The OCIP Implementation Process
In Part 10: The Necessary Framework for an OCIP, we reviewed critical components for making an initial assessment to determine whether an OCIP is the right risk financing approach for a project owner’s construction project. We reviewed the initial steps to conduct a Feasibility Study. The feasibility study was discussed in more detail in Part 2: What’s an OCIP? & Why use an OCIP? (in the subsection, Is an OCIP the most viable approach?) We also reviewed the RFP process to evaluate and select an insurance broker, OCIP administrator, or risk management consultant, for preparing and assimilating the OCIP documentation to facilitate the OCIP administration process. In this section, we will review the critical success factors for a successful OCIP implementation.
Critical Success Factors
Project owners who decide to use an OCIP should remember these words of wisdom: “OCIP administration is the critical component of a successful OCIP implementation.”
Once a project owner commits to use an OCIP approach on their project, there are several factors that will influence an OCIP’s ultimate success, which include:
At the onset of a construction project, it is essential that the general contractor (GC) understand and accept their responsibility for his or her role in the OCIP program management. The GC typically has authority over, and responsibility for, the two most important elements of an OCIP’s financial success: 1.) facilitating with the negotiation of the insurance credits with subcontractors in collaboration with the project owner and/or project owner’s OCIP administrator, as part of the contract procurement process, and 2.) the OCIP’s construction project site safety program.
To maximize project owner and GC support, OCIP procedures must be compatible with the project owner’s and GC’s existing practices. Therefore, the entity providing design and implementation consulting should consider mapping the project owner’s and GC’s procurement, accounting, safety, and risk management procedures in order to minimize any changes imposed by the OCIP implementation.
If the program is to be a success, every contractor and subcontractor must understand and comply with all OCIP procedures. There are three steps a project owner should take to accomplish this:
- Bid instructions and expectations must be clearly described and communicated to all contractors in order to maximize the insurance deduct process.
- Timely and accurate claims reporting is necessary to ensure that all injured employees receive immediate medical treatment and are assigned to back-to-work programs.
- Timely and accurate payroll reporting is necessary to measure program financial performance and to ensure compliance with insurance statutory, regulatory, and audit requirements.
Documentation and Procedures
Understanding the requirements and expectations of an OCIP can be achieved by using these tools:
- A bid deduct form that is easy-to-read and understand
- A user-friendly procedure manual
- A comprehensive safety and loss control manual
- Clear and concise claims reporting forms and procedures
- Pre-bid and pre-mobilization meetings with OCIP documentation packages
To minimize OCIP losses, it is essential that the GC create and continually reinforce a proactive safety culture. A good safety program has many of the following characteristics:
- A formal, structured program with a written safety manual
- Contractor and subcontractor safety prequalification procedures
- Safety training, monitoring, and periodic “toolbox” talks
- Independent, scheduled and unscheduled safety audits
- A full-time safety representative and onsite safety staffing
- Pre-mobilization safety orientation and certification process
- Drug and alcohol testing programs
An OCIP monitoring program provides for the timely measurement and recording of trends and events so financial results, the effectiveness of administrative procedures, and individual contractor safety performance can be continuously monitored and evaluated throughout the course of construction, and for the life of the OCIP project. These reports should be produced monthly, be easy to read and interpret, and be written in terms consistent with the project owner’s and GC’s procedures and expectations.
Implementation of the OCIP
Here are some key implementation and administrative tasks:
- Prepare a manual providing contractors and subcontractors with information about implementation procedures, insurance coverages and limits, safety programs, claims reporting, record keeping, and other OCIP requirements.
- Prepare insurance clauses for bid documents and contract administration.
- Provide contractor and subcontractor orientation notices and meetings.
- Obtain evidence of any insurance not provided by the OCIP that is purchased for contractors and subcontractors (such as commercial auto liability and general liability DIC coverage for accidents that occur away from the project site).
- Enroll all contractors and subcontractors in the OCIP.
- Prepare claims administration procedures for insurers and/or claims administrators.
- Review contractor and subcontractor bid deducts for all OCIP-provided coverages.
- Review initial bids and change orders to ensure proper insurance deductions.
- Collect payroll and other required reports from contractors and subcontractors. Remember: OCIP administration is the critical component of a successful OCIP.
- Prepare cost reports that show both the cost of the OCIP and the contractor and subcontractor insurance bid deductions. (This gives a project owner the ability to monitor potential OCIP savings to determine the financial benefit of an OCIP.)
- Provide periodic cost reports to the project owner or other designated recipients.
- Ensure that statutory workers’ compensation reports are completed correctly and filed with the appropriate rating bureaus.
- Ensure that contractor and OCIP insurers accurately complete payroll audits.
- Following a contractor’s or subcontractor’s completion of work, review performance and quality, then calculate final insurance deductions for each contract prior to making final payment to the contractors or subcontractors.
Note: It is highly recommended that you review the capabilities of the RMIS used by administrators to track contractor and subcontractor bid deductions and fixed OCIP costs. Conduct a thorough review since some systems do not track losses and variable costs. If an OCIP premium is loss-sensitive, the total OCIP costs may require a manual calculation. Carefully consider this when selecting your broker and OCIP administrator.
Hope you enjoyed this post. I will look forward to your comments. I will share more Insights in future posts.
In OCIP 2.0 – Part 12, we will review the importance of audits on an OCIP.
Thank you for visiting and reading C-Risk Insights.
Until next time…
David Grenier is the Managing Director and Principal Consultant at C-RISK, LLC.
C-Risk is a risk management consulting company that provides strategies and insights on wrap-up insurance programs to help project owners in the public and private sector who are involved with large capital construction projects.
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