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Prepared for
Sound Transit
Presented by
David Grenier, Risk Manager
Owner Controlled Insurance Program (OCIP)
Feasibility Study - Recommendations
University Link Light Rail Construction Project
Determine Optimal Insurance & Risk Management Program for
University Link
Review U-Link OCIP Feasibility Study
OCIP vs. Traditional Insurance Program
OCIP Suitability Criteria
OCIP Lessons Learned on Central Link OCIP
Recommend OCIP for U-Link Construction Project
Review & Discuss OCIP Critical Success Factors
Approve OCIP for U-Link Construction Project
Discuss Next Steps – OCIP Implementation Plan
University Link Light Rail Construction Project Presentation Objective
Project Statistics
3.15 mile extension to Initial Segment Capitol Hill Station
UW Station, and Crossover
Environmental Process: Complete
Final Design: 2 Years,
(began December 2006)
Construction: 6 Years, 2009-2015
Systems Testing: 6 Months
Project Completion 2016
Project Budget $1.614 billion
University Link Light Rail Construction Project Program Overview
Multiple Contract Packages
Multiple Prime Contractors
Multiple Insurance Coverage Gaps
Project Timelines and Logistics
Project Management Challenges
Political Risks of High-Visibility Project
Sustainability of ST/UW Relationship
U-Link Construction – Risk Factors
University Link Light Rail Construction Project Project Evaluation
Option 1: Traditional Insurance Program
• Each prime contractor provides own insurance at levels specified by ST
• Advantages
Ease of set-up/contract packaging
Direct risk-transfer method
Less burdensome from administrative standpoint
No claims process to coordinate
• Disadvantages
Major Gaps in Insurance Coverage
Limited coverage for catastrophic loss
Loss of uniformity of coverage
No economies of scale in insurance purchasing – increased cost
Extensive contract monitoring and oversight necessary to ensure contractor compliance.
New contract enforcement measures.
Loss of claims coordination;
No supervision of claim process – no means to ensure stakeholder satisfaction.
Contractors have no political risks
Extensive subrogation/litigation between different primes and their insurers
No guarantee contractors can procure specified coverages
Reduced # of bidders
Decreased MBE/DBE participation
University Link Light Rail Construction Project Program Recommendation
Option 2: CCIP: (Contractor Controlled Insurance Program)
• Each prime contractor would provide umbrella coverage to all contractors
• Advantages
Simple initial set-up
No claims process to coordinate
Limited economies of scale
• Disadvantages
With multiple U-Link prime packages, no single CCIP is possible
Multiple CCIPs would be operating simultaneously, removing distinctions between
Traditional Insurance Program and CCIP
Major Gaps in Insurance Coverage
Extensive contract monitoring and oversight necessary to ensure contractor compliance.
New contract enforcement measures.
No supervision of claim process – no means to ensure stakeholder satisfaction.
Contractors have no political risks
Extensive subrogation/litigation between different primes and their insurers
No guarantee contractors can procure specified coverage
Reduced # of bidders
Decreased MBE/DBE participation
University Link Light Rail Construction Project Program Recommendation
Option 3: OCIP: (Owner Controlled Insurance Program)
• ST provides “wrap-up” insurance program for all contractors
• Advantages
Compliance w/ UW Contract Requirements (ST/UW MOA and MIA)
Improves Management of Multiple Primes/Contracts/Subcontracts
Provides Broader Coverage – Higher Limits
Removes Gaps in Insurance Coverages, e.g., Builders Risk
Economies of scale in insurance purchasing – cost savings
Provides Safer Work Site, Safety/Loss Control
Additional safety program enforcement mechanism
Improved Productivity – Reduced Downtime
ST coordinates claim process and can control political risk
Right of subrogation between contractors is waived – chance of litigation mitigated
Increased Opportunities for MBE/DBE participation – coverage once unavailable is provided
Disadvantages
Sound Transit’s prior experience with a severely flawed OCIP – Business as Usual
The need for a fundamental change in thinking as regards insurance throughout ST
Administrative costs and need for accelerated schedule
University Link Light Rail Construction Project Program Recommendation
Why a Wrap-Up (OCIP) for U-Link?
