With the new government contracts the risk is firmly placed in the contractor’s court writes Des Wallace

Building contracts and their interpretation are the best kept secrets in the insurance market over the last 40 years. The new form of government contracts came into action in February 2007 but there are still a lot of question marks surrounding them more than a year later.

All we want is a contract that is built on responsibility rather than liability and that operates within the tenets of the law and the government contracts clearly fails to do either.

It’s a dog of a contract and the allocation of risk is weighted heavily against the contractor under the GCCC’s so the following risks must be insured against, in the joint names of the contractor and the employer: site, care of works and responsibility for site, contractors own risk, employer and public liability, design risk and professional indemnity in some instances.

In some cases, contractors may also be required to insure existing structures on fire and special perils basis. Interestingly, no requirement exists to insure against financial losses arising from the project, which means the contractor has no security if something goes wrong on the cost front.

The employer on the other hand carries little or no risk under the tenets of the GCCC’s – they are responsible for their own negligence and inevitable damages, which is foreseeable and thus by definition uninsurable and in the instance of damage they cause, are also precluded from responsibility.
The distribution of risk as allocated under the GCCC’s is unnecessarily confrontational – if you consider the employer’s use of the works where the contractor still carries the risk for (his) negligence and effective workmanship, tipping the balance once again firmly in favour of the employer.

Only if the site is occupied by the employer does he carry responsibility for insurance and only then on a fire and special peril basis. The possession of site is also another major shortcoming of the government contracts, since the employer retains the right to occupy the site and introduce independent trades, with the contractor allowed site access only.

Des Wallace is director of construction risk at Arachas Corporate Brokers

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