Insurances and bonds are an integral part of the construction business. This is because construction in Kenya can be a very risky affair and thus result in numerous losses.
Some of the most common risks involved in construction are;
- Safety risks such as accidents or even death.
- Financial risks such as bankruptcy, or cost overruns.
- Legal risks such as being sued by the banks, neighbors, etc.
Some of these insurance covers and Bonds are;
- WIBA (Work Injury Beneficiary Act)
- Contractor’s All Risk (CAR)
- Bid Bonds.
- Performance Bond.
This mandatory insurance came about after an Act of parliament in 2007.
The insurance covers any injuries sustained, or diseases contracted or death occurrence in the cause of duty in Kenya.
Some of the benefits of WIBA include;
- Death benefits of up to 8 years of salary.
- Permanent disabilities are compensated with up to 8 years of salary.
- Temporary total disabilities are compensated with up to 104 weeks of payment
- Medical expenses with a minimum amount being KES 30,000.
- Occupational illness with a minimum being KES 4,000,000.
- Funeral expenses benefit with a minimum amount being KES 30,000.
- Total annual gross salaries of the employees
- Nature of their jobs
- The industry in which you operate which in this case is the construction industry.
Upon arrival on site, and after some scolding by the Muhindi for my lateness, he informed me that a steel fixer was installing roof slabs near some electrical lines had been electrocuted to death!
In short, a death occurred on site, and apparently, the worker was not wearing the appropriate safety gear while steel fixing the roof.
After some back and forth with the client, and of course the police, and relatives, we agreed that the death would be compensated by our insurance company for we had the WIBA insurance.
The insurance company paid for his funeral and compensated the family a handsome amount. For us the company, we were relieved that we had taken that policy cover.
Contractor’s All Risk (CAR)
CAR basically covers the following during execution of the construction works;
- damage to property on site,
- Contract works or
- Third party’s injury or damage to third party properties on site.
Scenario 1 Example
A heavy storm caused destruction to some of the retaining walls on site leading to collapse and cracking. This means it was not a poor design but caused by the heavy storms. In this scenario, we successfully claimed for KES 8,000,000 which was the value of the walls.
Scenario 2 Example
We had just purchased steel bars worth KES 10,000,000. Thieves working in cohort with the sire watchmen organized for an overnight raid which they successfully carried out. We claimed for the loss which the insurance company successfully compensated.
The above scenarios give a highlight of how important the contractor’s All Risk Insurance can be handy in some very dire situations.
While applying for the cover you will need to provide the following details:
- Description of construction works.
- Location of construction.
- Total Value of Machinery and equipment on site.
- Value of Materials on site at any one.
- Value of the contract (contract works).
- Value of the surrounding properties.
- Third party liability cover limit.
Performance Bond
It is like a backup, or let us say guarantee that if the contractor fails to deliver, the employer can claim from the guarantor the financial loss.
It can be issued by a bank or an insurance company.
Performance bonds protect the contracting party in the event that their contractor may become insolvent or otherwise unable to meet the terms of a contract.
I personally have not been involved in a case whereby there was need to use the performance bond as our company has always met its contractual obligations.
Bid Bond
The biggest difference between a bid bond and performance bond is that the bid bond is submitted when a contractor is bidding a tendered project.
It is a surety that the contractor will abide by the terms and conditions of the tendering process.
In case the contractor defaults to undertake the project, the company that issued the bid bond pays the owner the difference between the lowest bidder and the second lowest bidder.
It is important to note that the contractor may be sued by the financial institution for the amounts paid to the project owner.