Guide to FHWA Funded Wrap-Up Projects
The Owner-Controlled Insurance Program is an asset protection option designed for major construction projects that allows coverages for multiple insured entities to be "wrapped up" into a single consolidated insurance program. OCIPs have been used for more than 30 years on private and public projects that include every type of construction - rail systems, airports, highways, stadiums, convention centers, prisons, bridges, schools, hospitals.
One of the first types of wrap-up programs was the Defense Rating Plan (DRP). The DRP was developed for use at Department of Defense DOD projects, (and later adopted by the Department of Energy DOE) presenting hazards that contractors' insurance companies were unable to respond to. The DRP used insurance carriers to issue workers' compensation and general liability policies, with one significant difference - no insurance (or risk transfer was provided). The "project" concept was adapted by the private sector in the 1970's in an effort to control the insurance costs associated with major projects which were ranging from 5 percent to 10 percent of total project cost.
- Concept - Under an OCIP or "wrap-up" program, a single insurance program provides insurance for the owner and all eligible (on-site) project contractors and subcontractors. Wrap-ups can be owner sponsored (OCIP) or sponsored by the prime or general contractor (Contractor Controlled Insurance Program - CCIP). The total premium to cover the owner and contractors under a wrap-up tends to be significantly less than the total premium charged if each contractor buys its own insurance and includes that cost - plus any mark-up - in its bid to the owner. The program facilitates the inclusion of small and minority businesses by eliminating insurance barriers. The wrap-up provides a single point of focus for safety and claims management offering a coordinated approach specifically tailored to the project. This eliminates disputes among contractors and their insurers, reduces the disruption at the work site and can minimize potential delays attributed to accident investigation.
Types of Wrap-up Insurance Programs - Wrap-up programs come in a variety of forms:
- Rolling Wrap-up: Multiple projects are included under one program. These projects might be under the eligibility threshold on an individual basis. This type of program could be used not only for new construction, but renovations such as corridors, where several projects/contracts will be initiated.
- Contractor Controlled Insurance Program (CCIP): Essentially the same as a wrap-up except the controlling party is the Prime Contractor instead of the project owner.
- Partner Controlled Insurance Program (PCIP): Essentially the same as a wrap-up except control and savings are shared by the owner and the Prime Contractor. Which party owns the reserve, however, is an issue that needs careful consideration.
- Gate or Maintenance Programs: Usually single site locations, these wrap-ups cover all maintenance and repair contractors coming on site. Used extensively by utilities to cover contractors working at nuclear power plants
- Continuous Route Programs: The wrap-up site is not confined to a specific building, but covers the construction related to a defined path such as a pipe line, subway or roadway.
- Eligible Projects - As a rule of thumb, a wrap-up may be considered an option when hard-cost, single-project values total at least $75 million. (Note: General Accounting Office (GAO) suggests $50 million as the minimum project cost for wrap-up consideration. However, unless virtually all of that $50 million is in payroll, wrap-up advantages will remain but savings may be more difficult to realize.) Hard costs include payroll, materials and labor.Hard costs do no include project development components such as land purchase, design, utility relocation and right-of-way expenditures or architectural and engineering plans.
That threshold may vary, however, depending on what types of coverages are included in the wrap-up, the nature and scope of the covered project, insurance market conditions and whether more than one project will be included in the program. In addition, certain state compensation systems have specific rules governing the use of owner controlled programs.
- Who's Covered - The objective is to create an inclusive program covering all contractors working at the project site and the owner. Coverage under a wrap-up typically extends to:
- The owner
- The Construction Manager and Project Manager
- All eligible Trade Contractors and their Subcontractors, regardless of tier
The coverage is not usually extended to architects, engineers or other consultants providing professional services because 1) their activities are typically not on site (they may have occasional visits) and are not impacted by the safety program and 2) the workforce workers' compensation rate is extremely low - providing little if any bid reduction relief while presenting the potential for claim severity due to the higher compensation.
- Who's Not Covered - Typically no insurance coverage is provided under the wrap-up for the activities or products of the following:
- Any person or organization that fabricates or manufacturers products, materials or supplies away from the project site(s);
- Any architect, engineer or surveyor and their consultants except when approved by the owner;
- Truckers, material dealers, vendors, suppliers, and owner/operators (independent contractors) whose operations or employees are engaged solely in the loading, hauling, unloading, or some combination of the same, of material, supplies or equipment to or from a Project Site;
- Any employee of an enrolled or non-enrolled Contractor or Subcontractor, including any employee of truckers, material dealers, vendors, suppliers and owner/operators (independent contractors), who are engaged solely in the lading, hauling, unloading, or some combination of the same, of material, supplies or equipment to or from a Project Site;
- Any employee of an enrolled Contractor and Subcontractor, who does not work or generate payroll at Project Site;
- Any employees of an enrolled Contractor and Subcontractor who occasionally visits a Project Site to make deliveries, pick-up supplies or personnel, to perform supervisory or progress inspections, or from any other reason;
- Any Day Labor Employees (labor service employees whose coverage is provided by their employer); or
- Any other entity specifically excluded by owner.
- Wrap-up Coverages - A wrap-up (single-project or rolling) usually provides the following basic coverages:
- Workers' Compensation and Employer's Liability
- General Liability
- Excess Liability
- Builder's Risk
- Optional Coverages - A wrap-up also can be designed to cover the following risks:
- Project consultants' and designers' errors and omissions (i.e., A&E E&O)
- Project owner's liability for consultants' and designers errors and omissions exceeding professional liability limits
- Subcontractor defaults
- A wrap-up also can be designed to address other risks by providing coverage for the following exposures:
|Pollution - damage to the site and damage to third parties caused by construction activity||Contractors' Pollution Liability||All site contractors and the owner third party claims|
|Professional Services - damage to the project - including financial damages and third parties (including workers - depending on contract provisions) resulting from design errors or omissions.||Project Professional Liability||Project Architect and Engineer and their subconsultants|
|Owner's Professional Policy (OPP)||Project owner alone|
Less frequently, wrap-ups include coverage for financial (and time) risks such as:
- Force Majeure - Unforeseen events such as delays due to strikes, labor disputes, certain weather conditions
- Cost Overrun and Accelerated Costs Coverage
- Subcontractor Default (in lieu of bonding requirements)
- Railroad Protective Liability (for projects with rail exposures)
The coverages and limits provided under each of these policies usually is at least as broad as an individual contractor can secure independently and generally much greater.
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