers which present minimal risks
    • Sureties intervene to prevent and minimize client risk taking
    • Sureties will consider entire risk scenario of a client
    • Sureties serve a third party
  • Sureties and Insurers
    • Sureties consider a contractor’s
      • Management Skill
      • Capital
      • Money management skills
      • Type of work performed
        • Anything outside of contractor’s stated type of work is not bonded
  • Sureties and Insurers
    • Surety Procedures
      • Take over management of construction company
      • Provide consultants to assist contractor
      • Guarantee and loan money to contractor
      • Permit contractor to go bankrupt, then complete project with or without contractor’s workers or hire another contractor to complete project
      • Allow owner to complete project and then surety reimburses Owner
  • Sureties and Insurers
    • Surety Operations
      • Surety does not require direct notification by any parties for surety to step in and take action.
      • Surety does not have to act if neither of other parties (owner or contractor) act to notify surety.
        • This especially applies to owner not acting; when in doubt, owner should notify surety
      • Contractor and owner must understand their rights and responsibilities to secure surety’s performance.