Project insurance in which a client cannot sue the architect and PI insurance is unnecessary sounds almost too good to be true. But its advocates are predicting it will be used in more and more significant construction projects this year.
With project insurance, a client takes out a single insurance policy designed to suit the individual project. A client can insure themselves against losses consequential to the project, such as costs resulting from delays.
For architects, project insurance has so far had little impact because the standard arrangements do not cover their professional indemnity, which still has to be in place. However, this may well change with the advent of ‘integrated project insurance’ (IPI), an essential part of ‘insurance-backed alliancing’ (IBA).
In recent years, IPI has been used twice by Dudley College of Technology in the West Midlands: on its £12million Advance II project designed by Metz Architects; and on the £26million Institute of Transformational Technologies, designed by Cullinan Studio.
IPI is also being used on the £16million transformation of Derby’s Silk Mill into the Museum of Making, designed by Bauman Lyons and due to open next year.
"IPI has had some false dawns, but things are now moving," Graham De Roy (Construction Consultant) states. "To get traction we have to see IPI used on bigger schemes and, having limited projects to £20 million so far, we now have the ability to look at £50million."
He is confident that some larger IPI schemes will be announced later this year, including residential ones, and reveals that pension-fund clients have been taking an interest.
The cornerstone of IPI is the ‘model and alliancing contract’ developed by Griffiths & Armour with consultancy IPInitiatives . It requires very different approaches both to putting together a team, and the way in which that team works.
The client appoints a team, which will include the contractor and perhaps specialist suppliers and sub-contractors, to collaboratively develop a detailed brief, design and construction cost plan.
This team is selected via ‘behavioural workshops’, with candidates invited to take part in game playing to identify creative problem solvers and eliminate non-team players. Shortlisted members are then invited to demonstrate what resources they will commit to the project.
The team is given a target price for the project. Participants are incentivised to work together to come in below the target price and share the savings. However, they must also share in the cost of going over the target up to a capped sum, beyond which the IPI cost overrun insurance comes into play. The insurance includes a 12 year defects liability period.
The aim is to create a genuinely blame-free project where the team remains collaborative even when things go wrong. Under the single, multi-party contract, the client waives all rights to sue members of the integrated project team (except in the case of deliberate fraud), which De Roy believes is the real game changer.
To satisfy the insurer that the design and construction plan is sound, the project is monitored by an independent financial risk assessor, a technical risk assessor, and a facilitator who can prevent anyone slipping back into a defensive or adversarial mode.
De Roy points out two appealing factors for architects: there is no loss of design control, and there is the chance to work and collaborate with specialist suppliers. Insurers are interested, he explains, because a collaborative team working alongside a financial auditor should mean cost overruns are far less likely.
Architect Russell Curtis is a longstanding campaigner for better procurement through Project Compass. "Procurement is so focused on risk mitigation at the earliest opportunity that the sort of collaboration we ought to be seeing rarely happens," Curtis explains. "Instead, contractors use collaboration to squeeze suppliers. No-one is winning from this: contractors aren’t making profits and clients are not getting quality."
As far as Curtis is concerned, non-adversarial contractual arrangements offer all sorts of opportunities for architects, including genuinely productive collaboration.
Thanks to Graham De Roy, Construction Consultant, Griffiths & Armour; Russell Curtis, Director, RCKa architects.
Text by Neal Morris. This is a Professional Feature edited by the RIBA Practice team. Send us your feedback and ideas
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Posted on 25 April 2019.