WRAP-UP FEASIBILITY BEYOND THE NUMBERS

Workshop W10 Wednesday, November 14 1:30 3:30 p.m. WRAP-UP FEASIBILITY BEYOND THE NUMBERS Presented by Kathleen Creedon President Wrap Strategies Catherine Wells Manager, Risk Consulting Solutions Ron Rakich & Associates, Inc., a Bickmore Risk Services Company Controlled insurance programs (CIPs) have become a very popular way of financing risks on large construction projects. While CIPs can offer a number of benefits, including consistency of coverage and potential cost savings, they are not the best option for every project. A comprehensive and balanced feasibility study, which goes beyond the savings model, can provide essential information about the requirements, potential pitfalls, and staffing and planning required for a successful CIP. This session provides a technical review of critical elements to consider before entering into a CIP from a variety of perspectives: owner, contractor, subcontractor, construction or project manager, and design professional. Learn how to develop a comprehensive risk profile, identify project-specific risks, prepare a cost/ benefit analysis, and uncover the regulatory and market conditions to determine whether a CIP is suitable for a specific project. Workshop W10 Copyright 2012 International Risk Management Institute, Inc. 1 www.irmi.com

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Kathi Creedon Owner Wrap Strategies Ms. Creedon is one of the presenters for Workshop W10, Wrap-Up Feasibility Beyond the Numbers, on Wednesday afternoon. Ms. Creedon has worked in the insurance industry for 35 years and has been involved in construction-related risk management and insurance for the past 25 years. She started the independent consulting firm Wrap Strategies in 2001 to provide consulting, training, program management and oversight, and hiring and audit services to project owners, brokers, contractors, and other consultants relating to wrap-ups and their administration with an emphasis on continual process improvement. Prior to Wrap Strategies, Ms. Creedon spent 4 years with Aon Risk Services and worked exclusively on wrap-up programs. Prior to Aon, Ms. Creedon managed a California branch office for a regional insurance broker based in New York. For those 6 years she was also the account executive for a large national residential and tunneling contractor headquartered in California. Catherine Wells, MBA, CPCU, ARM, CRIS Manager, Risk Consulting Solutions Ron Rakich & Associates, Inc., a Bickmore Risk Services Company Ms. Wells is one of the presenters for Workshop W10, Wrap-Up Feasibility Beyond the Numbers, on Wednesday afternoon. Ms. Wells is a former public entity risk manager for the California Department of Transportation (Caltrans). She developed and managed the Caltrans Statewide Rolling OCIP. She also developed and managed several single project OCIPs including the Devil s Slide Tunnel (mile-long tunnel project), several OCIPs for the San Francisco-Oakland Bay Bridge $6 billion construction program, and the San Francisco Doyle Drive $1 billion replacement project, which includes a P3. Ms. Wells has a diverse background in insurance and risk management that includes start-up and management roles in nine large public entity OCIPs. Her experience includes insurance underwriting, insurance brokerage, and account management for a variety of construction contractors. She has extensive experience in environmental risk management, surety and professional liability/e&o underwriting, and coverage arrangement. She has been a senior instructor for the University of Phoenix MBA program and has won numerous awards and recognition for her work as an instructor with the University and as an instructor for the Society of CPCU. Ms. Wells is currently Manager, Risk Consulting Solutions, Ron Rakich & Associates, Inc., a Bickmore Risk Services Company, an independent risk management consulting firm located in California. Workshop W10 She recently earned the Associate in Risk Management (ARM) designation. 3

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W10. Wrap-Up Feasibility Beyond the Numbers Presented by: Kathleen Creedon, CIC, CRM President Wrap Strategies & Catherine Wells, CPCU, ARM, CRIS, MBA Manager Bickmore Risk Services Wrap-Up Feasibility Beyond the Numbers Workshop W10 Controlled Insurance Programs (CIPs) have become a very popular way of financing risks on large construction projects. While CIPs can offer a number of benefits, including consistency of coverage and potential cost savings, they are not the best option for every project. A comprehensive and balanced feasibility study, which goes beyond the savings model, can provide essential information about the requirements, potential pitfalls, staffing, and planning required for a successful CIP. This session provides a technical review of critical considerations before entering into a CIP from a variety of perspectives: owner, contractor, subcontractor, construction or project manager, and design professional. Learn how to develop a comprehensive risk profile, identify project-specific risks, prepare a cost/benefit analysis, and uncover the regulatory and market conditions to determine whether a CIP is suitable for a specific project. 2 5

Project I Project Bridge Tie-In/Roadway Description: Objectives: On-time delivery Streamlined administration Risk Finance CCIP Structure: Issue(s): Owner-mandated CCIP GC new to CCIP approach GC lacked resources & experience Result: 3 Project II Project New Shopping Mall Project Description: Objectives: On-time delivery Savings Risk Finance OCIP Structure: Issue(s): Fast track project Production over safety Scarce labor supply No drug screening utilized Result: 4 6

