Article or item used and/or consumed in a construction project and forms
part of the construction when finalised or completed.
Examples are: Bricks, cement, cables, tiles, roof trussed, gravel, pipes, nails,
paint etc.

The construction period is a period indicated in dates in which a specific
construction has to be completed. This period is usually stipulated in a
contract document between the various parties involved in the project.
Informal constructions often do not have a specific period at
commencement but for all intent and purpose would start the moment that
the site has been occupied to the date that Practical Completion has been
reached, the site has been handed over or a Certificate of Site Handover has
been issued. The Construction Period is followed by a Defects Liability
Period.

Patent Defects are defects that the employer can immediately identify and
instruct the contractor to rectify. This is often known as “snagging”. This
Defects Liability Period has to be included in the contract period and has to
be finalised prior to the contract period expiring as per the contract
document. Hence, Indemnity under the Contract Works policy will remain in
place as the Practical Completion Certificate/Site Handover Certificate has
not yet been issued. Once the Paten Defects have been rectified and the
Employer is satisfied with the work, the Practical Completion Certificate is
issued. The period following this is now known as the Latent Defects Period.

Practical Completion is reached once the Patents Defect period is
completed within the contract period and a Practical Completion Certificate
is issued. Should the Employer not inspect the contract within the
prescribed and agreed period as agreed between him and the contractor,
Practical Completion may also be assumed in certain circumstances.

Latent Defects are defects that are not visible during the inspection and
“snagging” process and only comes to the Employer’s attention after the
Practical Completion Certificate is issued.
A period, usually 3 months is allocated wherein the Employer may call the
Contractor back to site to remedy the Latent defects. (This would be for
example plaster cracking and falling off the wall)
An amount of for example 10% of the contract value payable to the
Contractor has been held back as retention in this period from all payments
issued to the Contractor.
Once the Latent Defects Period has been completed, the Employer then
issues a Final Completion Certificate and pays the Contractor the retained
monies that were held back. No further claims can thereafter be made on the
Contract Works or Liability sections for Indemnity.

A contract will be issued stipulating construction work to be done, parties
involved in the construction period and expectations from all parties
stipulated.
The following minimum criteria must be stipulated in this document.
– The party required to initiate the various insurance covers for the work
done.
– Contract Value.
– Inception date as well as expected completion dates must be stipulated.
– Patent Defect and Latent Defect periods.
– The type of work expected to be done.
– The type of insurance covers required.
Only once these aspects have been inspected, can IT be established whether
the contract is an Insured contract in terms of the policy, or not. It is
illustrated as follows:
– The party required to initiate the various insurance covers for the work done
– It should be the insured.
– Contract Value – together with the considerations of inclusion of items
listed, the value should either reflect as the limit of indemnity of the contract
noted on your facility or fall below the grouped contracts facility amount.
– Inception date as well as expected completion dates inclusive of the patent
defects liability period must be stipulated – this must reflect the same dates
as the dates on the contract noted on your facility or not exceed the
maximum contract period on your grouped contracts facility.
– Latent Defect periods – This time period must not exceed the Latent Defect
Period as stated on your facility for either the noted contract or the period
provided for on your grouped contracts facility.
– The type of work expected to be done – This description must either match
exactly the description on the noted contract on your facility or alternatively
fall within the generic description of your grouped contracts facility.
– The type of insurance covers required – The contract has to stipulate that
the cover that you have initiated is sufficient. Any other covers, for example
Employers Liability and Professional Indemnity cover has to be purchased
under different sections and noted on your facility. Most importantly, it must
state that insurance cover in terms of the contract works is required.
Once all the above has been considered and falls within the parameters as
set out above, it can be established that the contract is an Insured Contract.

All property incorporated into the construction. This may include but is not
limited to:
– Materials (ex: bricks, cement, cables, tiles, roof trusses, gravel, pipes etc)
– All permanent and temporary works that is erected during the insured
contract that is intended to be incorporated into the insured contract.
The above is regardless of whether it is on the contract site, in temporary
storage or in transit. It is subject to the insured being legally responsible to
insure as per the terms set out in the Contract Document.

