Single Point Project (Financial Loss) Insurance (SPPI)

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The government is to trial a radical new form of project-wide insurance on about 10 public sector schemes. The move is part of the government’s drive to improve public sector procurement efficiency following the Gershon review. It will be watched with interest by the Olympic Delivery Authority which is planning to introduce project-wide insurance on all Olympic 2012 sites. The major government spending departments will put forward one or more schemes, worth between £10m and £20m, for the trial, which is expected to begin by the end of the year. It will include schemes from the Building Schools for the Future initiative, the Department of Health’s ProCure 21 scheme, as well as projects from the Highways Agency, Defence Estates and Cambridge University Estates.

The insurance scheme, known as Single Point Project (Financial Loss) Insurance (SPPI) is being championed by the Office of Government Commerce with the support of the Public Sector Construction Clients’ Forum, chaired by Sir Christopher Kelly. It is based on a scheme operating in Belgium , where integrated teams are monitored by an independent “technical assurance” bureau trusted by insurers, and which has resulted in the cost of premiums plummeting by 30%. The initiative has been developed for the British market by a team from the construction and insurance industries, led by Martin Davis, chair of the Strategic Forum’s integration steering group.

Davis told CJ that SPPI was an attempt to help the industry become less adversarial and more collaborative. “Traditionally all contracts and insurances are focused on each individual supplier rather than the team. There is a preoccupation with liabilities and the blame culture inhibits true collaboration,” he said.

Under SPPI the client and the insurer appoint independent experts for technical and cost assurance at the beginning of the project, who help appoint an integrated team and then monitor the project’s progress from design development to completion. They also monitor risks affecting safety, performance and cost, allowing prompt remedial action and cost-effective latent defects insurance.

The integrated team’s collective profits are geared to performance criteria, their share of the profits is agreed upfront and the team members pledge not to sue each other for anything but fraud. “In Belgium , this form of insurance has seen premiums fall by 30% because the risks are significantly reduced, since the project is closely monitored and suppliers are working as a team with their profits tied to everyone succeeding. “At the same time it cuts out the huge legal and forensic costs that come with having a multitude of policies,” Davis said.

Five leading insurers have agreed to provide cover for the pilot projects, subject to suitable capping for maximum liability. These are expected to include Norwich Union, Royal and SunAlliance and Zurich  Cost assurance will be provided by Davis Langdon and the technical assurer will be SECO, the independent advisor used on the Belgium project insurance scheme. The pilot schemes are expected to be identified by the end of the year.

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