Posted on Thursday, May 19th, 2011 by Patrick Walsh
Although the economy has struggled over the recent years, the construction industry did not seen the drop in revenues and profits until last year. This is due to the cyclical process in which the construction industry struggles one to two years after the national economy. As the recent small depression begins to hit contractors across the country, both general contractors and subcontractors are looking for ways to increase revenues and/or cut costs.
One way for owners, general contractors (GC) and subcontractors to cut costs is to be involved with an Owner-Controlled Insurance Program (OCIP) or a Contractor-Controlled Insurance Program (CCIP). According to the USDOT website, “the basic operation features of an OCIP or CCIP are: (1) the owner/contractor purchases insurance coverage (all or some specific elements) to cover all contractors and subcontractors on a project; (2) there is an integrated owner-contractor managed safety program on the project; and (3) claims are process centrally.”
The reason to purchase these insurance policies, also known as Wrap Up Policies, is that the insurance will cost less when purchased in bulk versus each contractor on the project purchasing and using their own insurance. Whether it is the owner or the GC that purchases the insurance policy, once the policy is purchased, they will have the other contractors who would be covered on the insurance policy break out their potential insurance costs on their bid. Once an exact insurance cost for the policy is determined, the owner or GC will lower the contract price by that amount and the contractor will need to accept or decline the new lower contract amount.
These policies work out for the owners, GCs, subcontractors, and the project as a whole. The owners and GCs will save money based on lowering the contractor amounts that they would have to pay to their subs and the subcontractors will then save on potential insurance costs. The subcontractors could potentially have an employee get hurt on the job and have to pay significant amounts of insurance costs but due to being covered on the OCIP or CCIP, these costs will be covered and paid for. The project as a whole will benefit because there will be a centralized safety program; also, involved parties don't have to worry about who will pay insurance costs if there is an accident amongst contractors because the owner or GC would pay no matter what if there is OCIP or CCIP on the project.
OCIPs and CCIPs are just one small piece to the puzzle for contractors to raise their bottom line as much as possible. There are many opportunities to cut costs but these programs are one idea that numerous contractors can work together on and save both on contract values and potential insurance costs.
Have questions about Owner Controlled or Contractor Controlled Insurance Programs? Post a comment below or contact our Real Estate and Construction Group at 440-449-6800.