Self build construction projects
A guide for home owners
No matter whether you are looking to build a new home from the ground up, or undertaking renovation or an extension project, there are a number of key points to consider when undertaking self build construction projects:
• Know the law that affects your self build construction project.
• Use a specialist to identify the key risks.
• Place the Know what insurances you need.
• Arrange the right insurance package for your project.
Pt 1 – Introduction and understanding CDM Regulations 26474.44
If you’ve decided to build, renovate or extend a property you’ll need to get a firm understanding of the planning requirements as well as the diverse and sometimes hidden risks associated with the project. Read on to find out about the many considerations you’ll need to make.
Your property is likely to be a significant asset. Deciding to build or extend is a serious investment that requires the protection of the right insurance package and specialist risk and insurance advice from a construction professional.
While there are a number of online ‘self-build construction projects’ insurance ‘products’ that can be purchased online, we would caution you to consider whether doing it ‘cheap and quick’ is the right way forward. With minimal question-sets and little or no surrounding advice around how to assess risk, your legal duties, which aspects are insurable and your options as to how you can effectively transfer the risk in a cost-efficient way, it could be something gets missed.
Further, if something does go wrong, the support of a broker – who will typically have a close working relationship with the insurer – throughout the claim process to ensure your losses are covered, can prove invaluable.
As a specialist broker operating in the construction industry for almost 30 years, the first thing we discuss with clients looking to manage self build construction project is awareness of the CDM Regulations and how they apply to the project.
Unless experienced in the construction industry, most people are unaware that since 2015, these regulations now apply to all UK construction sites, regardless of size or value.
The Construction (Design & Management) Regulations 2015 (referred to as CDM) are the main set of regulations for managing the health, safety and welfare of UK construction projects and apply to all building and construction work and includes new build, demolition, refurbishment, extensions, conversions, repair and maintenance. They place legal responsibility for managing the health and safety of a construction project on three main duty holders:
As the client , you have overall responsibility for the successful management of the project, supported by the principal designer (your architect) and principal contractor (the builder) in different phases of the project.
For the successful delivery of a project, good working relationships between the duty holders are essential from the start.
• The client ensures that the construction project is set up so that it is carried out from start to finish in a way that adequately controls the risks to the health and safety of those who may be affected.
• The principal designer manages health and safety in the pre-construction phase of a project. The role extends to the construction phase through the principal designer’s duties to liaise with the principal contractor and ongoing design work
• The principal contractor manages the construction phase of a project. This involves liaising with the client and principal designer throughout the project, including during the pre-construction phase.
The principal designer and principal contractor may be supported by designers, sub-contractors and workers.
There are three important phases of a project: before, during and after construction or building work.
They are outlined as –
The pre-construction phase:
This is the inception, design and planning stage in self build construction projects (before the construction or building work starts), although it is acknowledged, design and planning continues into and through the construction phase.
If you’re considering having an extension built on your home, you probably have some ideas about what you want building and a picture in your minds eye as to what the finished project will look like. But getting the architect’s professional advice as well as the builders practical input may well highlight potential issues with your ideas – as well as opportunities that you may not have thought about or considered. It also means that all three parties understand and share the vision that is ultimately documented as formal plans.
The construction phase:
The start-to-finish stage of the construction or building work.
Naturally, the building contractor will work to the agreed plans. But its not uncommon for issues to emerge that may mean changes in the plan are needed. It could be that the builder comes across an issue that requires a work around. As the ‘expert on site’ they may offer or suggest a deviation from the plan. In these circumstances, you, as the client need to make sure that you are comfortable. Involve your architect in the decision and make sure that all parties are clear about the situation.
The post-construction phase:
The practical completion of the construction or building work, including handover.
The work is complete. Building Regs get signed off and you’re free to decorate and move into your extension. That should be the end of it – but it might not be. What if, for example, the roof starts leaking 6 months, a year, or 5 years later? You’d obviously feel aggrieved and expect to be compensated and have repair work carried out free of charge. The builder might blame the architect, citing a design fault. The architect may blame a product supplied and fitted by the builder that he didn’t know about.
It’s really important that these scenario’s are recognised and catered for from the outset. As the client you have clear roles and responsibilities. Given it’s your investment, it makes sense to get appropriate advice and make sure you aren’t leaving yourself exposed for any foreseeable risk at all.
Designers and contractors should be appointed at the earliest opportunity to help prepare and plan your project. Experience has shown that, when designers and contractors are involved early in the project, everyone is better able to plan ahead and solve problems together to deliver a more successful outcome.
Even the simplest tasks, such as arranging routine maintenance or minor building work, require adequate time to plan and manage the work safely.
We have a CDM Pack of helpful documents to help you understand your responsibilities under these important regulations.
PT 2 – Contracting
As the end client, the next key question is whether you intend putting a formal contract in place between you, the ‘contractor’ and possibly the ‘designer’ too.
Contracts for all types of projects are available from various sources (e.g. JCT, trade associations), however we would recommend that you seek appropriate professional legal advice when considering which contract is most suitable for your project. Contracts can help all parties agree and clarify insurance responsibilities for a project. They certainly help us understand the insuring responsibilities on a project and ensure we provide the right advice.
