st u-link ocip ppt final-03-r02

Prepared for

Sound Transit

Presented by

David Grenier, Risk Manager

Owner Controlled Insurance Program (OCIP)

Feasibility Study - Recommendations

University Link Light Rail Construction Project

Determine Optimal Insurance & Risk Management Program for

University Link

Review U-Link OCIP Feasibility Study

OCIP vs. Traditional Insurance Program

OCIP Suitability Criteria

OCIP Lessons Learned on Central Link OCIP

Recommend OCIP for U-Link Construction Project

Review & Discuss OCIP Critical Success Factors

Approve OCIP for U-Link Construction Project

Discuss Next Steps – OCIP Implementation Plan

University Link Light Rail Construction Project Presentation Objective

Project Statistics

3.15 mile extension to Initial Segment Capitol Hill Station

UW Station, and Crossover

Environmental Process: Complete

Final Design: 2 Years,

(began December 2006)

Construction: 6 Years, 2009-2015

Systems Testing: 6 Months

Project Completion 2016

Project Budget $1.614 billion

University Link Light Rail Construction Project Program Overview

Multiple Contract Packages

Multiple Prime Contractors

Multiple Insurance Coverage Gaps

Project Timelines and Logistics

Project Management Challenges

Political Risks of High-Visibility Project

Sustainability of ST/UW Relationship

U-Link Construction – Risk Factors

University Link Light Rail Construction Project Project Evaluation

Option 1: Traditional Insurance Program

• Each prime contractor provides own insurance at levels specified by ST

• Advantages

Ease of set-up/contract packaging

Direct risk-transfer method

Less burdensome from administrative standpoint

No claims process to coordinate

• Disadvantages

Major Gaps in Insurance Coverage

Limited coverage for catastrophic loss

Loss of uniformity of coverage

No economies of scale in insurance purchasing – increased cost

Extensive contract monitoring and oversight necessary to ensure contractor compliance.

New contract enforcement measures.

Loss of claims coordination;

No supervision of claim process – no means to ensure stakeholder satisfaction.

Contractors have no political risks

Extensive subrogation/litigation between different primes and their insurers

No guarantee contractors can procure specified coverages

Reduced # of bidders

Decreased MBE/DBE participation

University Link Light Rail Construction Project Program Recommendation

Option 2: CCIP: (Contractor Controlled Insurance Program)

• Each prime contractor would provide umbrella coverage to all contractors

• Advantages

Simple initial set-up

No claims process to coordinate

Limited economies of scale

• Disadvantages

With multiple U-Link prime packages, no single CCIP is possible

Multiple CCIPs would be operating simultaneously, removing distinctions between

Traditional Insurance Program and CCIP

Major Gaps in Insurance Coverage

Extensive contract monitoring and oversight necessary to ensure contractor compliance.

New contract enforcement measures.

No supervision of claim process – no means to ensure stakeholder satisfaction.

Contractors have no political risks

Extensive subrogation/litigation between different primes and their insurers

No guarantee contractors can procure specified coverage

Reduced # of bidders

Decreased MBE/DBE participation


Option 3: OCIP: (Owner Controlled Insurance Program)

• ST provides “wrap-up” insurance program for all contractors

• Advantages

Compliance w/ UW Contract Requirements (ST/UW MOA and MIA)

Improves Management of Multiple Primes/Contracts/Subcontracts

Provides Broader Coverage – Higher Limits

Removes Gaps in Insurance Coverages, e.g., Builders Risk

Economies of scale in insurance purchasing – cost savings

Provides Safer Work Site, Safety/Loss Control

Additional safety program enforcement mechanism

Improved Productivity – Reduced Downtime

ST coordinates claim process and can control political risk

Right of subrogation between contractors is waived – chance of litigation mitigated

Increased Opportunities for MBE/DBE participation – coverage once unavailable is provided

Disadvantages

Sound Transit’s prior experience with a severely flawed OCIP – Business as Usual

The need for a fundamental change in thinking as regards insurance throughout ST

Administrative costs and need for accelerated schedule


Why a Wrap-Up (OCIP) for U-Link?

