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1. Principal controlled insurance (PCI)

The Department of Health and Human Services has arranged and funds principal controlled insurance (PCI) for departmental funded capital works with cover provided by the state government's insurer and risk advisors, Victorian Managed Insurance Authority (VMIA) including health and associated healthcare facilities, e.g. public hospitals.

PCI is an arrangement whereby the parties involved in a building contract including the principal, either the department or the funded health service or agency, the building contractor and the various sub-contractors are automatically covered under a blanket insurance policy for all approved capital works projects. PCI replaces the need for the contractor to arrange the contract works associated insurance cover and public liability insurance cover.

Some benefits of PCI are as follows:

  • greater control of risk
  • automatic insurance clause (excluding contracts > $400,000)
  • reduced administrative costs
  • elimination of insurance gaps within the various contracting parties' policies
  • elimination of cross-litigation actions
  • more bargaining power to negotiate the best possible premium terms from the one insurer
  • increased flexibility in securing broad terms of cover.

It is expected that consultants check that the principal does not pay for works insurance in addition to PCI and that contractors separately show work insurance premiums in their tender.

Parties included

PCI protects those parties to a building contract collectively known as the named insured that are directly involved in the construction process and have a financial interest therein. They will generally include a combination of the following:

  • the department and / or the funded health agency as principal
  • all building and construction sector contractors and sub-contractors engaged to perform works on-site
  • superintendent, superintendent's representative and / or construction manager
  • any other party where an obligation exists by agreement and / or under formal contract in connection with the site or works
  • funded health agencies - includes area health services, public hospitals, ambulance services, community health centres, day hospitals, bush nursing centres and other departmental funded health care agencies insured under the VMIA public healthcare program.

High value construction works

Construction projects with a contract value exceeding $100 million can be insured under PCI through VMIA but require a separate underwriting submission and negotiations.

Projects and components not insured

There are certain arrangements that are not insured by PCI and these are:

(i)    Public / private partnerships (PPPs)

The government policy for PPPs is that the construction risk is to be borne by the private sector. The private developer i.e. the project company that is contracted by the department to build, and maintain the hospital over the full term of the contract is obliged to arrange construction insurance from the commercial market.

(ii)    Project function - service planning

Service planning falls outside the scope of PCI as the function does not include actual construction work instead involving the preparation of service plans, models of care and associated studies such as master plans and business cases.

(iii)    Consultants

Professional consultants engaged in the preparation of designs, documentation and associated works are responsible for the provision of their own insurances, such as professional indemnity and public liability in accordance with their contract conditions.

Extent of coverage

The PCI contract works policy comprises two areas:

  • contract works / material damage
  • public liability.

Risks not covered

There are certain coverages and risks that are not insured under the PCI policy. For example:

  • It is compulsory for workers' compensation insurance to be effected by a contractor and / or sub-contractor for their respective employees.
  • Professional indemnity cover is required to ensure compliance with the insurance provisions of the Victorian Building Act 1993.

Other covers that need to be arranged by the contractor and/or sub-contractor include:

  • Loss of, or damage to:

         - mechanically propelled vehicles, registered and unregistered

         - tools, plant and equipment including temporary works belonging to contractors and/or subcontractors or for which they are responsible

  • liability relating to risks associated with asbestos
  • liability in respect to the use of explosives
  • demolition works not incidental to the contract, e.g. major demolition works external to the existing contract and requiring specialist demolition contractors
  • tunnel Works *
  • runways *
  • site decontamination *
  • pipelines - exceeding 2.5m in length. *

* For these types of works, the principal should immediately contact VMIA to ascertain whether separate PCI cover can be arranged.

Period of insurance

Like most other conventional insurance policies PCI operates on a 12-month renewal cycle.

a.  What is the works period of insurance?

There are specified periods of coverage to the works depending upon the actual phase of the works that are:

  • construction period

The maximum construction period covered is 2 years. For contracts that exceed this period, an extension can be granted upon application for specific projects.