Owners of transportation projects, such as transit agencies and state departments of transportation, experience a number of benefits when they use Wrap-Up Insurance Programs:
Savings from volume purchasing of insurance
Elimination of duplication in coverage
Efficiencies in claims handling
Reduction in potential litigation
Enhanced workplace safety
Source: U.S. General Accounting Office document GAO/RCED-99-155, Report to the Chairman
Subcommittee on Transportation, Committee on Appropriations, U.S. Senate
TRANSPORTATION INFRASTRUCTURE: Advantages and Disadvantages of Wrap-Up Insurance for Large Construction Projects. (June 1999)
University Link Light Rail Construction Project Program Recommendation
University Link Light Rail Construction Project Program Recommendation
CRITERION YES/NO
Legal Capability YES
Owner Commitment YES
Project Size and Duration YES
Type of Construction YES
Number of Contractors YES
Project Site YES
Funding Source YES
Timing of Decision YES
Small/Disadvantaged/Minority Contractor Participation YES
Risk Potential for Catastrophic Loss YES
Total Assessment YES
OCIP Suitability Criteria
University Link Light Rail Construction Project Program Recommendation
# ISSUES CORRECTIVE ACTION
1 Contract Documents OCIP Manual
2 Contract Management Execution/Enforcement
3 Contract Administration Pre-Bid Orientation
4 Subcontract Compliance Sub OCIP Provisions
5 Bid Credit Process No More ‘Free Lunch”
6 Claim Deductible Charge Backs Put “Skin in the Game”
7 Deductible Claims Processing Contracts Department
8 Insurance Claims Adjustment Procedures Insurer & TPA SAIs
9 Contractor Request for Equitable Adjustment Claim Reporting
10 Insurance Claims Reimbursement Process Not a Funding Source
OCIP Lessons Learned on Central Link OCIP
¨ Pre-Bid Phase
Contract language with bid alternative
Communication during bid process
Insurance cost information form
¨ Pre-Bid Phase
Contract language with bid alternative
Communication during bid process
Insurance cost information form
¨ Pre-Award Phase
Evaluate bid alternatives
Meetings with contractors
Approval of credits
¨ Pre-Award Phase
Evaluate bid alternatives
Meetings with contractors
Approval of credits
¨ Construction Phase
Change order review process
Contractor payroll reports
periodic test audits
¨ Construction Phase
Change order review process
Contractor payroll reports
periodic test audits
¨ Contractor Close-Out Phase
Contract close-out procedures
Final review/deductible charge-back
Summary report by contract
¨ Contractor Close-Out Phase
Contract close-out procedures
Final review/deductible charge-back
Summary report by contract
OCIP & Project Management Integration – Process Steps
University Link Light Rail Construction Project Program Recommendation
University Link Light Rail Construction Project Program Recommendation
Central Link – OCIP Coverages
Rolling OCIP (ROCIP)
University Link – OCIP Coverages
Project-Specific OCIP
Commercial General Liability
$2MM Occ w/ $4MM Agg
Commercial General Liability
$2MM Occ w/ $4MM Agg
Excess Liability
$98MM x $2MM (Primary)
Excess Liability
$98MM x $2MM (Primary) Excess Tower
Builders Risk
$ Total Construction Project Value
Builders Risk
$ Total Construction Project Value
Professional Liability &
Contractors Pollution Liability
$50MM / Claim & Agg
Project-Specific Professional Liability???
Pollution Legal Liability
$50MM / Claim & Agg
Owners Protective Professional Indemnity
$25MM
Railroad Protective Liability
$5MM Occ w/ $10MM Agg
Environmental Liability
$50MM / Claim & Agg
University Link Light Rail Construction Project Financial Projections
Document Date Estimate
RMD Cost Projection > Non-OCIP
11/9/06
$23,743,800
RMD Cost Projection > OCIP 11/9/06 $18,295,000
Link Baseline Cost Estimate (w/o Cont) 7/9/07 $18,600,000
Link Baseline Cost Estimate (w/ Cont) 7/9/07 $19,700,000
Insurance (OCIP) Estimate vs. Budget
Note:
These figures are subject to a host of conditions including fluctuating market appetite, methods of marketing insurance
coverages, available coverages, underwriter impressions of project management and controls, and even current events.
