Monday, June 24, 2013

What Happens if a Contractor Can't Provide Evidence of Insurance?

Public works construction bid documents include a variety of provisions, some technically describing the work to be performed and some addressing administrative issues.  One of the administrative requirements relates to requiring the successful bidder to provide evidence of insurance as described in the bid documents.

When should insurance documentation be provided?  Evidence of insurance should be provided by the successful bidder after award, but prior to contract execution (signing of the contract by the agency after the contractor has signed it).  As soon as the contractor and public agency execute or sign the contract, the public agency picks up potential liability, and thus it is important to have the evidence of insurance prior to contract execution.

What is acceptable evidence of insurance?  Bid documents must be specific about the type and amounts of insurance required, as well as what constitutes acceptable evidence of insurance.  Bidders can then factor in the cost of providing the appropriate insurance into their bid price.  Acceptable evidence of insurance consists of a certificate of insurance listing the type and amounts of insurance required, and an additional insured endorsement.  The additional insured endorsement is critical in order to protect the public agency.  In the event of a claim, without an additional insured endorsement, the public agency would not have any protection under the contractor's insurance policy.

When a bidder can't provide insurance documentation:  What happens if the bidder that has been awarded the contract is unable to provide acceptable evidence of insurance for the types and in the amounts required in the bidding documents?  One of the conditions for contract execution should be submission of appropriate insurance documentation.  If the awarded contractor is unable to provide the insurance documentation, which should be described as a requirement for contract execution, the public agency could collect from the bidder's bid guaranty.  The bid guaranty ensures that the bidder, if awarded a contract, will enter into a contract with the agency and provide the insurance and bonds required.

A practice to avoid:  I'm aware that there are some public agencies that require all bidders to submit with their bid a form signed by the bidders' insurance broker stating that the broker has read the bid documents, and that if awarded a contract, the contractor would be able to comply with the insurance requirements.  This practice is not necessary, is not a good practice, and may unnecessarily result in non-responsive bids.  If a bidder fails to provide this form with the bid, the bid would be declared non-responsive, resulting in a higher bid price to award to the second low bidder.  By signing the bid form, the bidder should be agreeing to language stating that they have read and understood the bid documents and have incorporated into their bid price all necessary costs, including the cost of the required insurance premiums.  Failure to provide the insurance documentation would result in the public agency collecting from the bidder's bid guaranty.

Limit submissions with the bid:  It is a best practice to limit submissions required with the bid.  Refer to my earlier blog posting on this subject. 

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

No comments: