Page 254 - Sustainable On-Site CHP Systems Design, Construction, and Operations

CHP Construction 227

3. Marine cargo insurance. Covers physical loss of or damage to equipment and
other supplies transported by air or sea.
4. Marine delay in start-up insurance. Covers the financial consequences of delay in
commencement of commercial operations caused by a physical loss, damage,
or disappearance during marine transportation.
5. Third-party liability insurance. Covers the legal liability of all parties arising out
of bodily injury to or property damage of third parties.
6. Each party involved in the construction project will also typically arrange for policies
or fund for the following exposures:
(a) Workers’ compensation or employers liability, as appropriate for the
jurisdiction
(b) Design engineers’, architects’, or other professional consultants’ errors and
omissions as prescribed by the contract
(c) Contractors tools and equipment
(d) Automobiles
(e) Employee dishonesty, fiduciary, and management liability exposures

Protection through the Construction Contract
In assessing who should bear the responsibility for construction risks, it is critical to
remember that virtually any risk can be assumed for the right price. Consequently, one
of the most important functions of a construction contract is to properly allocate the
rights, responsibilities, and risks assumed by the parties to the contract.
Owner-operators need to understand that the goal of sound risk management is not
to structure its contract documents so as to shift every unknown or potential site risk to
the contractor. Such attempts do not go unnoticed and are more likely to result in
inflated and unreasonable contract bids. The experienced and knowledgeable construc-
tion owner knows he must determine what risks his firm can live with, structure such
risks into the proposal, and/or reflect such risk allocation in the construction contract
on a most likely or worst-case basis.
For example, if a major piece of equipment is being shipped by air or sea, the project
lenders may insist that marine delay in start-up coverage be purchased. Often, the equip-
ment manufacturer will assume responsibility for purchasing the cargo coverage on the
shipment. This therefore leaves the owner-operator in the position of having to purchase
a “mono-line” coverage at often very steep rates. The most obvious solution is to try to
package the cargo and marine delay in transit coverage. Assuming that the proper credits
can be obtained from the manufacturer, this is an effective solution. An even simpler solu-
tion is to assess the exposure and explain it to the bankers. For example, assume the bank
requires the purchase of this insurance for the shipment of a generator. If the generator is
not on the critical path for operations and it can be demonstrated that a spare generator
can be located and shipped in time to meet projected start date, the need for insurance or
at least the initial required limits, should be minimized. This is simply an example of
employing effective and proactive risk management techniques as discussed above.

Changes to Contract Scope during Construction
One of the major risks that an owner must recognize is that construction projects such
as CHP facilities are rarely completed in precisely the same fashion contemplated by