Project III Project Description: Portfolio of New Construction & Renovation Projects Objectives: 30% small business participation Risk Finance Traditional Structure: Issue(s): Owner would not lower insurance requirements Owner refused to consider OCIP Conflicting politics Result: 5 Agenda I. Risk Financing Options II. Non-Financial Objectives III. Feasibility Study: IV. Interactive Case Studies V. Best Practice Recap Workshop W10 6 7

Risk Financing Options Traditional Owner Controlled Insurance Program (OCIP) Contractor Controlled Insurance Program (CCIP) General Liability Only 7 Non-Financial Objectives Project on time/on budget Coverage certainty Enhanced coverage Streamlined administration Adequate limits Safe project 8 8

Non-Financial Objectives Ability to utilize small business contractors Minimal litigation Positive project team relations Positive public relations 9 Feasibility Study: Ideal time to evaluate risk financing options Workshop W10 Project stakeholder motivations Project goals and objectives Political environment 10 9

Feasibility Study: Project Project scope, type, and size Sources, timing, and stability of funding Project location(s) Construction schedule Project delivery method 11 Feasibility Study: Project Means and methods Multiple general contractors P3 % self-performed Payroll component 12 10

Feasibility Study: CIP Sponsor Profile Risk tolerance Knowledge Experience Involvement 13 Feasibility Study: CIP Sponsor Profile (Continued) Commitment o Resources o Risk control/safety o Long term Workshop W10 14 11

By Participant Feasibility Study: Objectives Staffing & resources CIP experience Protection Coordination with existing program Owner CM/PM GC Sub PSP 15 Feasibility Study: Developing a Risk Assessment Workers Compensation General Liability Builders Risk Professional Liability Environmental Liability Other Project-Specific Risks 16 12

Feasibility Study: Options for Risk Financing Owner CM/PM GC Sub PSP WC GL Builders Risk Professional Environmental Other Risks 17 Feasibility Study: Insurance Market Insurer stability Insurer appetite Hard versus soft market Identifying potential markets Workshop W10 18 13

Feasibility Study: Insurance Coverage and Terms Forms and endorsements Limits Guaranteed cost versus loss sensitive Rate guarantees 19 Feasibility Study: Insurance Coverage and Terms (Cont.) Term Cancellation or withdrawal Warranty period Completed operations Loss development factors and closeout parameters 20 14

Feasibility Study: Regulatory Considerations Enabling legislation Statutory requirements Implementation Considerations Timing Broker selection process and timing Document preparation 21 Feasibility Study: Construction Market Potential contractor pool Local construction market conditions Workshop W10 Small Business Participation Existing versus new participation goals Facilitating participation 22 15

Feasibility Study: Who Should Prepare? In-house risk management staff Broker Consultant Project manager Construction manager 23 Feasibility Study: Their Attributes? Knowledge of construction risk management and insurance Knowledge of and experience with wrap-ups Acceptable level of bias Minimal conflict of interest 24 16

Project A Project University Description Objectives Safety Save money Coverage Project Facts 3-year project CV $400 million Multiple general contractors 25 Project Description Project B Highway and Bridge Connector to Larger Project Objectives Enhance project delivery Safety Project Facts CV $175 million Master project behind schedule Master project over budget GC 80% self-performed work Workshop W10 26 17

Project C Project Apartment Building Description Objectives Save money Coverage Project Facts CV $30 million Urban environment Out-of-state general contractor Broker unfamiliar with wrap-ups 27 Project D Project Hospital Demolition/Rebuild Description Objectives Adequate coverage for all participants Savings Project Facts CV $400 million Strong owner commitment, resources, and involvement Prior unsuccessful OCIP Adequate lead time Two general contractors each with active CCIPs 28 18

Project E Project High-Rise Office Building Description Objectives Savings Coverage Project Facts CV $150 million One general contractor with CCIP 29 Project F Project Bridge Replacement Description Objectives Small business participation Savings Coverage Project Facts CV $200 million Project manager anti-ocip Lack of owner resources and commitment Governing body convinced OCIPs promote small business utilization Contractor superior CCIP program 30 Workshop W10 19

Project G Project Tunnel Description Objectives Enhance project delivery Savings Project Facts CV $300 million GC 80% self-perform work Heavy equipment component GC superior risk financing program Owner lacks CIP experience 31 Best Practices Recap Clearly define objectives Ensure objectives align with decision Integrate risk planning process early Obtain reliable data Utilize team approach to avoid bias Adapt to fluid conditions Look at multiple scenarios Look beyond the numbers! 32 20