Expert Commentary

Good Night Moon. Good Night Chair. Good Night Wrap-Ups Everywhere.

Okay. I will say it. I love wrap-ups. However, there are also those nagging wrap-up issues that keep us awake at night. I thought it high time that we address some of them head on and try to give some meaning to this disturbance. We could not possibly hit them all in this article, but we can address a few of these issues so we can put some perspective on them and give everyone a good night's sleep. Truth be told, the inspiration for this article came from an online LinkedIn discussion group on wrap-ups in which I participated. I thank the members of that discussion for giving me the impetus to write this article.

Wrap-Up Programs
June 2013

Following are some of the issues that come up often in discussions. There is usually no right or wrong answer. The conclusion that we all seem to get to is that these twists and turns are part of the fabric of our wrap-up world and we need to deal with them on a day-to-day basis. My purpose here is more to offer one person's perspective, and if you choose to "jump on the bandwagon," that is certainly your choice, and if there is disagreement, let me know. I always enjoy hearing back from my wrap-up friends on the issues of the day.

To Enroll or Not To Enroll, That Is the Question

Here is one issue that can give you 10 different responses from 10 different people. According to standard wording in many of our wrap-up manuals, it is common that the following parties will typically be excluded from the wrap-up: "vendors, suppliers, fabricators, material dealers, truckers, haulers, drivers, and others who merely transport, pick up, deliver, or carry materials, personnel, parts, or equipment or any other items or persons to or from the project site." Of those mentioned "parties," the one that appears to cause the most discussion is the fabricator. Why should an off-site entity be so controversial?

Again, there is no right or wrong answer. Here is how I see it. When a "prime" fabricator has a "fabricate and install" contract and therefore subs out all the on-site labor, it would be in everyone's best interest to have all parties enrolled for workers compensation and general liability, even if the workers compensation payroll is on an "if any" basis for the prime. In such a case, don't overlook the products liability issue. I have seen insurers (not as much today, though) actually exclude products liability coverage. Keep in mind that the fabricator's primary exposure will be products liability, not completed operations. Obviously, a final decision on which parties to enroll is most often made by the sponsor. It may not want to pick up the products exposure of the prime and may also feel that the "bid credit" is not commensurate with the potential exposure. The picture changes somewhat if we are dealing with a separate fabrication contract and another install contract. With no existing contract between the two parties, the decision to enroll may simply be to enroll the installer and not the fabricator. There are many variables to look at—not a simple issue and clearly not without some challenges.

Here is another enrollment issue to ponder. What do we do with all those inspectors who come on site: cranes, concrete strength, architects and engineers, etc.? Wow, does this issue come up often. There are two schools of thought on this. Some sponsors take the approach that anyone who steps foot on the construction site regardless of contract cost, payroll, etc., should be enrolled. It is their desire to capture as much of the total construction value as possible. On the other hand, another school of thought exists. This school believes that successful wrap-ups are the result of a strong safety culture built into the fabric of the project. This culture comes from a "day-to-day" observance of safety protocols that begins with safety orientations and runs through frequent "toolbox" sessions to project conclusion. The idea is that the "inspector” who visits the site occasionally or for a few consecutive days cannot possibly be able to integrate himself or herself into that culture. More pragmatically, the bid credits from these inspectors are usually not commensurate with the risk of performing their scope of work on site. Choose your preference, but do it wisely with all the facts at hand.

Will this Wrap-Up Ever End?

I don't know about you, but I have lost a few hours of sleep on this one. Some sponsors may invoke a termination of the wrap-up at a point that approximates the inception of the "extended completed operations" coverage. Their reasoning is that the trigger of the extended ops is quite often when that portion of the project is put to its intended use or a temporary or permanent certificate of occupancy is issued. I am sure you can appreciate the fact that even those qualifying points may be subject to differing interpretations and perhaps not the perfect way to determine the wrap-up termination—that is, "that portion of the project is put to its intended use." Wow, based on that, you may be terminating the wrap-up when the first floor of a 50-story building is put to its intended use.

Other sponsors may elect to wait until all punch list work is concluded, somewhat like waiting for the final contractor to leave the premises. Sometimes, it is as simple as convincing a sponsor not to push its luck with the good loss experience it has had. On the other hand, always remember that as soon as the wrap-up terminates, all remaining contractors will begin charging the sponsor for their insurance costs. So, in short, it is left to the wishes of the sponsor with some assistance from its insurance adviser. Obviously, the sponsor made a commitment to follow the wrap-up to some logical conclusion. Sometimes, that can be a major challenge.

The Feasibility Nightmare

Talk about losing sleep. How the feasibility is handled and translated to the potential buyer may have significant consequences. As we awake in the middle of the night with a slight spot of perspiration on the forehead, we realize the dilemma upon us: what is the true purpose of the feasibility? I am not sure sponsors appreciate the work that goes into the wrap-up financial pro forma and the most important fact that there are so many variables to the cost projections. Simply put, is the feasibility a sales tool, or is it a starting point for an intellectual discussion on the financial implications of the program? If we are to assume it is a sales tool, then really get used to a few bad nights of sleep. Unless our benchmarking is so "spot on" and our crystal ball is working perfectly, we may not be able to meet the sponsor's expectations.

With so many states now utilizing workers compensation "loss costs," the probability of accuracy, while not impossible, does get to be more challenging. Throw into the mix predicting workers compensation rating credits and experience modification factors ... I think you get the picture. My recommendation has always been to use the pro forma as the beginning of a better understanding of financial variables of which the client needs to be aware. Obviously, the discussion in New York may be different from the discussion in New Jersey, for instance. Another factor to consider is the motivation for a sponsor to commit to a wrap-up. As we now know, it's not all about savings. Changes brought on by court rulings, for instance, may be a motivational factor to select a wrap-up. Concerns as to subcontractors' coverage may be an excellent reason for a wrap-up. In fact, the feasibility study needs to be expanded beyond financial factors. All issues that determine the feasibility of the program are fair game. And, just think, you will sleep a lot better.

Oh, No! Did I Forget To Enroll That Contractor?

This is one of those non-"glitzy" issues. But, make no mistake about it; it is a very critical one at that. Come on; everyone has had this recurring nightmare: the missed enrollment. One can see how easily this may occur. A notice of award gets lost in the shuffle. A request for enrollment is sitting in an administrator's "in-box" while he or she is on vacation or simply away from the office for a day. It does happen, and it certainly is no one's fault in particular. Underwriters do understand that these things happen.

There is a good ending to this story and one that should give you a good night's sleep. First of all, most underwriters will try to commit to a 24-hour turnaround to provide policy numbers to complete the enrollment process. In addition, insurers will provide a window of opportunity in which a contractor's enrollment may be backdated. Most underwriters will generally agree to a 15–30 day backdate without having to provide a "no known" loss letter. This timing may change based on the wrap-up location and specific state regulations. This also raises the issue that it may be a good suggestion when visiting the job site to match up your enrollments with those of the project manager on site. It is another stop gap to future problems.


It all comes down to one simple fact that is becoming more and more apparent as our wrap-up years go by. This is not a perfect science and, while we try to think of every contingency and try to make our manuals the perfect document, there are many twists and turns and unknowns. Believe it or not, we are all continuing to learn, no matter our years of experience. Perhaps that is what makes wrap-ups such an intriguing platform. Yes, I really do love wrap-ups ... almost as much as a good night's sleep.

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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