Insurers of newly constructed Power Plants should exclude coverage on losses caused by improper construction methods which violate internationally recognized codes.
The MAJORITY of new, international power plant and other process types of projects being constructed using unskilled and largely unsupervised construction labor suffer from sloppy workmanship which does not comply with the codes, standards and best industry practices required in the construction contract(s).
Owners are inadvertently allowing their turnkey, Engineering, Procurement and Construction (i.e.”EPC”) contractor to bypass or ignore the “minimum” acceptable specifications required in the construction contract. If the contractor installs less than this minimum, the plant is almost guaranteed to fail and will not make the commercial returns that required to support the finance and business objectives.
When the insured’s power plant suffers damages as the result of systems or equipment not being installed correctly during construction phase, the insurer is expected to pay for the damage repairs, the delay in startup, extra expenses, expediting, loss of profit (BII) and other associated costs.
If the new power plant project is designed and constructed according to the EPC contract specifications, the uncertainty of reliable operations is removed. If however, the new power plant is thrown together by unskilled and unsupervised labor, the plant operations is affected, trips, forced outages, increased maintenance expenses occur, the intended profits are lost and insurers inherit the risks.
Furthermore, there is a HUGE GAP between construction EAR/BAR coverage and operational coverage as a result of the fact that many of the construction coverage underwriters do not write the post construction operational coverage. In many cases, the operational coverage underwriters do not know the extent of the turnkey contractor’s non-conforming defects prior to moving from the construction BAR/EAR coverage to an unsuspecting Operational insurer.
Perhaps before inking the cover, it is best practice to request for a third party professional Power Plant Consultant’s (“PPC”) report with a project “fitness” assessment to identify and report defects left by the construction contractors – better to good grasp if the contractor had bypassed the appropriate codes or standards.