Owners of transportation projects, such as transit agencies and state departments of transportation, experience a number of benefits when they use Wrap-Up Insurance Programs:

Savings from volume purchasing of insurance

Elimination of duplication in coverage

Efficiencies in claims handling

Reduction in potential litigation

Enhanced workplace safety

Source: U.S. General Accounting Office document GAO/RCED-99-155, Report to the Chairman

Subcommittee on Transportation, Committee on Appropriations, U.S. Senate

TRANSPORTATION INFRASTRUCTURE: Advantages and Disadvantages of Wrap-Up Insurance for Large Construction Projects. (June 1999)



CRITERION YES/NO

Legal Capability YES

Owner Commitment YES

Project Size and Duration YES

Type of Construction YES

Number of Contractors YES

Project Site YES

Funding Source YES

Timing of Decision YES

Small/Disadvantaged/Minority Contractor Participation YES

Risk Potential for Catastrophic Loss YES

Total Assessment YES

OCIP Suitability Criteria


# ISSUES CORRECTIVE ACTION

1 Contract Documents OCIP Manual

2 Contract Management Execution/Enforcement

3 Contract Administration Pre-Bid Orientation

4 Subcontract Compliance Sub OCIP Provisions

5 Bid Credit Process No More ‘Free Lunch”

6 Claim Deductible Charge Backs Put “Skin in the Game”

7 Deductible Claims Processing Contracts Department

8 Insurance Claims Adjustment Procedures Insurer & TPA SAIs

9 Contractor Request for Equitable Adjustment Claim Reporting

10 Insurance Claims Reimbursement Process Not a Funding Source

OCIP Lessons Learned on Central Link OCIP

¨ Pre-Bid Phase

Contract language with bid alternative

Communication during bid process

Insurance cost information form

¨ Pre-Bid Phase

Contract language with bid alternative

Communication during bid process

Insurance cost information form

¨ Pre-Award Phase

Evaluate bid alternatives

Meetings with contractors

Approval of credits

¨ Pre-Award Phase

Evaluate bid alternatives

Meetings with contractors

Approval of credits

¨ Construction Phase

Change order review process

Contractor payroll reports

periodic test audits

¨ Construction Phase

Change order review process

Contractor payroll reports

periodic test audits

¨ Contractor Close-Out Phase

Contract close-out procedures

Final review/deductible charge-back

Summary report by contract

¨ Contractor Close-Out Phase

Contract close-out procedures

Final review/deductible charge-back

Summary report by contract

OCIP & Project Management Integration – Process Steps



Central Link – OCIP Coverages

Rolling OCIP (ROCIP)

University Link – OCIP Coverages

Project-Specific OCIP

Commercial General Liability

$2MM Occ w/ $4MM Agg

Commercial General Liability


Excess Liability

$98MM x $2MM (Primary)

Excess Liability

$98MM x $2MM (Primary) Excess Tower

Builders Risk

$ Total Construction Project Value

Builders Risk

$ Total Construction Project Value

Professional Liability &

Contractors Pollution Liability

$50MM / Claim & Agg

Project-Specific Professional Liability???

Pollution Legal Liability

$50MM / Claim & Agg

Owners Protective Professional Indemnity

$25MM

Railroad Protective Liability


Environmental Liability

$50MM / Claim & Agg

University Link Light Rail Construction Project Financial Projections

Document Date Estimate

RMD Cost Projection > Non-OCIP

11/9/06

$23,743,800

RMD Cost Projection > OCIP 11/9/06 $18,295,000

Link Baseline Cost Estimate (w/o Cont) 7/9/07 $18,600,000

Link Baseline Cost Estimate (w/ Cont) 7/9/07 $19,700,000

Insurance (OCIP) Estimate vs. Budget

Note:

These figures are subject to a host of conditions including fluctuating market appetite, methods of marketing insurance

coverages, available coverages, underwriter impressions of project management and controls, and even current events.

