Posts|November 01, 2019
Mixed-Use Residential Projects: Risk Management and Insurance Considerations
By Jim Schabarum
Principal CPCU, CRIS, AFSB
Contractors performing mixed-use residential projects should first evaluate the “Operational” and “Completed Operations” factors and exposures from a risk management and insurance perspective. A few of these key considerations are:
- Client Selection – owner’s sophistication of development staff, litigation history, background of the construction manager, plan details, and related relationships
- Site Entitlements – surrounding structures, milestones and timing
- Design Team – consideration of an Owner’s Protective Professional Indemnity (OPPI) policy to supplement the design professional’s practice policies for term of construction and 10-year statue. https://www.cavignac.com/wp-content/uploads/Q2-2016-Construction-Newsletter.pdf
- Environmental & Geotechnical Issues – consideration of a Project Specific Pollution Liability policy.
Project Delivery Method – owner’s contracts with the design team
- Subcontractor Pre-Qualification and Guarantees – bonding back of significant trades (typically 50-60% of the project at a .75% rate)
- Owner Controlled Insurance Program (OCIP) / Builders Risk – a comprehensive approach, administered with local specialist to negotiate tailored terms and conditions https://www.cavignac.com/wp-content/uploads/1Q-2015-Construction-Newsletter.pdf
- Project Financing – financing amount, debit structure, source, confirmation and payment terms
- Mix of Habitational Users – amount of “for-sale” (fee simple ownership) in the project will have a direct influence on probability of completed operations disputes and litigation
- Deed Restrictions – should be considered for all “for-rent” (not fee simple ownership) units
- Project Legal Team – owner’s local real estate development attorney specializing in mixed-use (residential) projects.
- Wrap Administrator and Quality Control – owner’s third-party advisors at the beginning of the project through the 10-year statue.
Contractors need to evaluate the costs and benefits associated with residential projects, the inherent long-term contingent liabilities and the likelihood of overall potential project profitability.
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