BUILDERS RISK AND WRAP-UPS: WHAT THEY DO TO YOUR BID AND YOUR CASH.
Builders risk insures the building and materials while it is under construction. It does not insure a subcontractor's own tools and equipment, and the subcontract decides who pays its deductible. A wrap-up goes further: the sponsor buys liability coverage, and often workers comp, for everyone enrolled, and the subcontractor takes its own insurance cost out of the price. That can lower a bid and remove completed operations exposure from the sub's own policy for that job. It also brings a credit that has to match the real cost, enrollment steps that have to be done before work starts, and deductible terms that can be larger than the sub's own. Programs differ a lot, so the project's insurance manual and the subcontract are the documents that apply.
Most owners of $1M to $12M subcontractors meet these programs on a bid, in a pay application or in a claim. This page explains who buys builders risk, what a wrap-up changes in the bid, where the cash goes wrong, and how a premium credit works in the billing and the retainage.
WHAT IT MEANS.
A wrap-up is a single insurance program, bought by the project owner (an OCIP, owner controlled insurance program) or by the general contractor (a CCIP, contractor controlled insurance program), that covers the enrolled contractors on one project, usually general liability and often workers compensation, in place of each contractor buying its own for that job. Builders risk is the separate property policy on the work under construction.
Programs and contracts differ. A licensed broker places the coverage and a construction attorney reads the contract terms, and state law differs on wrap-ups, on workers comp reporting and on how long a contractor can be sued after a job ends. This page is about the money. SPM does not give legal advice or tell you what to buy.
HOW BUILDERS RISK AND WRAP-UPS WORK.
Who buys builders risk, and what a sub is exposed to
Builders risk is a property policy on the structure and the materials that will go into it, until the owner accepts the work. Who buys it is set by the contract. The older AIA A201 form has the owner buy it for the owner, the contractor and the subcontractors, and has the owner pay costs not covered because of deductibles. Other forms and edited contracts put the policy on the general contractor, or put the deductible on whoever caused the loss. A ConsensusDocs comparison describes its 2017 form as making the party that primarily caused the claim pay the deductible. The subcontract is what sets your exposure, so read the insurance article before you sign.
What the policy covers and what it does not
Faulty workmanship is generally excluded, which means the cost to redo defective work is yours, though resulting damage to other property may be covered under an ensuing loss clause. Flood and earthquake usually need separate coverage, and coastal projects often have a separate windstorm deductible. Your own tools, equipment and rented machinery are commonly left out of the policy, and some sample contracts say so in plain words. Those belong on your own equipment coverage, placed by your broker. A wrap-up program often leaves contractor equipment with the contractor too.
The waiver of subrogation and the deductible
Under the A201 form the owner and the contractor waive claims against each other and against subcontractors for damage covered by property insurance, and subcontractors are asked to give the same waiver. The waiver follows insured losses. Insurance does not pay the deductible, so a party at fault may still owe it unless the contract says who pays. If the project has a $25,000 deductible and the subcontract puts it on the subcontractor whose work was damaged or who caused the damage, that is cash out of your account on a single event.
How a wrap-up changes the bid
In an OCIP or CCIP the sponsor buys the coverage, so enrolled contractors price the job without the insurance the program replaces. A published New Jersey school OCIP manual tells bidders to leave out the cost of on-site workers comp, employer's liability and general liability. Construction insurance guides list three ways to handle it: bid net of insurance with an additive alternate, bid with insurance and give a deductive alternate, or bid with it and remove it later by change order. The administrator usually supplies a form to report your insurance cost. The credit is built from that form, so the form needs the same payroll, rates and premium that your broker would show.
What the sub still holds
Wrap-ups cover work on the project site, after you enroll. In the New Jersey manual, off-site work, auto liability, contractor equipment and professional or pollution liability stay with the contractor. Other programs set their own lists, and some insurance guides note that a sub's own general liability policy may exclude work on a wrapped project. That is why an excluded or de-enrolled sub can end up with coverage nowhere. Ask the program whether workers comp is included, and ask your broker how payroll and claims from the wrapped job reach your own policy and your experience mod. Rules differ by state and by rating bureau.
