From Department of Public Expenditure, NDP Delivery and Reform
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The Minister for Public Expenditure and Reform, Michael McGrath TD, today, (Wednesday 9th of February), announced details of revised guidelines for Professional Indemnity Insurance (PII) in Public Works Projects.
Since 2018, the global PII market's cycle has been in a hardening phase. A review undertaken by Lloyd’s in 2018 identified non-US PII as one of the worst performing sub-classes of insurance. The Hackitt Report and the ongoing inquiry into the Grenfell Tower fire tragedy has also caused insurers to focus on the liabilities taken on by contractors and consultants in the construction sector.
As a result of a tightening insurance market for PII, it is becoming difficult to obtain PII at levels that were previously commonplace. Policies for construction professionals and contractors are becoming increasingly expensive, are providing a reduced level of cover, have a greater number of exclusions and increased levels of excess.
This situation is having an impact on the delivery of public works contracts. Some firms are unable to meet the long-established PII requirements in the procurement templates published under the Capital Works Management Framework (CWMF), and as a result are unable to participate in public procurement competitions. With respect to live contracts, there is a risk that some consultants and contractors may not be able to obtain the level of PII cover that they are contractually obliged to have in place for the duration of the contract.
The Office of Government Procurement (OGP) has engaged with industry and insurers operating in the professional indemnity insurance (PII) market on this issue.
Outlining the details, Minister McGrath said:
“I recognise the problems that a tightened insurance market for PII is having on public works projects at present. I have been working with my officials considering how best to balance the requirement for adequate risk provision and the availability of appropriate PII in a challenging market.
“I am conscious that the increased premiums for PII which, in many cases, are multiples of that paid just 2 years ago represent additional overhead costs that businesses must carry. At the same time I must consider the taxpayers’ interests in the event that insurance is called upon should a defect arise.
“In response to these challenges and to mitigate potential impacts upon the National Development Plan, I am announcing details of revised guidelines for PII in Public Works Projects, which are being introduced in recognition of the significant changes in the cost and availability of PII over the last 18 months.
“The revised requirements reflect the current level of PII that is available and will ensure that otherwise capable and competent consultants and contractors are not excluded from public tenders because levels of PII are being set that are not generally available in the market. “
ENDS
Notes for Editors:
New guidelines for minimum standards of PII sought by contracting authorities at pre-qualification stage;
Advice to contracting authorities regarding parties currently under contract who are unable to maintain PII at the level required by the contract as a result of the changed market conditions;
Where pre-market engagement indicates that the level of PII available for purchase by contractors or consultants does not meet the project’s requirements, advice regarding alternative forms of insurance a contracting authority may consider purchasing.
PII provides cover on a ‘claims made’ basis and purchasers of PII are reliant on the policy in place at the time the claim is made to respond to the claim. A claim may be many years removed from when the matter (that is the subject of the claim) occurred. PII policies are typically renewed on an annual basis and, in the current market, the renewal process has become protracted and is often resulting in a substantial increase in the premium, which may also be coupled with a reduction in the level of cover to that previously obtained – even where no claims have been made on the policy.
Strand 1 of measures - The details announced today deal with access to public procurement competitions and the circumstances where insurance that is contractually required can no longer be obtained. Implementation of these measures includes publication of Circular 05/2022 and a new guidance note GN 1.1.2, Professional Indemnity Insurance – Application in the CWMF . It also includes revisions to existing CWMF guidance and template procurement documents as well as new documents. The revised minimum standards for PII levels is outlined in GN 1.6.3 for consultants. Those for contractors is addressed in GN 2.3.1.3 , which will be published in a second tranche of publications by the end of February along with the necessary amendments to procurement templates for works contractors.
The requirements for consultancy engagements have been amended to permit the expression of the limit of PII cover on the ‘each and every claim’ basis (which is the preferred option) with an alternative option on an ’annual aggregate’ basis. Guidance has been published that will provide levels that are proportionate to the capital value of the project the consultants will be engaged upon (GN 1.6.3).
The requirements for works contractors will be amended to only permit PII to be sought on an ‘annual aggregate’ basis. This is because the higher standard of PII (‘each and every claim’) is not generally available to contractors (GN 2.3.1.3).
Strand 2 of measures - The second strand of the implementation involves the inclusion of liability caps in both the public works suite of contracts and the conditions of engagement for consultants. Currently both the conditions of engagement and public works contracts do not include any cap on liability. The OGP is devising an amendment to the standard forms of public works contract and conditions of engagement to introduce appropriate caps on contractors and consultants’ liability that are proportionate to the projects on which they are engaged.
Government policy (through Circular 33/06) requires all public works projects that are delivered under the Exchequer-funded element of the National Development Plan to be procured in accordance with the provisions laid down in the Capital Works Management Framework (CWMF).
The CWMF provides an integrated set of standard contractual provisions, guidance material, technical templates and procedures, which cover all aspects of the delivery process of a public works project from inception to final project delivery and review to assist contracting authorities in meeting their ongoing procurement requirements.
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