Owner-arranged

Non-Owner Participant-arranged

Premium cost

The Owner has the advantage of bulk purchasing leading to lower insurance premiums.

The Owner assumes responsibility for considerable work, both in placing insurance and in administering it.

The premium cost for each Non-Owner Participant in aggregate will be higher than the cost for Owner-arranged insurance; however, the impact of this cost depends on the amount of the premium cost allocated to the target outturn cost (TOC).

Certainty of cover for the Owner

• Coverage in place

• The scope of coverage

• Gaps in cover

This framework provides more certainty for the Owner as well as the Non-Owner Participants, although most medium-to-large contractors have reasonable-sized policies in place that would provide automatic cover up to agreed limits for contract works. (Most insurers would not grant automatic extension of cover to an alliance. Alliances or joint ventures are typically excluded in professional indemnity wordings.)

The framework provides more control over the insurance because the Owner appoints the insurance advisor and the broker, and directly funds the insurance. It reduces the possibility of gaps in separate covers purchased by the Non-Owner Participants and future covers purchased by the Owner for the operational phase.

It is possible that the insurance coverage under this framework is broader than that obtained by the alliance. However, if the Non-Owner Participant insurance coverage is narrower in scope, a concern will arise as to whether that Participant is responsible for damage or loss suffered by the alliance in the absence of insurance coverage.

Level playing field for small and medium-sized contractors

This framework introduces a level playing field where small, medium and large contractors have no relative commercial advantage or disadvantage because of the cost of insurance or potential difficulties in obtaining insurance because of their claim history (which could be adverse)

Under this framework, a natural barrier of entry may arise (by size of the enterprise or by adverse claim history) which has implications for the Owner, as well as the larger contractors. Exposure of claim history is a useful indicator to the Owner of contractors' track record in project delivery, and an adverse history will disadvantage a tenderer.

The Owner-arranged framework has the potential to prevent disputes.

Under this framework, there is only one insurance program. Non-Owner frameworks may have multiple programs.

However, in the case of gaps in cover or disputes, the Owner may be liable, but more likely the cost associated with the occurrence of the risk may be allocated to the alliance parties in accordance with the Commercial Framework, although the Owner faces greater exposure due to the capped painshare of the NOPs.

Under this framework, the potential for disputes can be minimised by understanding and structuring the approach to and process for insurance claims in the alliance agreement. The difficult arises in determining between the Non-Owner Participants which insurance to claim against.