Enrollment that goes wrong
Enrollment is required, but it is not automatic. The sponsor can enroll or exclude each contractor, often by trade, contract value or time on site, and an excluded sub has to price its own insurance and give a compliant certificate. Some programs do not let work start until the administrator confirms enrollment, and a sub is not enrolled until the forms are received and approved. Monthly payroll reports go to the administrator, and a sub is often responsible for enrolling its own lower tiers. One published sample program puts a charge of 2 percent of the contract value on a sub that is out of compliance, and another makes the sub responsible for losses from a failure to enroll. A sub that fails to comply can be de-enrolled and left without coverage on the project.
Deductibles and completed operations after the wrap ends
Sponsors often buy a high deductible to lower the premium and push part of it to the enrolled contractors. IRMI, an insurance trade reference, describes sponsor deductibles of $250,000 and sometimes up to $1 million per occurrence, and it calls it overreaching when enrolled contractors are asked to pay the first $100,000 to $250,000 of a general liability claim or up to $250,000 of a workers comp claim. That can be far above what a sub holds on its own policy. The wrap-up usually includes completed operations coverage after the job ends, and one broker puts it at five to ten years, but the length depends on the program and the state, and the limit can be shared with every other enrolled contractor. Industry checklists ask whether the period is shorter than the state's statute of repose and whether completion means substantial or final completion. Your subcontract may still ask you to hold your own completed operations coverage for years after.
WHAT IT LOOKS LIKE IN DOLLARS.
Take a $1,000,000 bid that includes $40,000 of general liability and workers comp cost. In a wrap-up the contract is $960,000. At 10 percent retainage, the retainage on the full contract is $96,000, not $100,000, so $4,000 less is held back. If the credit is taken by change order after the contract is signed, a pay application shows the deduct as a negative line against the original $1,000,000. Whether retainage already withheld on earlier billings is adjusted depends on the subcontract. If your real insurance cost on that job was $48,000 and the credit is $40,000, the wrap-up cost you $8,000 of margin. If it was $32,000, you kept $8,000.
On the $960,000 contract, an 8 percent net margin is $76,800. A $25,000 deductible allocated to the sub on one claim is about 33 percent of that job's profit. A $100,000 deductible is more than the profit on the whole job. Your own policy might have had a $5,000 deductible for the same event.
A 2 percent charge against a $960,000 contract is $19,200, withheld until you are compliant. Paperwork that takes a month to clear can hold back cash on the pay applications in the same month, which is the month payroll goes out.
WHAT WE CHANGE.
SPM takes the general liability and comp premium for the trades and payroll on the job, using your burden rate and your broker's numbers, and compares it to the credit the administrator asks for before the bid goes out. If the credit is higher than the cost, the price is raised or the program terms are questioned.
SPM asks for the subcontract, the program manual and the enrollment forms and lists what they say about who pays the builders risk deductible, the wrap-up deductible, what stays with you and how long completed operations coverage lasts. Your broker checks the coverage, and your attorney reads the legal terms.
The job gets its own record of enrollment date, insurance credit, payroll reported each month and the deductible exposure. The estimate has no insurance line, and the job cost report should show none. The credit shows on the pay application as its own line, so the billing, the retainage and the cost report all use the same contract amount.
If a deductible can be allocated to you, SPM puts it in the cash forecast with the claim, so it is not a surprise. At closeout the list includes the completion date the program uses, the end of the completed operations period, and who to call about a claim after the job is over. See the pages on insurance cost in overhead and on retainage.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing. No payroll. The one-time onboarding fee is right here in the table.
| Last 12 months revenue | Monthly fee | One-time onboarding |
|---|---|---|
| Up to $1M | $1,900 to $2,900 | $1,000 |
| $1M to $3.5M | $2,600 to $3,900 | $1,500 |
| $3.5M to $6.5M | $3,800 to $5,700 | $3,000 |
| $6.5M to $9.5M | $5,100 to $7,100 | $4,500 |
| $9.5M to $12.5M | $6,100 to $8,500 | $6,000 |
| $12.5M to $15.5M | $7,400 to $11,000 | $7,500 |
| $15.5M to $18.5M | $9,400 to $13,500 | $9,000 |
| $18.5M+ | Quoted individually | Quoted individually |
The onboarding fee covers migrating your books back to the start of your last taxable year and getting you fully operational in 60 days. It's billed once, with your first invoice. It's the same for all three tiers. Your first month is prorated, and your monthly engagement starts on the first of the first full month.
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items. The onboarding fee is right here in the table.
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