Schools, and in particular academies, are prolific builders in the UK – whether adding extra capacity or refurbishing existing structures. Given their special status, there are many issues which academies must consider when entering into construction contracts – insurance being an important one, but one that many currently get wrong.
Where there is a requirement for refurbishment works to be undertaken to existing structures, and those works are carried out under one of the more frequently used JCT building contracts (intermediate, standard, design and build), academy trusts must consider whether they have sufficient cover in place to meet their insurance obligations under the contract. In most cases, academy trusts do not have the requisite insurance in place and might find it difficult and expensive to procure insurance that complies with the JCT’s standard insurance options.
Risk Protection Arrangement cover
As an alternative to commercial insurance, academy trusts may opt to benefit from Risk Protection Arrangement (RPA) cover, whereby the government covers for loss and damage to buildings and contents. RPA cover is cheaper than commercially available insurance policies, and as such is widely used. However, Gallagher Bassett, the third party administrator for RPA cover, and the Department for Education, have made it clear that RPA cover is not ‘insurance’. By way of practical example, RPA is unable to provide a joint names policy, and is unable to waive subrogation rights. The result of this is that an academy trust will that is using RPA rather than insurance would not be able to comply with its obligations under the standard insurance provisions of a JCT contract if Option C insurance were used – which is typically the case where refurbishment work is being carried out.
Under this insurance option, it is the responsibility of the employer to take out a joint names insurance policy to cover the existing structures and the works. As both the employer and contractor are named as insured parties under the policy, the insurer must provide a waiver of subrogation rights to the contractor which prevents the insurer from seeking to recover against the contractor in the name of the employer for the costs of reinstatement, repair and replacement of the existing structures and the works. But, where an academy has RPA cover, this will not comply with Option C, leaving the academy in technical breach of contract. In circumstances where an insurance claim then has to be made in respect of the works, the academy could find itself exposed to a very expensive problem.
The solution to this problem is relatively simple, provided it is thought about in advance. In the more commonly used building contracts mentioned above, a set of amendments to clause 6 and Option C can be produced to allow the academy trust to rely on its RPA cover with certain necessary consequential amendments. For other contracts, the approach might be different: for example when using the JCT Minor Works 2016 building contract, academy trusts should consider using clause 5.4C (Insurance of the Works and existing structures by other means) instead of joint names insurance of the works and existing structures by the employer, with a bespoke schedule reflecting the obligations on the academy and contractor.
Academy trusts should therefore be particularly alert to their insurance obligations, especially when using ‘Option C’ for refurbishment works. RPA cover is not compliant with clause 6 and Option C without first producing a set of amendments.