The Quarterly Wrap-Up

On October 1st, CR Solutions participated in Atlanta Field Day; a day of competitive fun between teams who raised money for CHRIS Kids.  Altogether the teams were able to raise over $70,000 for a great cause.  Founded in Georgia in 1981, CHRIS Kids is a non-profit organization with a mission to build community, support and strengthen families, and heal children.  The field day was a way to reward the teams who raised the money with a day of fun involving events such as egg toss, potato sack race, sponge relay, and an obstacle course.  CRS took home 3rd place ribbons in two events.

A recently passed law in California, SB 474, will cause a significant change in contracts between parties involved in commercial construction projects.  Currently, if the general contractor is not found 100% at fault for a claim, the subcontractor is required to cover all costs associated with the claim.  The new law shifts most of the risk from the subcontractors back to the general contractors.  Beginning in 2013, a subcontractor found at 5% fault for a claim would be responsible for paying 5% of the loss, as opposed to 100%.

The new law creates problems for those in the industry by slowing the claims process and increasing litigation since a percentage of fault must be assigned to each party involved.  Increases in the use of wrap-ups for projects in California have been predicted.  Utilizing wrap-ups would alleviate the issues that arise from SB 474 because all contractors are covered under the same policy by the same insurer.

T.R.I.A  is The Terrorism Risk Insurance Act.  It is a federal law that was signed in 2002, shortly after the 9/11 attacks. The Act requires the U.S. government to provide reinsurance coverage to insurance companies following a declared terrorism event.  T.R.I.A charges are usually found in each contractor’s worker’s comp rating pages which are applied to their individual insurance calculation.

What is the total percentage of payroll to work costs in a wrap-up project? 

- Lionel, Cleveland, OH 

Typically, total payroll to construction value percentage averages between 18 to 20%.  However, this number can vary dependent upon the nature of the project such as project with a higher cost in materials would have a lower total payroll to construction value percentage. At CR Solutions, we estimate these percentages using a proforma which is a project financial estimate broken down by work trades based on our historical data. 

If my excess policy is flat rated why do I have to give an insurance credit for it since I won’t be reimbursed by my own carrier?

- Sam, Brooklyn, NY 

Although your excess or umbrella policy is flat rated and you do not receive reimbursement from your own carrier, you are working on a project covered by a wrap-up insurance program providing excess protection. Because these coverages are being provided on this project, you must exclude your costs for these coverages from your contract price. In other words, you cannot charge for insurance coverages that are being provided for you by the CIP. 

Should contractors’ tools and equipment be included in the wrap-up? 

- Charlie,  Irvine, CA

Although it is possible to include this coverage for the items listed above, tools & equipment are generally not covered by a wrap up.  Contractors will tend to carry their own equipment floater policy which will be primary for their work on site. 

Steven Petonic, Account Manager

A crash course on wrap-up insurance credits for contractors.

Do you need help calculating work comp, general liability and excess costs?

Calculating Work Comp Costs

Calculating General Liability and Excess Costs

The recent recession has hurt our nation and the rest of the world, and the construction industry has been one of the worst hit. According to the US Bureau of Labor Statistics, unemployment in the construction industry has reached a high of 27.1% (February 2010); however, recent data suggests some improvement. Unemployment in construction is declining – it was down to 15.6% in June, the lowest rate since December of 2008. This is still very high, but a nice improvement compared to the previous two years. Below is a graph and spreadsheet exploring construction unemployment since 2001:  

Unemployment in the Construction Industry

Source: US Bureau of Labor Statistics

Source: US Bureau of Labor Statistics

New Construction Versus Alterations

Along with construction unemployment data, we took a look at the current construction starts for nonresidential construction. We were able to obtain information from Reed Construction Data, LLC on this subject. A key trend that Reed Construction Data, LLC has followed during the recent recession is the proportion of new non-residential construction versus alteration (renovation) spending. This proportion shows what construction spending is going towards; is money being spent on new construction or going to alter existing structures? As you might imagine, in a time of uncertainty, people are more conservative. It usually costs less to renovate rather than to build a completely new structure.  Therefore, fewer new projects have started and more existing structures are being renovated. New construction is currently 54.9% of total construction; this is down from 69.5% in 2007. Historically, new construction is 60% of construction activity.    

Source: Reed Construction Data, LLC

Construction in 2011 versus 2010

Where does nonresidential construction spending stand next to 2010 levels? In 2011, we should see a ~7% increase in non-residential construction dollars spent and a ~6% increase square footage created.  The graph below looks at the percentage changes from 2010 in construction activity by region. As indicated in the graph below, New England, the Mid Atlantic, and the Mountain (Rockies) regions are seeing a major increase in activity.    

Source: Reed Construction Data, LLC

How does 2011 construction activity (segmented by type of construction) compare to 2010 data? The graph below looks at the % change in construction starts in 2011 from 2010 levels based on the type of construction. The construction in manufacturing and parking garages saw a huge jump in activity. Also, military and amusement construction saw sizeable declines:    

Source: Reed Construction Data, LLC

A Look into the Future

There are some positive signs for a recovery in the construction industry. Unemployment in the industry is at a 2 year low and non residential construction activity is up from last year. However, the continuing increase in alterations versus new construction is troublesome. New construction is currently at 54.9% of total construction; we would like to see this closer to 60%. The future of the construction industry is still very uncertain; however, we are seeing some good indicators. Expect the recovery to be slow and steady.

If we use a contractor that is delivering products on site for a short duration and that has not been enrolled into the CCIP, what happens when they cause damage? Would they be covered?

Jayson,  New York, NY

Typically, any contractor that is a material dealer or vendor that delivers products on site is excluded from enrollment on wrap-ups. This is because this contractor will be on site for a short time and is not performing any actual labor on the construction site.   Any damage that is incurred will not be covered by the wrap- up; it is very important to keep track of this contractor’s certificate of insurance and make sure all certificate requirements are met as their own insurance will be primary when an accident occurs.

If my employee gets injured on an OCIP project, will it be recorded against my company, or does it go against the OCIP?

 Paul,  Houston, Texas

If this OCIP has work comp coverage, the claim will be recorded under the OCIP, and the OCIP will respond to that claim. However, that claim will also be reported to the appropriate state filling board, and that claim will count against your EMR.

I hope these explanations help.

Steven Petonic, Account Manager