It takes a while to build a construction company — and it takes a while before financiers, insurance companies and bond issuers are willing to take risks to support them.
Eric Domingo
“At the very core, contractors must demonstrate a solid history of successfully completing projects relevant to the intended job, alongside maintaining robust financials and a favorable credit standing on both personal and company levels,” says Eric Domingo, senior bonding and credit analyst at HPM Building Supply.
“The contractor’s financial stability significantly impacts its bonding capacity. The project and budget are also evaluated to determine the contractor’s eligibility for bonding and the potential for material supply opportunities from HPM Building Supply,” Domingo says.
Yes, you read that right: HPM issues bonds for construction project bonds, often referred to as “material house bonds.”
According to Domingo, HPM’s bonded contractors undergo its rigorous qualification process, and demonstrate their capability and commitment to fulfilling contractual obligations and successfully delivering the intended project.
“As for contractors, being previously bonded by HPM Building Supply elevates their credibility and reputation within the local communities. What distinguishes HPM is our exceptional bonding team, with an unprecedented combined 100 years of direct bonding experience,” Domingo says.
TRADITIONAL OR WRAP COVERAGE?
Before they can join or bid on a project, Hawai‘i requires all licensed contractors with employees to have both general liability and workers compensation coverage.
Once a contractor is hired for a project, they are either required to sign up for more coverage or will be enrolled under an insurance umbrella program provided by an owner- or contractor-controlled insurance program (CCIP). Typically, this provides general liability coverage on a project-specific basis for the owner, general contractor and enrolled subcontractors.
Paul Kennedy
“If a general contractor has a strong safety program and solid controls on a project site for their subcontractors, providing this coverage as part of the CCIP can result in cost improvements on the project for the general contractor,” says Paul Kennedy, vice president/account executive at Risk Solution Partners, which provides coverage from broker and consulting firm Woodruff Sawyer.
“The genesis of such a program came from the difficulty of insuring large multi-unit residential projects such as high-rise condominiums and large developments where GCs and subs had difficulty getting their own general liability insurance for residential work due to the need for a 10-year completed operations coverage in the policy to provide coverage for construction defect exposures.”
To avoid financial responsibility in the case of a construction-defect case — something that can happen within 10 years after construction, with one- or two-year extensions — GCs can require all subcontractors involved to have adequate liability insurance coverage. When it comes to a construction-defect case, this traditional model of coverage — with each contractor or defendant insured by a different carrier — can result in contractors pitting against each other and multiple insurance companies during settlement negotiations.
Alternatively, the GC also has the option to insure all project employees, including subcontractors and their employees, with wrap coverage. In this case, all parties involved are adequately insured so when a construction-defect case arises, not every party involved in the project becomes a defendant.
Depending on developer or owner requirements, additional types of coverage can mitigate excess liability through general, auto and employers liability for workers compensation; cyber and pollution liability; and builders risk.
“Builders risk, which covers the property exposure on a project during the course of construction, is also a common project-specific policy,” says Kennedy. “This would cover the cost to rebuild a project that was under construction should it be damaged due to hazards such as fire, hurricane, wind, flood and earthquake losses.”
