This document discusses bonds, insurances, and risk mitigation in construction projects. It describes the three main types of construction bonds: bid bonds, which protect owners if a bid is not honored; performance bonds, which guarantee a contractor will complete a project as specified; and payment bonds, which ensure payment to laborers and material suppliers. It also outlines various insurance policies like general liability, builders risk, and professional liability that can help transfer risk from contractors to insurance providers for issues like property damage, injuries, and design errors. The document provides an overview of the key parties, purposes, and documentation involved in bonds and construction insurance policies.

1. Bonds, Insurances, and Mitigating
Risks in Construction
Mada Walabu
University
Chapter 6
Procurement Management and Contract Administration
CoTM 4242
Lecture by: Andualem Endris (M.Sc)
andualem@anenypublishing.org
College of Engineering
Construction Technology and Management Department

2. CONTRACT BONDS
• Construction bonds, also known as contract bonds.
• They provide a financial guarantee that the bills on a
construction project will be paid.
• The issuing insurance company or bank guarantees the
project's completion by a specific contractor.
• Construction bonds protect the assets of the investor or project
owner against shoddy work or non-completion of the project.
7/31/2021
COTM 4242 2

3. PARTIES TO A CONTRACT BOND
• Obligee – Owner
• Principal – Prime Contractor
• Surety – Entity providing the surety bond
• Surety agrees to indemnify the Obligee (Owner), against any
default or failure in duty of the Principal (Contractor)
7/31/2021
COTM 4242 3

4. BONDS
• There are three types of
construction bonds
• Bid Bonds
• Performance Bonds
• Payment Bonds
• NB: See PPA (Section 9)
and MoWUD Contract
Conditions formats
7/31/2021
COTM 4242 4

5. … BONDS • Bonds are:
• Not Insurance but standing on their own
• Performance Bonds
• Purpose of the Performance Bond is to
secure fulfillment of all of the contractor's
obligations under the contract
• A contractor, or principal, uses a
performance bond to guarantee that it will
complete the contract in accordance with
its terms. If the principal defaults, the
owner may call upon the surety to
complete the contract.
7/31/2021
COTM 4242 5

6. … BONDS
7/31/2021
COTM 4242 6
• Payment Bonds
• The purpose of payment bond is to assure
payment to all persons supplying labor and
material for the execution of the work
provided for in the contract.
• Bid Bonds
• The purpose of bid bond is to protect the
project's owner if the bid is not honored
by the principal, such as a contractor.
• The client should secure the bid bond till
the winner agrees and signs the contract
• Do not release bonds too early

7. INSURANCE
7/31/2021
COTM 4242 7

8. WHAT IS INSURANCE?
7/31/2021
COTM 4242 8
• Insurance is a legal contract that transfers risk from a
policyholder to an insurance provider
• Insurance protects from risk of loss
• Insurance is CASH!!!
• CASH for:
• Replacing / repairing your property
• Replacing / repairing others property
• Medical Costs / Lost wages
• Defending you from others

9. INSURANCE
7/31/2021
COTM 4242 9
• Insurer Requirements
• Coverage Requirements
• Limit Requirements
• Premium / Deductible Responsibilities
• Documentation Requirements

10. • Builders Risk
• Workers’ Compensation
• General Liability
• Excess Liability
• Auto Liability
• Design Professionals Errors &
Omissions
• Pollution Liability
AVAILABLE COVERAGE
7/31/2021
COTM 4242 10

11. INSURANCE SUMMARY
7/31/2021
COTM 4242 11
 Commercial General Liability
 Bodily Injury, Property Damage
 Ongoing and Completed Operations & Products
 Business Automobile Liability
 Bodily Injury, Property Damage
 Workers’ Compensation and Employer’s Liability
 Bodily Injury and Illness of employees, work related
 Professional Liability (Architects, engineers, construction managers, etc.)
 Injury or Damages due to errors & omissions
 Builder’s Risk (Property)
 Damages or Losses to Property under construction

12. CONSTRUCTION PROJECT
COVERAGE PROGRAM
7/31/2021
COTM 4242 12
• “All Risk” Builder’s Risk Insurance
• Property Damage
• Materials in Transit
• Off site storage
• Direct physical loss to Insured
Project(s)
• Construction
• Reconstruction
• Renovation

13. INSURANCE DOCUMENTATION
7/31/2021
COTM 4242 13
• Certificates
• Endorsements
• Declaration Sheets
• Claims Reporting requirements
• Entire Policy
• Notice of Cancellation

14. ASSIGNMENT 3 (REPORT)
• Pay a visit to nearby insurance companies and
report the following please:
• Review the available construction insurance coverages.
• Review insurance policies for advance payment and
performance bond please and give your comment if any.
• Report your understanding from your review please.
Submission date: May 21, 2019
7/31/2021
COTM 4242 14

15. THANK YOU!