The New Release of PFSA’s General Conditions Contract

The new release of PSFA’s General Conditions of the Contract for Construction 2019 Edition, Version 3.1a requires the prime contractor to carry a builder’s risk (installation floater) – see section 11.4.1

11.4.1 Unless Builder’s Risk coverage is furnished by the Owner as indicated in Paragraph 7.2 of the Agreement between the Owner and the Contractor, the Contractor shall provide insurance which will protect the interests of the Contractor and Subcontractors in the Work. Such property insurance shall be maintained, unless otherwise provided in the Contract Documents or otherwise agreed in writing by all persons and entities who are beneficiaries of such insurance, until Final Payment has been made as provided in Paragraph 9. 11 or until no person or entity other than the Owner has an insurable interest in the property required by this Paragraph 11.4 to be covered, whichever is later. This insurance shall include interests of the Owner, the Contractor, and Subcontractors in the Project.

There are several questions that the prime contractor may have concerning the Builder’s Risk (BR):

• Why won’t the school district carry the BR?
  • In section 11.4.1 it states, “Unless the Builder’s Risk coverage is furnished by the owner (school district). It is very unlikely the school will provide the BR because the school relies on the state’s insurance program which has a very high deductible. We have had many school districts complain how they “were getting stuck paying a high deductible” when the BR claim was entirely the fault of the prime contractor.
• How is the limit of insurance determined in the BR?
  • The BR value is for the amount of the prime contractor’s contract with the owner. In our example, the prime contractor is remodeling the inside of an existing school. Total replace value of the existing school is $15 million. However, the prime contractor’s contract is for $3 million. The prime contract needs to carry a $3 million BR.
• Near the end of any project, the school wants to start moving items into the classrooms that are complete. How does this effect the BR?
  • Most insurance policies say the BR ceases when occupancy is taken, or a facility is put to its intended use regardless of the expiration date of the policy. The prime contractor needs to make certain that the policy will continue enforce even if the school takes partial occupancy. This is done by an endorsement, usually at no cost. Remember the prime contractor needs to ask for the endorsement.

We are not offering legal advice. We strongly recommend that you have your attorney review the new PSFA contract and rely on your attorney’s counsel.  

If you have questions on builder’s risk insurance, please contact us.