Authorizes cities of one million or more to provide wrap-up insurance or bonds for their public building and construction projects

Summary of provisions

This bill amends Insurance Law § 2504(b) to permit any city with a population of one million or more and others acting on its behalf (such as a construction manager) to procure wrap-up insurance or surety bonds when such insurance or bonds could be procured by contractors and subcontractors. It also adds new language to § 2504(b) to make clear that any city with a population of one million or more, or others acting on its behalf, may provide such wrap-up insurance or surety bonds without reimbursement from the contractor or subcontractor, and also may require that a contractor or subcontractor account for, or otherwise provide a credit in his or her bid that reflects, the amount the bidding contractor or subcontractor would otherwise add if he or she provided his or her own insurance or bonds as required in the bid specifications. The bill also provides that any city that provides such surety bonds or insurance policies shall do so only for projects that are subject to a project labor agreement. The bill will take effect immediately and will expire and be deemed repealed five years after the effective date except with regard to those contracts for which a solicitation was issued within five years of the effective date.

Justification

For most large-scale construction projects, it is best for all concerned - owners, contractors, workers, and the public - for insurance to be purchased through a single insurance "wrap-up" program (known as an Owner-Controlled Insurance Program or CCIP if bought by the owner or a Contractor-Controlled Insurance Program of CCIP if bought by the construction manager or general contractor). A wrap-up covers everyone involved in the project, including the owner, all contractors and subcontractors, and all workers, thereby making unnecessary the multiple insurance policies each project participant would otherwise have to purchase on its own. In doing so, it centralizes project safety programs (protecting the safety of workers and the public) and eliminates wasteful litigation among participants and their insurers to decide who pays a single claim. By reducing these transaction costs, wrap-ups save a significant amount of money - according to a study by the Federal government, "up to 50% of the cost of traditional insurance, or from 1% to 3% of a project's construction costs." This saves taxpayer dollars and allows public funds to go

further, increasing the number of construction projects and jobs. Wrap-ups also assure that the planned -for insurance actually exists when a claim is made and often allow claimants, including workers and the general public, to be paid faster and more easily. Finally, wrap-ups facilitate the market entry to emerging small businesses and minority and women-owned businesses (MWBEs), which often have limited access to the insurance markets. Small contractors, including MWBEs, can be chosen by construction managers based on their ability to do the work rather than access to insurance.

For all these reasons, wrap-ups are routinely used in large-scale construction projects throughout the private sector. They are also used in government projects around the country and, in New York, in billions of dollars worth of projects undertaken by public authorities that are exempt from Insurance Law § 25o4(b)'s prohibition on wrap-ups, notably the Metropolitan Transportation Authority, the New York City School Construction Authority, and the Port Authority of New York and New Jersey. Insurance Law § 2504(b) currently restricts various governmental entities from using wrap-ups. This restriction should be lifted with respect to the City of New York, for contracts that are subject to project labor agreements.

Accordingly, the Mayor urges the earliest possible favorable consideration of this proposal by the Legislature.

Legislative history

None

Fiscal implications

None.

Effective date

This act shall take effect immediately.