The JCT Minor Works Building Contract (Minor Works) is designed for smaller, basic construction projects where the work is of a simple nature, and may well be appropriate where you are undertaking an extension or alteration to a domestic dwelling, where the insurance requirements will be shorter and simpler than those in other contract forms, such as the JCT Design & Build Contract. However, it is still very important to carefully consider the insurance provisions contained in Section 5 of this contract form and ensure you meet project requirements.
Find out more about the insurance requirements under JCT Minor Works Contract (2016) ) here.
Insurance cover for self build construction projects
Now the CDM roles have been clarified, and you have a contract in place, we can now discuss how best to insure your project.
At this stage, it has to be said that packaged insurance products are useful in combining the various elements of cover required. We would always advise you to seek the advice of a construction specialist broker on which product and cover options are best for you and your project to prevent the three most common issues:
• Underinsurance – particularly in light of recent inflation, the number of projects that are under insured has risen dramatically. Rebuild costs are increasing significantly. Were a claims event to be triggered, the insurer will reduce the amount paid out to reflect the amount of underinsurance – or even refuse to pay out at all.
• Gaps in cover – Particularly where insurance is bought without advice, it’s not uncommon for cover to be missed. It can be tempting to ‘save a few pounds’ by not bothering with something
• Dual insurances – As already discussed, there are three parties involved in a construction project, each of whom will have various pre-existing policies in place as businesses and individuals. It’s not inconceivable that you end up in a situation where a particular circumstance has been double insured. This creates two significant issues; firstly, you / or someone has paid for cover twice. But the second issue is that the two insurers involved will likely expect the other to pay out – leading to significant delays in any pay out which could impact on the project as a whole.
Public liability insurance provides cover for third party injury and property damage. Costs to repair, replace or reinstate property as well as legal costs and injury compensation should normally be covered (subject, of course, to the policy terms and conditions). For example, if a third-party site visitor sustains an injury due to a tripping incident on site, this insurance should respond and provide legal protection to the policyholder.
Also, if a plot of land for a new build project has been purchased you have a legal duty of care to others and are legally responsible for it. If you have contractors and designers visiting your home to undertake work on your extension project, you are similarly responsible.
Public liability (or land-owners liability) insurance protects you against the cost of unanticipated incidents that can occur and where property owners are legally liable – such as trip or fall injuries to third parties or visitors – whether the injured party is there for legitimate purposes or not.
Public liability insurance for a plot of land only is not compulsory, but it is important to protect yourself for your legal duty of care as a property owner, whether it contains existing structures, material storage or even if the land is vacant with little or no apparent hazards. Public liability insurance provides cover for claims from third parties for injury or property damage.
Most contractors already carry public liability insurance. However this doesn’t protect you if you are found at fault for an incident on site, unless there is a contract in place to make the contractor responsible for insuring against third party injury and property damage for the duration of the project.
It is not unusual for public liability insurance limits of £5 or £10 million to be carried or requested for public liability insurance. The cost of injury claims on construction sites in the UK can currently reach as much as £25 million.
Employers liability insurance provides cover for injury to employees, or sub-contractors under employers supervision and control. For example, if one of the contractor’s employees sustains an physical injury whilst using a cutting tool, this insurance is designed to provide legal protection and injury compensations costs to the employer.
If your project involves you directly employing tradesmen, you will require employers liability insurance. It is also a legal requirement for all UK limited companies to hold employers liability insurance (unless exempt).
This insurance cover is much like public liability but designed to cover contractors working, or ‘employed’ for your site. This works in two ways in that it will cover a contractor should they have an accident on site you are held negligent for but also acts as contingency cover for injuries to employees of contractors should your contractors insurance fail.
In self build construction projects, you may be held legally liable for a contractor’s injury on site. Something as innocuous as providing a set of ladders to a contractor, who subsequently falls and sustains injury can, and probably will, lead to a claim against you.
Claims of this nature can be expensive in providing compensation for potentially long-term injuries and high legal costs.
Although the current legal limit of cover is £5,000,000, insurers will provide you with a limit of £10,000,000 as standard. No excess applies.
‘Contract Works’, ‘Contractors All Risk’ or ‘CAR’ insurance is a property insurance designed to provide cover for the newly built or installed elements of your project. For example, if a partly erected extension was to sustain damage due to strong-winds during the contracting phase, this policy would provide cover to pay the costs to reinstate the party erected extension back to where it was before it was damaged.
This insurance can also provide cover for materials in-transit or stored off or on-site to be installed in the project. Tools, plant and equipment, hired and owned, can also be covered on this policy.
This insurance is designed to cover the new ‘works’, materials, fixtures and fittings involved in the project on an ‘all-risks’ basis. Correctly and comprehensively insuring what you are building from start to finish is a key part of managing the risk of any building project. You should also be aware of the high risk of site theft of tools and materials as well as malicious damage.
Once your materials arrive on site, they are vulnerable, particularly if you do not have a facility to store them securely. Small domestic projects are targeted due to the relative lack of security compared to a larger site development. The right contract works insurance is therefore an important part of your insurance package.
