ACH 216 Lecture 05 (Insurance And Bonds)


Published on

1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

ACH 216 Lecture 05 (Insurance And Bonds)

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