University Link Light Rail Construction Project Project Schedule

Activity B&A S B&A F Start Finish

U210 Advanced Utilities 06/02/08 12/14/08 12/15/08 06/16/09

U211 Demolition & Remediation 06/16/08 11/24/08 11/25/08 05/11/09

U215 I-5 Undercrossing 09/30/08 03/02/09 03/03/09 04/29/10

U220 TBM Tunnel/UW Excavation 12/11/08 07/20/09 07/21/09 01/22/13

U230 TBM Tunnel/CH Excavation 07/05/09 02/17/10 02/18/10 11/29/12

U240 Capital Hill Station Civil & Fin 09/17/12 03/29/13 04/12/13 07/24/15

U250 UW Station Civil & Finishes 09/20/10 04/11/11 04/12/11 10/09/14

U260 Trackwork 07/26/10 02/01/11 02/02/11 03/25/14

U820 OMF & Yard Expansion 06/30/08 11/24/08 11/25/08 11/24/09

U830 Systems (Signals, Com, TE) 03/01/13 11/22/13 12/05/13 10/02/15

Testing & Start-Up 10/05/15 01/22/16 01/25/16 04/01/16

Schedule Contingency (Float) 04/01/16 09/24/16

Master Schedule

Until Project

CompletionWeek 1 Week 2 Week 3 Week 4 Week 1 Week 2 Week 3 Week 4 Week 1 Week 2 Week 3 Week 4

F Underwriting Information

F Construction Methods

F Contractual Criteria & Contract Language

F Safety Criteria

F Program Responsibility Criteria

Submit to ST for approval

INSURANCE MARKETING

9)

PROGRAM ADMINISTRATION

11)

F Safety Manual

F Insurance Manual

F Claims Manual

12)

13)

F Pre-Bid Meetings

F Contractor Enrollment

F Quantify Contractor Deductions

F Prepare Program Reports

University of Washington - Link Light Rail Project

OCIP Implementation Schedule

Note: Schedule anticipates inclusion of advanced utilities (U210) but not U211 - Demolition

Marketing Report

Construction Mgr. - ST Project Management Meetings

Begin Administration

7) Underwriting Conference

8) Review Underwriting Proposals/Revisions

10) ST Makes Decision on Markets and Coverages

Bind Coverages

5)

6)

3)

Market Coverages

Finalize Program Design

4) Prepare Underwriting Specs and Contract Language

2) Risk Assessment Includes:

PROGRAM UNDERWRITING

1) Notice to Proceed

Jun-08ACTIVITY Apr-08 May-08

University Link Light Rail Construction Project Key Success Factors

OCIP Sponsor Commitment is Critical to OCIP Success!

A Paradigm Shift in Sound Transit Thinking and the Agency’s Full

Organizational Commitment is Necessary for a Successful OCIP

Link Involvement

Underwriter’s Conference

Contract Enforcement

Risk Management

Safety & Loss Control

Contracts Involvement

Contract Bid Document Modifications

Contract Bid Credit Process

Contract Enforcement

Project Controls Involvement

Claim Deductible Charge Backs

Is a Wrap-Up the Right Fit for U-Link?

YES!

Broader Coverage – Higher Limits

More Control – Risk Management

Safer Work Site – Safety/Loss Control

Improved Productivity – Reduced Downtime

Better Claims Handling – Claim Management

Reduced Litigation – Conflict Resolution

Increased Opportunities – Small Contractors

Cost Savings > Economies of Scale

Controls > Insurer(s), Coverage(s), Claim(s)

University Link Light Rail Construction Project Conclusion

The A-B-C’s of Wrap-Ups

Successful Wrap-Up Programs Require:

Administration

Bid Documentation

Coverage

Claim Management

Communication

Coordination

Controls

And Most Importantly…

Commitment

University Link Light Rail Construction Project Closing Comments