insurance Risk and reward


Managing risk in the supply chain is something all businesses should be aware of and this is no different in social housing. Karl Jones of insurance specialists Kerry London looks at the best risk management strategies.


F


rom routine maintenance to emergency repairs, subcontractors are a common sight on projects as primary contractors look to outsource work to the supply chain. With requirements more


pressing than ever and the ‘claims culture’ increases across the commercial and public worlds, subcontractors should know the risks to their businesses. At the same time, any property owner – be it a housing association, local authority or a large-scale landlord – should have a risk assessor or risk management team on hand when considering contracts for property maintenance. Owners should also check their public and products liability cover to a tune of a minimum of £5m in respect of maintenance being undertaken on their sites.


Monitoring is key


Under the Health & Safety at Work Act 1974, housing providers have a duty of care to anyone working on their sites. So while the prime contractor is mainly responsible for the subcontractors, property owners also need to ensure that the work premises are fundamentally safe. Conducting adequate checks and performing due diligence can


contribute to keeping claims to a minimum. Taking time-stamped photographs of work spaces can provide vital evidence in the event of an accident and liability claims. The severity of the risk should also be considered – for example, roofing projects would require more regular checks than gardening contracts. Monitoring can take many forms – from appointing a project manager, to


regular spot checks or weekly meetings. Of course, there are costs involved here and, in an industry with relatively tight margins, you will need to weigh up the cost of monitoring against the amount of risk it is mitigating. It is also important to ensure your contractors are reputable – check their


turnover, wage roll, the types of work they undertake, their subcontractors and what systems they use to check them before issuing purchase orders.


Contractors – risks and mitigation


With risks apparent both up and down the supply chain, among the key players it is arguably contractors are arguably the most vulnerable to risk in the maintenance of social housing. To begin with, there is vulnerability higher up the chain as they depend on prompt payment of invoices. Credit insurance – traditionally an expensive option but becoming more affordable – may be an option in this respect. The main threat to contractors is the risk of the underinsurance of


subcontractors if the latter have a less comprehensive insurance cover than required by the terms of the contract. So what happens when an electrician is insured for £1m but whose faulty


wiring causes major fire damage needing £2m of repairs? The main contractor, even though not responsible for the damage, will have to pick up the tab through their insurance. While insurers would agree to pay out unless there is a serious breach of


the terms of contract, the contractor can expect premiums to rise. Another issue is the checks are often carried out by members of staff at a


contractor’s office who are unqualified to ensure correct policies are in place. These types of employees cannot reasonably be expected to know the finer details of an insurance policy – so their work must be done by someone with adequate knowledge and understanding of the consequences of subcontractors being underinsured. One final issue which needs to be addressed when it comes to key risks is hot work – use of blow torches, hot air guns, welding gear, bitumen boilers and grinders. This use of heat and flame is not covered under insurance policies for general building and if you ask subcontractors to undertake such work without specific policies to cover it then they, as well as you, risk having no cover at all.


Risks to subcontractors


All of the risks which apply to contractors – particularly regarding late payment of invoices – can also be applied to subcontractors. Small businesses are especially vulnerable to the many instances of prime contractors not paying invoices on time. It is the smallest businesses which are most likely to be on the hand-to-mouth knife edge of needing prompt payment. Therefore subcontractors need to ensure the contractor is reputable and


reliable. It is also advisable that businesses clearly set out their terms in writing prior to engagement, especially if the subcontract is substantial enough to put the trader at a serious risk.


“Supply chain failures can take many forms – from negligent or substandard work done by subcontractors to underinsurance by any parties involved”


Conclusion


Given the cost of property and the potential damage to buildings and people involved in maintenance work, there are great spectrums of risks and costs involved in claims from across the supply chain from property owners right down to sole traders. No matter who is addressing the risk, the general principles must be the same – be thorough, take advice if necessary and make sure all paperwork and policies are in order prior to work commencing.


Karl Jones is an insurance broker specialising in construction at Kerry London.


www.housingmmonline.co.uk | HMM July 2016 | 47


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