Contractor Beware and be Aware!

Prue Younger, CEO Message

Another significant business risk to contractors that I was not aware of, has been recently brought to my attention. That risk is the movement of equipment and machinery from skid to skid and the responsibility when an incident damaging the machine happens outside of the control of the contractor.

It is a given that we need transporters to move our gear and, on the whole, it is carried out very well, but mistakes are significant to the contractors. In most cases the management companies pay for the transportation, and in most cases tell the contractor which company to use. The problem though, is that the company that transports the goods does not have to be responsible for the incidents anymore as the “Contract and Commercial Law Act” legislates:

Limitation of amount of carrier’s liability

(1) For the purposes of this Act:

(a) the liability of the contracting carrier to the contracting party; and

(b) the separate liability of any actual carrier to the contracting carrier; and

(c) the joint liability of any actual carriers (where there are more than 1) to the contracting carrier; and

(d) the joint and several liability of every successive carrier under a contract to which section 13 applies, is limited in amount in each case to the sum of $2,000 for each unit of goods lost or damaged or, in the case of a contract at declared value risk, the amount specified in the contract. The law allows them to only carry a very small cover for the machinery, which in my view could drive below-standard performance in terms of risk mitigation.

The contractor, of course, has their own insurance cover. For example, if the machine is insured at $1 million then the excess is usually around 1% or $10,000 and cover under that policy will cover the machine for the whole amount if damaged. Your insurer can only recover the $2,000 from the carrier but the contractor will still pay the difference in excess, in this example, $8000, along with that same paragraph last line. “If you use it then next year’s premium and potentially excesses may look a little different”.

Because it is legislation, there would have to be significant work put into changing it and the only current resolve or risk mitigation is for the contractor to be aware of the transport plan that has been arranged to take their equipment from A to B. They would also be wise to be well aware of the carrier, their reputation and discuss the risk with the forest principle to cover any potential costs that might occur through an accident outside the control of the contractor. Beware and know the consequences if something goes wrong, so make sure you are informed across the whole scenario.

Speaking to our own insurance contacts, we understand that these incidents do not happen that often which may be the reason this is the first time I have heard about it or even thought about it in my time in the role with FICA. These events might happen three or four times a year, but they are high valued items that carry a significant cost to the contractor and not so for the carrier.

A change in responsibility will likely increase transport costs but reduce contractors’ cost and put the risk in the correct place to drive change for the good.

It is a real industry issue, and the contractor bears the brunt of it. Additionally, if the equipment goes in for repair, then another machine must be leased or hired for a period to continue the work. Another cost to the contractor.