  • maintenance / defects liability period

The maintenance / defects liability period is 24 months commencing upon expiry of the construction period. This provision reinstates the cover to allow the Contractors to return to the site, to carry out their contractual obligations in order to rectify defects.

Insurance cover automatically rolls over with subsequent renewals for projects exceeding 12 months until completed (including the defects period if applicable).

b.  When does cover begin?

Insurance cover is triggered upon commencement of the works.

Incident / claims reporting

There are relatively strict guidelines that apply in the event of an incident occurring. The contractor should give immediate notice to the department or funded agency as appropriate for forwarding onto VMIA, and take all reasonable steps to remove the threat of further property damage and / or personal injury occurring from the same source.

Detailed guidelines for the reporting of incidents, contact persons and other notification details are listed in the Instructions for construction contractors.

Contract works

a.   Policy cover

Cover applies to physical loss of or damage to the actual building works and any temporary works occurring during the construction period and during the subsequent maintenance / defects liability period where the cause can be attributed to the construction process. Such works can comprise construction / installation / erection of new assets or the refurbishment / upgrade / maintenance of existing assets. Contracts may be undertaken at 'greenfield' sites or sites which accommodate existing assets.

Demolition work incidental to the contract works is also covered.

b.   Insured perils

Examples of insured perils are:

  • fire
  • storm, rain, wind and flood damage
  • explosion
  • subsidence
  • accidental damage.

c.   Policy extensions

Policy extensions include:

  • Removal of debris / demolition - following loss or damage to the works.
  • Professional fees - cover the cost of fees for architects, surveyors, engineers, etc. for reinstatement of the works following loss and / or damage.
  • Expediting expenses - of wages, additional plant and hire costs following loss or damage to the work.
  • Inland transit - covering the movement of contract materials to and / or from the site of the works.
  • Testing and commissioning - covering the mechanical and / or electrical elements of the contract installation, e.g. lifts, air conditioning units.

d.   Policy exclusions

Key policy exclusions are:

  • consequential financial loss, liquidated damages and loss of use or occupancy
  • penalties for non-completion or delay in completion
  • cost of rectification of defective workmanship, materials or design
  • wear and tear
  • loss or damage to Contract Materials whilst in transit overseas
  • loss or damage to mechanically propelled vehicles
  • loss or damage to contractor's plant and equipment
  • loss or damage caused by or in connection to terrorism.

e.   Sum insured

Departmental and health agency works - $100M any one project.

For major projects that exceed this sum, separate negotiations are to be undertaken via the Infrastructure Planning and Delivery (IPD) branch project manager.

f.   Policy excess

Excess is payable by the contractor for each and every occurrence or series of occurrences arising out of the one event. Refer to current contract for details and the instructions for construction contractors.

Public liability

a.  Policy cover

Covers the legal liability of the named insured for personal injury and / or property damage to third parties that may arise out of the construction activities during the period of the contract, or the maintenance / defects liability period.

b.  Policy extensions

Policy extensions include:

  • Cross liability clause - ensures that each insured party is a separate legal entity.
  • Worker-to-worker liability - ensures that workers, not being employees of the principal, injured during construction activities, cover the principal named in the policy for any claims.
  • First aid expenses - to cover liability arising out of the provision (or lack thereof) of medical assistance from persons offering such at the contract site.
  • Pollution liability - covers events of a sudden and accidental nature.

c.   Policy exclusions

Key policy exclusions are liability:

  • for bodily injury that is required to be insured under a workers' compensation policy
  • for professional negligence of any named insured that should be insured by a professional indemnity policy, e.g. architects, engineers, surveyors, project and construction managers and registered building practitioners
  • in relation to risks associated with asbestos or any asbestos-containing product or material including removal thereof
  • for fines and penalties, punitive and / or exemplary damages
  • in relation property damage and / or personal injury caused by or in connection with terrorism.

d.  Sum insured

Departmental works - $250M any one occurrence or series of occurrences arising out of the same source or original source.

e.  Policy excess

The excess is payable by the contractor for each and every occurrence or series of occurrences arising out of the one event. Refer to Attachment C for the amounts applicable.