Page 259 - Urban Construction Project Management

214 Chapter Ten
Exhibit 10-3 8. A wrap-up provides a unified defense for all parties in the event of a claim.
(Continued) 9. Contract indemnification provisions are easier to put in place with all parties
insured by one insurance carrier.
10. A wrap-up minimizes the likelihood of litigation for on-site work injuries and
cross-liability suits.
11. Higher limits of coverage are usually available under a wrap-up insurance
program through one policy.
12. Usually results in fewer coverage disputes, along with faster and more
professional claims processing.
13. The wrap-up insurance policy usually has less qualification and exclusions of
coverage.
14. Common insurance coverage and terms provide a level of comfort to all parties
involved.
15. One insurance company will insure, indemnify, and hold harmless all parties.
16. One insurance premium to be paid directly by the owner and/or CM/GC.
17. Better control of the issue of insurance certificates and coverage for all parties
working on the project.
18. One insurance company and legal department to defend all claims in connection
with claims arising out of the performance of the work.

SURETY BONDS

A surety bond is a three-party contract, which involves the principal (e.g., the subcon-
tractor), the surety company guaranteeing the principal’s performance of the work, and
the obligee (either the owner or the CM/GC) for which the bond is provided. It is impor-
tant that the CM/GC understand that a surety bond is not an insurance policy, although
in some respects there are some similarities. A surety bond is also a contract to cover the
default in the performance of the work by the principal, and the cost incurred to remedy
the deficiency. Surety bonds are often required for all municipal, public, governmental,
and quasi-governmental work. Sometimes bonds are required on private projects to meet
financing requirements, or if the subcontractor performing the work is questionable as to
their ability to complete the work as per the contractual requirements. The bond provides
an additional level of protection that the work will be completed in accordance with the
contract. A subcontractor, supplier, or vendor providing new technology or equipment to
the construction project may be a reason to consider a bond.

Surety bonds are expensive, depending on the record of accomplishment of the firm and
its principals, financial well-being, reputation in performing similar projects, and per-
ceived risk to the bonding company. This three-party relationship is further defined below.

Principal
This is the party who is performing the work and who directly pays for the surety bond.
The bond guarantees the subcontractor performing the work. The bond allows the prin-
cipal to get jobs that it would not otherwise be able to without a surety bond.