A contract is an agreement entered between two or more
people/organisations with the intention of creating legally enforceable
obligations. Once properly concluded, a contract is binding on each party.
This means that each party has a legal obligation to do the things which the
contract requires them to do. If a party does not do so, he may be in breach of
the contract and the other party will have certain remedies, such as claiming
for additional costs caused by the breach (called damages). They are also
able to get a court order to force the party in breach to do what is required of
them under the contract. (www.bowman.co.za)
The most common contracts used the South Africa is as follows:
– FIDIC Contract – usually for Turnkey Projects
– GCC – General Conditions of Contract for Construction (Third Edition 2015)
– JBCC – (JBCC series 2000) (Principal Building Agreement and Minor Works
Agreement)
– NEC – New Engineering Contract (Engineering and Construction Contract
and Engineering and Construction Short Contract)
Indemnification on a contract by an insurer is based on these contracts, the
absence of a contract document makes it increasingly difficult to establish
liability and loss. This includes contracts between the Main Contractor and
Sub Contractors.

Temporary works enable the contractor to perform the contract as outlined
by the contract document. This may be for example a temporary road
construction for traffic to bypass the construction site which is thereafter
destroyed. In all instances the value of the temporary works must be
included in the Limit of Indemnity in order for there to be cover in terms of the
policy.

Indemnify means that you are compensating someone for a loss that may
occur in future, ie future loss.

The Insurer always has the right to Repair, Replace or Reinstate the
damaged property. This may be done by effecting actual repairs, replacing
the damaged property, or reinstating the property by means of an
authorisation with an approved supplier. The insurer reserves the right to
settle the insure cash in lieu at all times for either one of the actions.

The maximum amount the insurer will pay for compensation of an Insured’s
costs and expenses arising from any one insured event to an Insured under a
policy during the policy period.
The maximum Limit of indemnity payable can be determined when calculating
all limits of indemnity under an insurance policy.

A schedule that contains the covers granted and limitations set out to
indemnify and Insured. The policy schedule must be read in conjunction with
the policy wording which further elaborates on the conditions of the covers.

Expenses of temporary repairs and costs incurred to speed up the
permanent repair or replacement of covered property or equipment.

The expense incurred when items are ordered for delivery at the fastest
available time period in order for the delivery not to delay the construction
period.

The extent of additional payment needed to pay staff for certain days (public
holidays/weekends) as stipulated in their contract of employment.

Site establishment is the first item on the contractors list to do once the
site has been handed over. Failure of site establishment within the shortest
period can result in the contractor finding himself in breach of his contract.
Site establishment includes but is not limited to:
(i) Site layout considerations: Location, conditions, drainage, access,
ground conditions, services available, accommodation etc.
(ii) Access, site facilities, facilities for the workers, storage shed areas,
ablution facilities.
(iii) Construction equipment areas
(iv) Work areas

Site supervision ensures that the contractor delivers minimum errors which
results in demolition and unnecessary repetition of work .
Supervisory charges are charged for:
– Checking shop drawings prepared by the contractor
– Coordinate the program of activities to achieve construction targets,
programs, provisions, use of materials and use of funds.
– Provide instructions and guidelines in the execution of work to ensure
that work takes place in terms of the requirements of the contract
document.
– Perform inspections of the work.
– Check construction materials to ensure that the work is being
performed within the ambit of the specifications.
– Check that the appropriate equipment is being used in the
performance of the work.
– Ensure the correct implementation of quality, quantity and progress of
work.
– Overseeing the provision of time and construction cost.
– Propose changes and adjustments for problem solving purposes in
communication with the employer.
– Create a final project report containing all activities during the project
implementation.

The named party as stated on the policy schedule for their respective rights
and interests.
In terms of a construction contract, the insured shall be extended to include
sub-contractors in terms of a written agreement between the insured and
any named sub-contractors.

These are repairs immediately following an insured event that should take
place in order to minimise further damage to the project. These repairs must
be shown by providing documentary and photographic evidence before and
after repairs have taken place.

An insured loss is the physical loss of or damage sustained by the insured in
consequence of an insured event as stipulated in the insurance contract for
which the insurer, in consideration of the premium, has undertaken to
indemnify the insured.

A section of the insurance policy that provides reimbursement for clean-up
costs associated with damage to a property where physical damage has
been incurred and requires debris to be removed, remaining compromised
structures forming part of the insured amount to be removed or demolished.

An object placed beneath or against a structure to keep it from falling,
shaking or collapsing.

