Procurement Management and Contract Administration

1. Bonds and Insurances in
Construction
Madawalabu
University
Chapter 5
Procurement Management and Contract Administration
CoTM 4242
Lecture by: Andualem Endris (M.Sc)
andu0117@yahoo.com
College of Engineering,
Construction Technology and Management Department

2. CONTRACT BONDS
• Construction bonds, also known as contract bonds.
• They provide a financial guarantee that the bills on a
construction project will be paid.
• The issuing insurance company or bank guarantees the
project's completion by a specific contractor.
• Construction bonds protect the assets of the investor or project
owner against shoddy work or non-completion of the project.
COTM 4242

3. PARTIES TO A CONTRACT BOND
• Obligee – Owner
• Principal – Prime Contractor
• Surety – Entity providing the surety bond
• Surety agrees to indemnify the Obligee (Owner), against any
default or failure in duty of the Principal (Contractor)
COTM 4242

4. BONDS
• There are three types of
construction bonds
• Bid Bonds
• Performance Bonds
• Payment Bonds
• NB: See PPA (Section 9)
and MoWUD Contract
Conditions formats
COTM 4242

5. … BONDS • Bonds are:
• Not Insurance but standing on
their own
• Performance Bonds
• A contractor, or principal, uses
a performance bond to
guarantee that it will complete
the contract in accordance
with its terms. If the principal
defaults, the owner may call
upon the surety to complete
the contract.
COTM 4242

6. … BONDS
COTM 4242
• Payment Bonds
• Guarantee the advance payments.
• Bid Bonds
• The bid bond protects the project's
owner if the bid is not honored by
the principal, such as a contractor.
• The client should secure the bid
bond till the winner agrees and
signs the contract
• Do not release bonds too early

7. INSURANCE
COTM 4242

8. WHAT IS INSURANCE?
COTM 4242
• Insurance is a legal contract that transfers risk from a
policyholder to an insurance provider
• Insurance protects from risk of loss
• Insurance is CASH!!!
• CASH for:
• Replacing / repairing your property
• Replacing / repairing others property
• Medical Costs / Lost wages
• Defending you from others

9. INSURANCE
COTM 4242
• Insurer Requirements
• Coverage Requirements
• Limit Requirements
• Premium / Deductible Responsibilities
• Documentation Requirements

10. • Builders Risk
• Workers’ Compensation
• General Liability
• Excess Liability
• Auto Liability
• Design Professionals Errors &
Omissions
• Pollution Liability
AVAILABLE COVERAGE
COTM 4242

11. INSURANCE SUMMARY
COTM 4242
 Commercial General Liability
 Bodily Injury, Property Damage
 Ongoing and Completed Operations & Products
 Business Automobile Liability
 Bodily Injury, Property Damage
 Workers’ Compensation and Employer’s Liability
 Bodily Injury and Illness of employees, work related
 Professional Liability (Architects, engineers, construction managers, etc.)
 Injury or Damages due to errors & omissions
 Builder’s Risk (Property)
 Damages or Losses to Property under construction

12. CONSTRUCTION PROJECT
COVERAGE PROGRAM
COTM 4242
• “All Risk” Builder’s Risk Insurance
• Property Damage
• Materials in Transit
• Off site storage
• Direct physical loss to Insured
Project(s)
• Construction
• Reconstruction
• Renovation

13. INSURANCE DOCUMENTATION
COTM 4242
• Certificates
• Endorsements
• Declaration Sheets
• Claims Reporting requirements
• Entire Policy
• Notice of Cancellation

14. THANK YOU!
COTM 4242