This is how you avoid the insurance pitfalls of alliance projects - expert tips

In the alliance model, the schedule, costs and quality are agreed together, and decisions are made collectively. The goal is to increase the profitability, efficiency and quality of the project. Although the alliance model is an innovative and efficient way of implementing projects, it is not risk-free from the point of view of insurance.

In this article, we discuss the biggest challenges and risks of insuring the alliance model and give tips on how to insure the alliance parties. If you have considered implementing the project with an alliance model or are planning to participate as a business partner - keep reading!

Mutual damages a common challenge of alliance projects

Mutual damage refers to situations where a party to the alliance causes damage to another party to the alliance. Such damage can be, for example, a design error that leads to a construction error, or a construction error that causes delay or additional costs.

In the alliance agreement, it is usually agreed that damages will not be sought for common mutual damages, but that they will be answered together. This means that the parties to the alliance do not have statutory liability for damages towards each other, which means that traditional consultant liability insurance is unlikely to work in a damage situation.

The alliance parties have to think about whether it is necessary to look for insurance solutions that would nevertheless protect themselves and the other alliance parties from mutual damages arising during the alliance, or whether the alliance will proceed without insurance related to mutual damages.

One option is to consider separately tailored insurance that compensates for mutual damages. However, such a solution may be expensive or difficult to obtain. In principle, insuring mutual damages also goes a little against the basic idea of the alliance.

Delay Interruption Insurance - Alliance's lifeline

Another challenging type of insurance in alliance projects is delay interruption insurance, which compensates financial losses when the project is delayed due to property or transport damage. What makes delay interruption insurance challenging is that it often primarily concerns the client and the need for insurance comes up too late.

Delays are not only expensive but also time-consuming. On the client's side, in addition to additional costs, they cause a headache in cooperation with stakeholders, because in practice a delay may mean, for example, placing the operations of an entire school or health care unit in replacement facilities. In addition to the space cost alone, this brings indirect costs, such as costs related to transportation, communication and general organization.

The essence of the delay interruption insurance is that this type of insurance is tied to property insurance and possible transport insurance. If the insurances purchased on behalf of the alliance were, for example, made in the name of the construction company, then a) it is not necessarily considered necessary to acquire the insurance and/or b) the delay interruption damages caused to the client are negotiated between the contracting parties of the insurance, i.e. the construction company and the insurance company...(!)

Conflict situations are particularly challenging

Conflict situations also cause significant risks for the client. If a dispute arises between the parties of the alliance project that cannot be resolved, the alliance is usually terminated.

This means that the insurance policies taken out by everyone other than the client themselves are no longer up-to-date or even valid at all. Not only is it fundamentally challenging to get new insurance for an unfinished project, we also come across the restrictions set by the Procurement Act. Analyzing, tendering and purchasing insurance policies in accordance with the Public Procurement Act usually requires exactly what these projects don't have too much of - namely time.

It is usually worth thinking of the planning and procurement of insurance coverage as the task of the client, and insist that it will also be done.

Management is yet another thing

The entity acting as policyholder is responsible for all tasks related to the maintenance of insurance policies, even when everything is going well. In projects, situations, schedules, implementation methods, plans as well as company ID numbers and addresses can change and the parties can separate, which means continuous maintenance of insurance coverage.

The development and implementation phases of the project also often contain very different types of damage, which should be taken into account in insurance. The maintenance workload may come as a real surprise, because in the alliance model it often requires constant monitoring and reporting.

Fortunately, there are experts like insurance brokers for this seemingly endless insurance adjustment, to whom you can outsource the administration work if you wish. 😉

Insure the alliance together - and especially in time

Insuring an alliance project requires careful planning and cooperation. Since they work together, the alliance parties have to weigh the advantages and disadvantages of different options, and search for the best possible solution in cooperation.

Under no circumstances should you leave the purchase of insurance to the last minute - on the contrary, you should think about insurance right away in the beginning of the project planning phase - often even in connection with the selection of the project implementation method.

It is good to remember that the biggest risk in alliance projects is always borne by the client. Therefore, the client must be active and responsible in insurance matters. If the alliance involves other contracts or there are several alliances, the insurance challenges multiply almost exponentially.

We are happy to help with securing alliances and all other projects. You can contact us using the form below if you need an insurance expert to support your project.