Shoring, form of prop or support, usually temporary, that is used during the
repair or original construction of buildings and in excavations. Temporary
support may be required, for example, to relieve the load on a masonry wall
while it is repaired or reinforced.

Hoarding is a temporary structure of solid construction, erected around the
perimeter of construction sites to shield them from view and prevent
unauthorised access. It is an important component in ensuring health and
safety, for site workers, visitors and the general public and can also be part of
a site security system to prevent theft or vandalism.

A type of project under which the construction firm is obligated to complete
a project per pre-specified criteria for a price that is fixed at the time the
contract is signed.
The contractor has a legal responsibility for the design, construction, quality,
structural soundness, durability, suitability and satisfactory performance of
the complete work.

Fees associated with the construction process, examples of these are as
follows:
– Architect Fees
– Engineers Fees
– Quantity surveyor fees
These fees are included in the contract value and should be insured
accordingly.

These are professional fees that were not included in the original contract
value or limit of indemnity and has been incurred due to the nature of the loss
which may require for additional professional fees to be incurred to redesign
or quantifying the repair of the loss

Subrogation is a term denoting a legal right reserved by most insurance
carriers. Subrogation is the right for an insurer to legally pursue a third party
that caused an insurance loss which was paid by the insurer. This is done as a
means of recovering the amount of the claim paid by the insurance carrier to
the insured for the loss.

Any work that takes place underground. This is regardless whether the
insured is involved in tunneling and/or excavation or whether the work
involves entering underground. This is also inclusive of Pipe Jacking activities
but exclusive of trenching.

Machinery that has not been previously used, that is purchased new from a
manufacturer and/or his/her agents. This needs to be proved by means of
invoice.
Also, machinery that has been refurbished to SABS standards.

Employing pressurized water to test a line for pressure integrity.

Checking of an electric circuit to see if current flows (that it is in fact a
complete circuit). A continuity test is performed by placing a small voltage
across the chosen path.

The insulation resistance (IR) test (also commonly known as a Megger) is a
spot insulation test which uses an applied DC voltage to measure insulation
resistance.

Beneficial occupation’ or ‘beneficial occupancy’ is a term that can be used to
describe a building that is capable of being used for its intended purpose, even
though it may have some minor defects, usually during the latent defects
period.

The way someone does something; a characteristic method. This phrase,
often abbreviated “m.o.,” is used by police to describe a criminal’s
characteristic way of committing a crime.

The first amount of a monetary loss in the event of a claim settlement for
which the insured in responsible to pay. This is also known as a deductible or
excess.

Free issue material is material that is issued by another party in the
contract document at no cost to the contractor. Example: the employer
issuing the cement supplies to the contractor. This amount is often not
included in the contract value or limit of indemnity as the contractor does
not feel a financial obligation on these materials.
However, a risk is carried because these items cause financial obligation
toward the supplying party, should a loss occur. Therefore, free issue
material is suggested to be included in the contract value, or alternatively
provision made under the extension: Free Issue Material/Existing Property.

Existing Property is much the same since the contractor has taken
possession of the contract site with the existing property under his control
and within his responsibility, yet due to the fact that he carries to financial
obligation on this property, he does not include it in his contract value or limit
of indemnity. In the same manner, should a loss occur, it will create a financial
obligation since it does either form part of the contract site and/or is under
the contractor’s care. Example: The rebuilding value of a room that is being
refurbished but is under sole the control of the contractor.
In both instances, these items cannot be claimed for under the liability
section of the policy, since it is in the insured’ s custody and under his/her
control. The liability section of the policy specifically does not indemnify any
items that are under the insured’s custody and under his/her control.
This has created the need for the Free Issue Material/Existing Property
extension, or alternatively to include the Free Issue Material/Existing
Property in the limit of indemnity.

Due to currency fluctuation, the cost of materials are often affected and
when a loss occurs, this leaves the insured unable to purchase the
lost/damaged or stolen items at the price that it was purchased or budgeted
at commencement of the contract. Example: The Rand/Dollar exchange rate
might increase the cost of switchgear, when a loss occurs, the switchgear
needs to be replaced and the cost is 20% more due to the weakening rand.

The costs associated with importing material to the local country or
exporting it from a foreign country to the local country for use in a
construction project.

