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Project insurance plan nears start

A project is about to begin which will test an integrated insurance scheme aimed at cutting potential disputes

The finishing touches are being put to plans to pilot a ground-breaking insurance initiative at a Merseyside hospital being built by Laing O'Rourke.

Project insurance is seen by specialists' groups as one of the key ways of avoiding disputes and getting rid of retentions.

The pilot, which will replace individual insurance policies with a single premium covering the entire job, is set to go ahead early next year at the Southport General Infirmary, which is being built under the ProCure 21 programme.

Project co-ordinator Martin Davis, of the Strategic Forum for Construction, said: "The local NHS trust have signed up and they are very keen. So are Laing O'Rourke.

"We've got initial meetings with insurers on 18 December. There is a possible planning dispute connected to the hospital. If that continues to be a problem, we may have to find somewhere else. But otherwise, it will go ahead."

Mr Davis said the scheme will eventually be rolled out to 10 public sector projects.

The idea got the go-ahead this year when the Strategic Forum held a summit on the issue which was attended by officials from the NHS, the Highways Agency, Building Schools for the Future and the Department for Education and Skills.

A number of insurers also attended along with representatives from the private sector.

Mr Davis said: "A lot of them were extremely keen to take the project forward and we agreed we would look for an initial project to test it.

"We expect to see two or three pilots early in the New Year. But we're going to start with a single project, to find out if there are any teething problems."

One of the scheme's backers is Rudi Klein, chief executive of the Specialist Engineering Contractors' Group.

He said: "Insurance at the moment is about three per cent of the total cost of a project. We think this could save a third.

"Everyone has their own policy. For every fiver claimed on insurance, at least a pound is spent on legal expenses. That's because of all the infighting and disagreement."

So what exactly is project insurance?

Integrated project insurance is a single insurance plan covering a whole project, with one insurer paid for entirely by the client.

The scheme does not replace employers' compulsory liability insurance - but firms working on these projects should make less claims, reducing premiums.

Specialist contractors will not need to declare the job on their professional indemnity insurance.

Rather than insuring against individual events, project insurance covers a cost plan - so nearly anything which hits that cost plan is covered.

This cuts down on costly court battles over responsibility for problems. The project insurance is designed to pay for these.

The client is also guaranteed to get his money back and does not need to demand a retention. And the whole site is covered, so no-one is uninsured when something goes wrong.

Analysis: Great in theory, let us see how it works in practice

By David Ainsworth

Integrated project insurance aims to cut costs by reducing the amount of potential conflict between the parties on a scheme.

With a single insurance policy, nearly anything which affects the project will be covered under it meaning contractors and clients will have less need to resort to the courts to determine blame for errors and overruns.

With less scope for this traditional industry infighting, everyone should end up spending less on insurance and lawyers.

The overall idea is that all parties on site should be able to work together more closely, with less distrust and less need for everyone to cover their backs.

Its backers say the idea has already been successfully trialled in Europe and found to work well. But that stretch of water between this island and the Continent can some times seem an ocean. Construction lawyers won't start panicking just yet.