Navigating General Conditions in Builder’s Risk Insurance Claims

General conditions represent a significant portion of construction project costs, and disputes surrounding their evaluation are common in builder’s risk insurance claims. Understanding what constitutes general conditions, how they relate to overhead and profit, and how they are assessed in claims is crucial for both policyholders and insurers. This article provides an overview of these complexities, offering guidance based on practical experience in construction claims analysis.

What are General Conditions?

General conditions are a subset of overhead and profit (OH&P), encompassing costs associated with jobsite management, project administration, and temporary facilities. These costs are distinct from direct costs, which are tied to the physical components of the project. J.S. Held’s analysis breaks down overhead and profit, highlighting the potential for misunderstanding and dispute in insurance claims.

Key components of indirect costs, or general conditions, include:

• Project management staff and supplies
• Temporary services and utilities
• Jobsite safety measures and cleanup
• Permits and fees

Profit, represents the contractor’s markup to cover business operating expenses and generate a return.

Evaluating General Conditions in Builder’s Risk Claims

Unlike typical construction change orders, builder’s risk policies dictate entitlement to reimbursement for general conditions. A thorough review of the policy language is essential to determine covered expenses. The focus should be on identifying incremental costs directly resulting from the loss event, rather than costs already factored into the original project budget.

Common Scenarios

Three common scenarios arise when evaluating general conditions in builder’s risk claims:

Scenario 1: General Conditions During Repair – No Project Delay

If a loss event doesn’t cause a project delay, claiming general conditions as a percentage of repair costs is often inappropriate. If the contractor’s existing staff manages both the original work and the repairs without incurring additional expenses, the claim may be denied. Although, if the contractor adds staff or extends existing staff time specifically for the claim, those incremental costs may be compensable.

Scenario 2: Extended General Conditions During Delay Only

When a loss event causes a project delay, the actual increase in general conditions expenses incurred during the delay period may be covered under a builder’s risk delay endorsement. This requires a determination by the insurer.

Scenario 3: General Conditions During Repair and Delay

Contractors sometimes claim general conditions for both the repair period and the delay period. This can lead to a duplicative claim. For example, a contractor might allocate existing project management costs to the repair work and then also claim extended general conditions for the delay. In such cases, only one type of claim—either the allocated costs during repair or the extended costs during delay—should be considered.

Documentation for Claim Evaluation

To properly evaluate a claim for general conditions, insurers typically require:

• The contractor’s pre-loss general conditions budget
• The owner/general contractor agreement
• Pre-loss pay applications
• Planned staff charts
• Construction schedules (in native format) if a delay is claimed

These documents help establish the baseline for evaluating incremental costs and validating the reasonableness of the claim.

Conclusion

Successfully navigating general conditions in builder’s risk claims requires a clear understanding of the underlying costs, the policy language, and the specific circumstances of the loss. Focusing on incremental costs, avoiding duplication, and thorough documentation are key to a fair and efficient resolution.

Disclaimer: J.S. Held does not interpret, underwrite, or place policies. The intent of this article is to offer our expertise regarding situations such as those hypothetically described within.