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Current Design-Build Practices for Transportation Projects

14. Insurance, Bonds, Indemnities, and Limits on Liability

The following is an overview of issues related to insurance, bonds, indemnities, and limits on liability, based on responses to the questions in Section 13 of Appendix 3.

14.1. Insurance

Several agencies have implemented Owner Controlled Insurance Programs (OCIPs), including ACTA, AZ DOT, TCA, UT DOT, and UTA. Some OCIPs included errors and omissions coverage. ACTA purchased an owner's protective errors and omissions policy. UTA required the contractor to provide errors and omissions coverage. One of the agencies that has used OCIPs (AZ DOT) intends to require the contractor to provide insurance in the future.

The invitation for bids for the Atlantic City/Brigantine Connector asked the proposers to bid both with and without an OCIP. Upon review of the bids, a determination was made that it would be more cost-effective for the contractor to provide the insurance.

CDOT is using a partner-controlled insurance program.

LADOTD (May 2009) -- LADOTD does not have an OCIP program.

14.2. Bonds

Many agencies require 100% payment and performance bonds, including the Atlantic City/Brigantine Connector, Greenville County, NAVFACand UTA.

For larger projects, agencies are often willing to accept reduced bond amounts, with the amount based on the potential cost overruns resulting from a "worst case" scenario. The bonds for the ACTA, CDOT, TCA, and UT DOT projects were in the amount of $250 million. For the Legacy Parkway project UT DOT agreed to accept a performance bond in the amount of 50% of the contract price, and a $170 million payment bond.

The decision to accept a reduced amount is based in part on the surety industry's reluctance to issue 100% bonds for mega-projects, and in part on the fact that only a handful of contractors have sufficient bonding capacity to provide such bonds. Requiring a 100% bond would therefore be likely to reduce the pool of interested contractors and could therefore have a significant impact on the contract price.

LADOTD (May 2009) - LADOTD requires 100% payment and performance bonds.

14.3. Limitations on Contractor Liability

A number of the agencies initially surveyed provided for limitations on the contractor's liability. The limitation can be in the form of a dollar cap on liability, in the form of an absolute waiver of the right to consequential damages, or in the form of a provision stating that a particular remedy (such as warranty) is exclusive. There are many variations for such provisions.

LADOTD (May 2009) - LADOTD does not limit the design-builder's liability.

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Updated: 06/27/2017
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