Contract works cover also covers you for weather events such as storm and water damage as the property is unlikely to be completely weatherproof and secure. Risks of fire and water escape are also common for project nearing completion and as internal fit-out is completed.
Your contractor may hold their own annual contract works insurance. However, as you may not be able to ascertain the cover limitations, you should consider placing this insurance yourself. Sometimes policy limits and conditions are insufficient for your project. Sometimes banks or loan financiers will request their interest to be noted on the contract works insurance to protect their financial investment.
With all insurances on an ‘all risk’ basis, our advice is always to carefully consider the policy terms, conditions, warranties and especially exclusions – ‘all risk’ insurance policies can be defined by what they exclude, not what they can appear to cover. Again, speak to a broker to fully explain the limitations of these polices to you.
The Existing Structure
For an extension or renovation project, the ‘Existing Structure’ is the building that was there before any physical work is carried out. This can even be a simple wall being retained, or an existing footing as well. This can be a standalone property insurance policy or a cover provided within a Contract all Risks policy.
If your project is an extension or a renovation, it is also important to adequately protect this property during the project.
It is also important that this cover is on the right basis for you. Most UK household insurers will not maintain, extend or hold insurance cover whilst work is being carried out on the property, particularly if that work is structural.
If the property is also unoccupied, most UK household insurers will either restrict cover heavily or even withdraw all cover until occupied again.
Insurance for existing structures is generally available on either a restricted cover basis, or full all risks basis – again depending on your project and property.
Each project and property is different – our advice would be to firstly speak to your existing insurer or broker, let them know about the project and find out how your cover will be affected. Separate standalone cover can be arranged from various insurers whilst the property is under renovation – speak to a construction specialist for the best cover options for you.
Plant & Tools Insurance
If the contractor is using their own machinery and tools, owned or hired-in, it is best to ensure they insure these items, or even better, remove them for site overnight or when not in use to prevent attracting potential attention of thieves.
If you are hiring any plant or tools in your own name, you can insure these with the hirer, or insure them with the contract works insurance outlined above.
This type of insurance has a few different names which can be misleading. Basically they are all the same type of insurance that you can place on a completed project to provide longer-term cover for any ‘latent defects’ or structural defects that manifest in future years. ‘Defects’ are specifically defined in law and detailed investigations are made to ascertain the cause, nature and effect of any structural defects that manifest over the longer term.
Once your new-build project is complete, a structural warranty insurance policy can be placed for a period of 10 or 12 years. It‘s main purpose is to cover the property against latent and structural defects. Cover includes surveyor visits at set periods of the project to make sure work is done to the correct standard.
If you intend selling a new residential property (or a property converted into a new residential property) within the first 10 years, a structural warranty is required – the buyers’ mortgage provider will normally insist on one from an insurer that is on the CML approved list (Council of Mortgage Lenders). Again, speak to a construction sector specialist broker about the best structural warranty for your new project.
Architects, surveyors and engineers typically hold this type of insurance to protect them from claims of professional negligence – this can for any of the risks mentioned above and more as defined by the UK courts (duty to warn, matters of buildability).
It is important that any professionals involved in your project hold this type of insurance for the services they provide and to the extent and cover limit you require. Under CDM regulations, the ‘principal designer’ is responsible for the design elements of the project – this can include material specification, method of build, dimensions, use of space as well as the structural matters of loadbearing and even shoring, excavating or piling techniques to be used. These are typically architects, engineers and surveyors.
The risk of financial loss resulting from incorrect design or specification, professional services in general, is covered by professional indemnity insurance.
Again, speak to a construction specialist broker to help you understand the right insurances for your project.
JCT contracts can be on a ‘standard’ basis where design liability can be allocated to the project professionals. As mentioned above, sometimes the JCT contract can be a ‘design & build’ version – this is where the contractor takes on roles and responsibilities of both ‘contractor’ and ‘designer’. In this case, they must hold the necessary professional indemnity insurance for the project as well as all necessary liability, contract works and plant and tools insurances.
Other Insurance considerations for self build construction projects
Sometimes the project’s architect will identify the risk of property damage to third party property that is not likely to be due to a negligent act. An extension to the above insurances may be required – this is called Non negligence insurance and is often given the name of the contract clause that defines it in the JCT building contract suite – JCT 6.5.1 Insurance.
This is to typically provide cover for damage that occurs to a neighbouring property where plans have been followed to the letter and neither you nor your contractor are held negligent.
If you are using a JCT contract for your project, you should refer to the architect for advice as to whether this clause should be operative and whether the appropriate insurance is required – each project is different and professional advice should always be sought.
This insurance cover is normally the responsibility of the contractor to take out and hold for the duration of the project – it can be placed on a standalone basis or as an extension to their public liability insurance.
New site developments, during the pre-planning stage for some new developments, depending on risk, may encounter legal problems affecting title, and often development sites.
The main issues that can be encountered are – restrictive covenants (freehold and leasehold), lack of legal access/legal rights to use the services, interference with third-party rights such as rights of way, services, mining rights, planning permission and building regulations.
Legal indemnity insurance can be taken out to protect developers and property owners against potential legal problem arising from these issues in self build construction projects.