The OCIP Formation Process is a Sequential Process
In Part 9: Project Owners and Contractors Like OCIPs, we discussed various reasons why projects owners, as well as contractors (well, some contractors!) like OCIPs. In the next couple of sections, we will review some fundamentals for structuring an effective OCIP on projects. We will put together the pieces of the puzzle and review some of the key structural elements an OCIP framework that are required for a successful OCIP.
Project owners who are serious about implementing a successful OCIP should adhere to the following methodology for assessment, formation, and administration processes:
Prepare a Feasibility Study
This critical first step evaluates the advantages and disadvantages, statutory and regulatory impediments, cost savings, timing, and other key issues. We discussed the rationale for preparing an OCIP feasibility study in significant detail in Part 2: What’s an OCIP & Why use an OCIP? (in the subsection, Is an OCIP the most viable approach?)
Prepare a Request for Proposal (RFP)
Assuming an OCIP is determined to be feasible, proposals should then be obtained from insurance brokers or OCIP administrators. In many cases, the broker can be the OCIP administrator. Although, an owner’s representative or risk management consultant may also be considered.
Sometimes, on public projects, the public entity may stipulate that the entity who prepares the OCIP feasibility study be excluded from bidding on OCIP administration services and/or brokering and procurement of the OCIP insurance. This may be a good reason for a project owner to engage an independent wrap-up or risk management consultant for preparing the OCIP feasibility study.
Among other reasons for utilizing the services of an independent consultant is to maintain the impartiality of the entity preparing the OCIP feasibility study in order to reduce the possibility of any conflict between the entity’s self-interest and professional interest or public interest, especially, as respects the OCIP insurance procurement. It will produce a better outcome because independent wrap-up and/or risk management consultants are not directly involved in the market placement of the OCIP coverages.
Issue the Request for Proposal (RFP)
The RFP should describe the scope of the construction project, anticipated coverages, and requested services. It should be used to obtain detailed information, the approach to OCIP administration processes, safety & loss control practices, claims management, document management & controls, issuance of COIs, and details on risk management information systems to be used for processing enrollments, etc., from the respondents. At a minimum, a RFP should obtain the following evaluation criteria from proposers:
- OCIP administrative services
- Experience and location of the project team
- Approach to structuring insurance programs
- Available safety and loss control services
- Available claims management services
- Risk management information systems (RMIS)
- Fees and rates for any other supplemental services
Conduct the Interview, Evaluation, and Selection Process
Firms that submit the best proposals should be interviewed (or “invited to the beauty contest,” as they used to say in the business. Don’t worry! Steve Harvey is not invited.) This gives a project owner an opportunity to compare and contrast different firms so the firm offering the best OCIP program structure, services, any innovative approaches, and best service fees for the specific project under consideration project can be selected.
(Note: Services and fees can vary widely between firms. Evaluate fees carefully. You can also request sample service contracts. Always negotiate changes to meet specific requirements. It is too late after contract award, i.e. “A day late, and a dollar short!”)
Collaboration on Insurance Coverage Placement
The selected firm should work with the project owner and general contractor (if a GC has been selected) to prepare underwriting information and negotiate insurance terms. There are a variety of forms, documents, data, and information that are required for the preparation of a comprehensive insurance specification and underwriting submission. Working collaboratively to ensure the optimal insurance & risk management program has been structured, presented to the global insurance/reinsurance markets, and that quotes, terms, and minimal underwriter subjectivities are received by a project owner for the OCIP insurance coverage(s) to protect all OCIP participants is essential.
Prepare All Required Documentation
This includes creating the OCIP administration manual, drafting the bid document clauses, and producing the enrollment forms and similar administrative materials.
Probably the most critical issue, as respects OCIP documentation, is that the terms & conditions, or requirements, stipulated in the construction contract documents are correlated as closely as possible with the provisions in the insurance coverage policies. Specific attention should be made for indemnity provisions in the CGL policy, and all associated endorsements, with the construction contract’s indemnification clauses.
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 11, we will review how to successfully implement 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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