On a traditional insurance program, General Contractors (“GC’s”) typically include a line item for insurance in their bid or contract labeled something like “GL Insurance,” “Insurance Costs,” etc. This line item is included so that the GC can purchase the insurance coverage that is required by their contract plus any additional lines of coverage necessary as a normal course of business. Under an OCIP, or Owner Controlled Insurance Program, the Owner/Sponsor is providing certain lines of insurance to the GC and all enrolled subcontractors. Therefore, it is typically expected that the GC remove any charges from their bid or contract for insurance that will be provided by the OCIP. Depending on the Owner’s expected bid methodology, this charge for insurance could be removed from the bid prior to the amount being submitted (NET Bid) or removed after the contract has been awarded (GROSS bid) as a deduction. Either way, most OCIP Sponsors will expect any charges for OCIP provided insurances to ultimately be removed from the GC’s contract amount.
As the GC holds the contract for most if not all of the project, their own insurance cost is going to make a large impact on the overall insurance costs and subsequently cost avoidance or savings of the program as a whole. Assuming the Owner has not already negotiated and finalized the GC’s insurance cost upfront, we first ask the GC to identify their insurance cost during the online OCIP enrollment process. This is simply a lump sum number that should represent the GC’s cost to provide their own insurance should an OCIP not be in place. We then begin vetting that number in a variety of ways. First, we review any original budget documents to determine if that number matches the line item for insurance on the GC’s initial budget. We also collect the GC’s policy rating and declaration pages and perform calculations to ensure that the amount identified is equal to or greater than what it would have cost them to provide their own insurance. Finally, we compare the amount identified to our historical database to ensure that it aligns with the average GC credit for any given state or type of project. Once we have all the pieces, we will review the information with the Owner and the GC to come to an agreed-upon amount that is documented in our files and reports for the Owner’s use. Alternatively, on some occasions, we are asked to vet the insurance costs that will remain in the contract. This process involves us reviewing the rate and declaration pages for those policies that provide insurances other than those provided by the OCIP.
Finalizing the GC’s insurance cost takes a little more care, time, and effort than subcontractor credits but for good reason. It is important to reference conversations, contracts, documentation, and negotiations that might have taken place prior to the OCIP. There may be additional insurances that a GC is charging for that should remain in the budget because they fall outside of the OCIP or there could be a certain agreement where the Owner is allowing the GC to offer a reduced credit because of other discounts they have provided throughout the contract. For these and many other reasons, CR Solutions carefully walks Owners and GC’s through this conversation to come to a mutually agreeable insurance amount.
About the Author:
Leah Stewart, CRIS is an Account Executive at CR Solutions and is based out of company headquarters in Alpharetta, GA. Follow Leah on Linkedin and stay up to date on her recent insurance risk management articles and insights.