Q = Question; A = Answer
A. The customary approach for insuring against risks associated with work under third-party contracts is to require contractors to purchase and maintain insurance coverages that the grantee specifies within the terms and conditions of the third-party contracts. There are situations, however, when it may be advisable for the grantee to consider purchasing some type of “wrap up” program for their larger construction projects (those over $10M). These programs are also known as “owner controlled insurance programs (OICP).” A wrap-up program is one in which the grantee procures an insurance program covering all contractors and subcontractors who will be working on a large construction project. Typical insurance coverage would provide for: workers compensation, general liability, and “all risks course of construction” (sometimes referred to as “builder’s risk”). This policy is usually purchased through the services of an insurance broker. As construction contracts are awarded over the term of the policy period, the names of the contractors and all subcontractors are added to the policy as named insureds. Among the advantages of this approach are:
However, grantees must be cautious about contractors with poor safety records and high insurance costs. Care must be taken to consider the contractor’s past performance with respect to safety matters as part of their pre-award determination of the contractor’s “responsibility.” For additional information, see the Best Practices Procurement Manual, Section 6.6 - Insurance. (Reviewed: June 2010)
A. The primary source of information in our discussion about wrap-up insurance in the Best Practices Procurement Manual (BPPM), Section 6.6 - Insurance, was Mr. Harry Hower, Manager of Insurance at Metropolitan Atlanta Rapid Transit Authority (MARTA). His phone number is (404) 848-4504. Mr. Hower has implemented wrap-up insurance programs at MARTA for large construction programs and he believes that MARTA has benefited from these types of policies. (Reviewed: June 2010)
A. We see no impediment to your proposal to ask bidders for base and option item bid prices as outlined in your question. It is rather common for owners to solicit bids for base items and optional items that are exercised based on the bid prices received and the owner's available funds, etc. We would see your proposal as initially the same process. We would advise telling the bidders about the OCIP alternative and how you intend to evaluate the bids. We would also emphasize in the IFB that bidders must bid on both the base and option items in order to be responsive.
The GAO has published a report entitled "Transportation Infrastructure: Advantages and Disadvantages of Wrap-Up Insurance for Large Construction Projects (PDF)" (GAO/RCED-99-155 dated June 1999). This study of OCIP should be very helpful to anyone considering a wrap-up insurance policy. It would appear from this GAO report that several FTA grantees may have used the bidding method you are proposing. (Reviewed: June 2010)
A. FTA insurance requirements for its grantees, including the use of wrap up insurance policies for large construction projects, are discussed in the FTA Best Practices Procurement Manual, Section 6.6 - Insurance, which is available online.
As to whether the use of a wrap up policy may be beneficial for the event you describe, we lack the technical expertise to advise you. You will have to consult an insurance expert for an answer to your question. (Posted: September, 2010)