What do you know about insurance on construction property?

THE need to secure against risk of loss is a prudent step in any business undertaking and the construction industry is no exception. An up market residential house costs some Tshs. 600 million or more to complete, what would be the cost of the multi storied buildings that we have dotting the skyline of Dar es Salaam city and other towns or cities in the country? Quite colossal amounts of money are used on these projects. Would a prudent investor undertake such project without a fall back position? The fall back position is normally carefully arranged for an insurance protection. In fact most financial institutions that lend money for such projects cannot give the go ahead unless property arranged insurance covers be in place. A construction firm worthy its salt would be familiar with the following terminologies in the day-to-day operations of their firms. These terminologies are consistent whether it is a road project valley dam construction, building project, factory project and other hosts of projects that deserves the following;-Bid bonds, performance bonds, Advanced payment bonds, Construction All risks insurance, Construction plant and Machinery insurance and Erection of risks insurance.
Any tender procedure requires the tenderer to guarantee certain financial terms for a specific period. Either a bank or insurance firm normally in a form of bid bond normally signs the guarantee. A bid bond is normally 2.5 percent of the tender amount. A tenderer might change terms once awarded a project due to a variety of reasons. If the tenderer changes terms when the tender is awarded to them the client has s4rrved options, accepts the terms as revised or advertised the tender afresh. If the tenderer is re-advertised, then the bid bond is called in to offset the cost of re-tendering. The performance bond is also a guarantee to the investors that a certain project will be undertaken as per agreement. Either the bank or insurance firms signs this bond. The performance bond is normally 10 percent of the project cost. Just like the bind bond, the performance bond is called in if the contractor is unable to compete the projects so is the start up capital. Borrowing from the banks for the contractors might not be a viable option due to the high interest rates. A contractor could ask the investor to advance some capital to start the project. All contractors are familiar with legal procedures set of acquiring such tenders for construction of any big projects. To have some security, the investor would ask the contractor to secure an advanced payment bond. The advance of payment bond would be recalled if the contractor does not put in the project the money advanced, thus putting the investors in a financial bind. The contractor might have all the bonds secured and also expend all the resource on the project. However the contractor would not be home if he or she doesn’t secure protection from many other calamities some of which are acts of God.

Other calamities such like explosion, riots, strikes etc, these are some of man made acts. How does a contractor secure protection against such acts? Contractors all risks insurance is the answer to many exposures a contractor faces. The insurance is designed to cover the projects in its many faces. The stocks of material on site can also be covered so is the contractor’s equipment. The insurance cover for equipment is optional at the contractor’s choice. As the contractors undertake the project, despite all the care and protection, there is potential liability from third parties. You might often heard of situations where falling debris injure or kill innocent third parties even where scaffolding is erected and suddenly injure a technician at work. The litigation from such event can be financially crippling to any firm and would also distract the contractor from his core business. Further accidents to third party property at construction sites are reported every now and then. On your contractors all risk insurance, liability for third party has been taken into consideration and the contractor can take out adequate liability cover for this eventualities. Thus even if the contract takes one month or several years, the premium for the project takes all those aspects into consideration including the maintenance period. For the specialized contractor who erects and commissions machinery for the many industrial projects, an erection all risks insurance is crucial for his operation. I have discussed the above where the project is normally undertaken by construction firms. However, there is certain category of investors who choose to supervise the projects by themselves and hire services of some masons to build their homes and or commercial property. Normally they inject money into the projects as when the same is available until the building is complete. These projects can be covered on a fire insurance policy, which takes cognizance of the building being under construction. Your insurer or brokers depending on your special needs can discuss of all the above option. It would be a moral crime in Tanzanian society to lose the saving patiently kept for the grand project for lack of insurance protection.