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Bonds and Megaprojects Part 2

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Megaprojects present contractors with the unique opportunity to work on large-scale infrastructure and commercial projects that require all involved parties to collaborate for the sake of balancing risk and cost to create a successful end product. Unfortunately, there is a substantial risk of loss due to the cost implications of insurance products covering projects of such immense scope. As a contractor, you can avoid any potential pitfalls by working with a Miami construction attorney to ensure that your contract contains all the necessary provisions to protect you. This includes identifying the owner’s risk management strategy and gaps or limitations in their insurance coverage.

In part one of this four-part series, the Miami construction attorneys at Cotney Construction Law discussed the high risk, high reward nature of megaprojects and explained how contractors are typically guarded from financial ruin when a lapse in the owner’s insurance coverage affects the success of a project. Now, we will discuss insurance coverage matrices for megaprojects.

Degree of Coverage for Various Risks

In the early planning stages of a project, the owner will assess which risks will be covered and to what degree before determining their insurance coverage strategy. Some approaches include design-bid-build, design-build, and at-risk or at-agency. Otherwise, a more innovative public-private partnership can be established. Depending on the scope of the project, which could incorporate multiple projects under divergent delivery methodologies and contracting entities, the insurance strategy will differ. Before you break ground, it’s important that you consult a Miami construction attorney to ensure that you’re cognizant of the insurance coverage matrix being utilized by the owner.

Procuring Suitable Coverage

If you’re already working as a contractor specializing in large-scale projects, you may have Contractor Controlled Insurance Programs (CCIPs) or commercial general liability (CGL) worth over $100 million, but not every contractor meets the criteria to obtain surety bonds at this level. If you’re competing against other contractors to procure a portion of a megaproject contract, your ability to acquire suitable coverage could greatly influence whether or not you’re selected. This is true for megaprojects with both public or private owners.

On the other hand, by working with an owner prior to selection to outline risks, delivery methodologies, types of losses, worst-case scenarios, contract instruments, risk allocation and tolerance, self-insured risks, cost and budget, funding requirements, scheduling, and the potential for accelerated time tables, you can more accurately determine your ability to meet an owner’s needs. Since the creation of an accurate insurance coverage matrix is vital to the success of any megaproject, ingratiating yourself in this process can establish your firm as a valuable asset. Of course, this matrix can be revised and refined as seen fit to mitigate risk without losing control of project costs. Although it’s impossible to eliminate risk entirely, you should be deliberate in your attempts to do so.

Our Miami construction attorneys will continue discussing bonds and megaprojects in parts three and four.

If you would like to speak with a Miami construction attorney, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.