Construction Law/Extension of CAR's Policy
Dear Sir, I would like to ask you about the extension of time and the prolongation items, that need to extended for the extended period.
The issue is related to the liable Party (the Employer or the Contractor) to bear the cost for the extension of the Contractors All Risk Insurance Policy. The payment form the Employer is not under a separate BoQ Item in the Contract, but the total premium cost is distributed over all civil work items in the BoQ (included by the Contractor as a % of the direct cost in the price breakdown of each item, as explained below). Now the case is that the works have exceeded the contract estimated value, meaning to say that the Contractor has received more than the contract price (the Contract works were insured for the contract value, which is less than the actual value of the works executed). The policy has expired, but the Employer has not yet asked for the extension. If required by the Employer, then who will bear the cost for the extended period.
My opinion is that the project was delayed mostly because of the (i) Employers failure to make Contractors due payments in time and (ii) for some increased scope of work and therefore the time for completion was extended and hence I consider that this cost shall be to the account of the Employer. However I am concerned about the Employers observation that as the Contractor has executed more works during this period of completion inclusive of the extended period than the contract price and has thus received actually more amount for insurance through each BoQ item, which was included therein, as described above, therefore the Employer may shift this cost to the Contractor. For your consideration, the price breakdown of each BoQ item consists of :
1 manpower cost (both local and expatriate)-direct cost
2. material cost-direct cost
3. equipment cost-direct cost
4. supervisory staff cost; 5.13% of above (1+2+3)
5. other direct cost (site offices and vehicles cost); 1.49% of above (1+2+3)
6. other direct cost; 9.47% of above (1+2+3), inclusive of:
i. CAR; 1.14% of the above (1+2+3),
ii. Bank guarantees; 1.42% of above (1+2+3)
iii. interest; 3.99% of above (1+2+3) and
iv. unforeseeable; 2.92% of above (1+2+3)
7. overhead; 2.56% of above (1+2+3) and profit; 6.41% of above (1+2+3)
The CAR Policy amount was almost USD 4.726 million (paid to the Insurer) @ 5.64 per 1000 for a contract price of USD 838.063 million. Now the Contract price has risen to almost USD 925 million due to increased quantities.
Please advise me as how to pursue the matter from Contractors side.
Waiting for your valuable response. Regards
First point - you must NOT leave the project un insured. Pay the premium and get cover immediately - the risk is too enormous not to insure.
It is relatively easy to extract the contract cost of the insurance from the contract price.
This can be compared with the insurance recovered from the remeasured works to get the net extra insurance that you have been paid.
Compare this to cost of insurance over the extended period and the balance will be your claim if it is a positive number. If negative then you have no claim.