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Construction Law/FIDIC & Contractor's All Risk Policy


"Dear Sir, I hope you are fine. My question is related to the Contractors All Risk Insurance Policy. According to Sub-Clause 18.2 of the GCC (Red Book 1999), the first paragraph, states "This insurance shall be effective from the date by which the evidence is to be submitted under sub-paragraph (a) of Sub-Clause 18.1 [General Requirements for Insurances], until the date of issue of the Taking-Over Certificate for the Works
Further in the second paragraph, it states,
The insuring Party shall maintain this insurance to provide cover until the date of issue of the Performance Certificate. for loss or damage for which the Contractor is liable arising from a cause occurring prior to the issue of the Taking-Over Certificate. and for loss or damage caused by the Contractor in the course of any other operations (including those under Clause 11 [Defects Liability]).
My question is as follows:
1. What is the difference between the words effective and maintain in the above two (2) paragraphs. Do they have some difference w.r.t. premium (or rate) of insurance?
2. Does the FIDIC require the insurance policy to cover till the defects liability period. I do not undertsand these 2 paragraph. If DNP is the insurance coverage requirement(as stated in para 2) then why they mention the Taking-Over Certificate in the first paragraph.
3. In this project the defects liability period is 2 years after the Taking-Over Certificate, does it mean that the insurance cover shall be valid upto 2 years after the ToC.
4. For reference only, I mention the particulars of this policy for our project. In this project the CARS Policy for the Period of Insurance states that "From 15th May 2010 (the commencement date of project) To 21st September 2015 (project completion date as in the Contract Agreement)" and further states that "followed by 24 months an Extended Maintenance Period thereafter, based on Contract of the Contractor".
5. Does the FIDIC in the above 2 paragraphs refer to the delay of the project, if the Taking-over Certificate is not issued by the Contract Completion Date, then the  policy shall be first made effective (may be meaning to extend, I understand) to the actual Taking-Over Certificate (our project is also delayed) and then maintained till the issue of the Performance Certificate. Still I would repeat that I am not clear about the words effective and maintain.

Please guide me on the issue.

Dear Muhammad,

1. Maintain means that you continue to pay the premiums, when required so to do.  Effective means that the policy has been updated to match the actual conditions of the Contract, variations in the Contract Price, Time for Completion, and that the insurer will not decline claims due to breaches in the insurance policy.  
2. Often the Contractor continues to work during the DNP, either completing outstanding work or replacing non-compliant work.  Thus the policy must continue during the DNP, even if the payments are reduced. The Contractor is not responsible for insuring the Works which have been taken over by the Employer.
3. Yes
4. Understood.
5. Yes.  The policy must be extended and the additional premium paid.  

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Peter M. Elliott


First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol before submitting a question.


Value . . .
It's unwise to pay too much, but it's unwise to pay too little. When you pay too much you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing you bought it to do.
The common law of business balance prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder, it's well to add something for the risk you run.
And if you do that, you will have enough to pay for something better.
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Comments and observations leading to improvements in the translation of FIDIC Red & Yellow books into Romanian prior to approval by FIDIC (reference 'Preface to the Romanian edition')

Institution of Civil Engineers, Association of Chartered and Certified Accountants, Society of Construction Law, Dispute Resolution Board Foundation

B Sc(Hons) in Civil Engineering

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