University Link Light Rail Construction Project Project Schedule
Activity B&A S B&A F Start Finish
U210 Advanced Utilities 06/02/08 12/14/08 12/15/08 06/16/09
U211 Demolition & Remediation 06/16/08 11/24/08 11/25/08 05/11/09
U215 I-5 Undercrossing 09/30/08 03/02/09 03/03/09 04/29/10
U220 TBM Tunnel/UW Excavation 12/11/08 07/20/09 07/21/09 01/22/13
U230 TBM Tunnel/CH Excavation 07/05/09 02/17/10 02/18/10 11/29/12
U240 Capital Hill Station Civil & Fin 09/17/12 03/29/13 04/12/13 07/24/15
U250 UW Station Civil & Finishes 09/20/10 04/11/11 04/12/11 10/09/14
U260 Trackwork 07/26/10 02/01/11 02/02/11 03/25/14
U820 OMF & Yard Expansion 06/30/08 11/24/08 11/25/08 11/24/09
U830 Systems (Signals, Com, TE) 03/01/13 11/22/13 12/05/13 10/02/15
Testing & Start-Up 10/05/15 01/22/16 01/25/16 04/01/16
Schedule Contingency (Float) 04/01/16 09/24/16
Master Schedule
Until Project
CompletionWeek 1 Week 2 Week 3 Week 4 Week 1 Week 2 Week 3 Week 4 Week 1 Week 2 Week 3 Week 4
F Underwriting Information
F Construction Methods
F Contractual Criteria & Contract Language
F Safety Criteria
F Program Responsibility Criteria
Submit to ST for approval
INSURANCE MARKETING
9)
PROGRAM ADMINISTRATION
11)
F Safety Manual
F Insurance Manual
F Claims Manual
12)
13)
F Pre-Bid Meetings
F Contractor Enrollment
F Quantify Contractor Deductions
F Prepare Program Reports
University of Washington - Link Light Rail Project
OCIP Implementation Schedule
Note: Schedule anticipates inclusion of advanced utilities (U210) but not U211 - Demolition
Marketing Report
Construction Mgr. - ST Project Management Meetings
Begin Administration
7) Underwriting Conference
8) Review Underwriting Proposals/Revisions
10) ST Makes Decision on Markets and Coverages
Bind Coverages
5)
6)
3)
Market Coverages
Finalize Program Design
4) Prepare Underwriting Specs and Contract Language
2) Risk Assessment Includes:
PROGRAM UNDERWRITING
1) Notice to Proceed
Jun-08ACTIVITY Apr-08 May-08
University Link Light Rail Construction Project Key Success Factors
OCIP Sponsor Commitment is Critical to OCIP Success!
A Paradigm Shift in Sound Transit Thinking and the Agency’s Full
Organizational Commitment is Necessary for a Successful OCIP
Link Involvement
Underwriter’s Conference
Contract Enforcement
Risk Management
Safety & Loss Control
Contracts Involvement
Contract Bid Document Modifications
Contract Bid Credit Process
Contract Enforcement
Project Controls Involvement
Claim Deductible Charge Backs
Is a Wrap-Up the Right Fit for U-Link?
YES!
Broader Coverage – Higher Limits
More Control – Risk Management
Safer Work Site – Safety/Loss Control
Improved Productivity – Reduced Downtime
Better Claims Handling – Claim Management
Reduced Litigation – Conflict Resolution
Increased Opportunities – Small Contractors
Cost Savings > Economies of Scale
Controls > Insurer(s), Coverage(s), Claim(s)
University Link Light Rail Construction Project Conclusion
The A-B-C’s of Wrap-Ups
Successful Wrap-Up Programs Require:
Administration
Bid Documentation
Coverage
Claim Management
Communication
Coordination
Controls
And Most Importantly…
Commitment
University Link Light Rail Construction Project Closing Comments