The costs associated with the transportation of material for use in a
construction project. Generally invoiced by a transportation company or
broken down to actual cost to the construction company.

Value-Added Tax is commonly known as VAT. VAT is an indirect tax on the
consumption of goods and services in the economy. All limits of indemnity and
insured values are VAT inclusive unless otherwise specified.

An example of machinery incorporated into a project would be machinery
operating an escalator system. The machinery is not used for the
performance of the contract but is used for the implementation of the
contract. The machinery forms part of the final product once handed over
and will not be taken to the contractors next site for us in another contract.
The limit of indemnity has to include the full value of this machinery.

Provisional and General costs are defined as those expenses which are
incurred before work in producing the project commences, together with
those costs that are non-specific to a particular bill or activity list item.
Provisional and General cost therefore represents those costs which
cannot be reasonably allocated to any specific identified activity on a project.
These costs are usually added on the bill of quantity as a percentage of the
total contract value. Examples of these costs are for example: material
control, planning, site supervision and the like.

Since a project may vary from commencement to final completion by means
of standard material escalation and variation orders for practical and client
satisfactory requirements, it is accepted that the final projects value will not
always match the initial projected value at commencement. This is why our
policy wording includes a 20% escalation percentage to ensure that should a
claim occur; the client is not left under insured due to these escalation
factors. Any further escalation above 20% can be purchased under the
extension section.

A variation order is an alteration to the scope of works in a construction
contract in the form of an addition, substitution or omission from the original
scope of works.

The Scope of Work (SOW) is the area in an agreement where the work to be
performed is described. The SOW should contain any milestones, reports,
deliverables, and end products that are expected to be provided by the
performing party. The SOW should also contain a time line for all deliverables.

A detailed statement of work, prices, dimensions, and other details, for the
erection of a building by contract.

These are costs incurred by the insured whilst preparing documentary
evidence to quantify and justify his/her loss. Examples may by gathering
supplier invoices, paying professionals to supply information on the extend of
the damage (ex: quantity surveyor).

A cash settlement.

A trench is a type of excavation or depression in the ground that is generally
deeper than it is wide (as opposed to a wider gully, or ditch), and narrow
compared to its length (as opposed to a simple hole.

The laying of a new road involves using different materials in different layers
to construct the road. The type of materials and combination of materials
depend on what type of road is being constructed and where the road is being
constructed.
Regardless of the detail, roads are laid is layers.Until the top layer has not been finalised and the road has not been sealed,
the layer works are considered to be exposed. The reason for this is due to it
being susceptible to weather conditions and impact damage, an obvious
concern for an insurer. This is why you will note that the extent of which the
road layers may be exposed is limited in the policy wording, but can be
extended depending on the project.

A party who is not a named party on an insurance policy, nor contractually
related to the named party on an insurance policy. It can be a natural person
or registered body, juristic or non-juristic.

Tools of trade is the type and amount of instruments, tools, equipment,
devices and machinery as would be usually used to perform a person’s
profession, trade or occupation without the use of additional labour.

Is the removal, Vibration or Weakening of an item, object or collection of
objects, ground, rock, pillar or related items which as a consequence no longer
provides support to other items in the vicinity.

A notification from a third party of damage sustained by the third party for
which the third party is holding the first party (in this case the insured)
responsible.
This may be presented in the form of a summons, letter of demand or verbal
notification.

An agreed amount written into the construction contract which is
imposed/fined on a named party in the contract who does not meet the
requirements or perform within specification of the contract.
These fines or penalties are imposed by the degree of underperformance, or
imposed for every specified period of time which the minimum requirements
are not met within.

A coal mine and the buildings and equipment associated with it.

A berth in which an anchored ship cannot swing without fouling another ship
or in which it becomes grounded at low tide.

Process of loading and unloading ships.

A Wayleave is a means of providing rights for a company to install and retain
their cabling or piping across private land in return for annual payments to
the landowner. A Wayleave is normally a temporary arrangement and does
not automatically transfer to a new owner or occupier. The wayleave further
indicates the presence and location of this cabling/piping/services which in
turn can be utilised to avoid areas where the services are located.

A consequential loss is a loss that happens in consequence to an event.
Consequences of a loss can be far reaching, for example loss of income due to
power failure, deducted from the direct loss of cutting a power cable. The
power cable would be the direct loss and the consequential loss would be the
loss of income.