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Determining The Value Of Your Plant

by | Apr 7, 2015 | Contractors All Risk

Value of Construction Plant, Determine the value of your plant | CivilSure

We have seen a lot of confusion lately surrounding insurance value of construction plant and the methods used by insurers to determine the amounts they will pay on a claim. It is important to understand the terms used in your insurance policy and how these affect your cover. Nobody wants to be left with egg on their face when it comes to a claim.

We asked our CEO Dan Payton to provide us with a brief explanation of the main valuation methods used by insurers on Plant All Risk policies to determine the value of construction plant. We hope this will assist you in determining the value of your plant.

What is the maximum amount an insurance company will pay if an insured Plant is deemed a total loss?

Depending on the insurance policy, the insured value can either be the replacement cost or the market value.

The basis of valuation should be understood and agreed at inception of the policy in order to avoid misunderstandings following a claim.

What is “Fair Market” Value of Construction Plant?

SARS defines the market value as: “The price which could be obtained upon a sale of the property between a willing buyer and a willing seller dealing at arm’s length in an open market”.

Ultimately this means that the price is determined by a willing buyer and a willing seller, coming to agreement without outside influence or limitations. The buyer and the seller are presumed to have reasonable knowledge about the product.

How is fair market value of construction plant determined?

According to SARS, there is no simple formula to determine fair market value.  Many industries utilise resources, such as the Mead and McGrouther Auto Dealers Guide for used cars, to value items. Factors that influence the fair market value include, the use of the vehicle, the condition of the vehicle, as well as how readily available the product is.

The original cost of an item is sometimes relevant, but it should not be relied on when determining the fair market value. Market values continue to change over time, however one can use the sales price of similar items in the open market as a good indicator of the fair market value of construction plant.

What is “Replacement Value”?

Wikipedia defines Replacement Value as: “Replacement cost is the actual cost to replace an item or structure at its pre-loss condition. This may not be the ‘market value’ of the item, and is typically distinguished from the ‘actual cash’ value payment which indicates a deduction for depreciation”.

The association between fair market value and replacement value of construction plant is not always a direct.

The replacement value (or cost) is the cost of buying or manufacturing the same (or similar) product, to replace the item which was lost or destroyed. The value is the current cost to replace a lost item on the date of its valuation.

How is replacement value of construction plant determined?

When determining the the replacement value of an item SARS does so by finding the estimate cost of a new equivalent item to the one lost. An amount is then subtract from the item based on the condition and desirability. There should be common factors between the fair market value of the item and its depreciated value or replacement value.

Insurers use various methods to calculate the amount they will pay following a loss. Payment which is based on replacement cost of damaged or stolen property is usually the most favorable.

What does “Replacement Cost” mean?

The term replacement cost means; the financial cost to replace an item with another item, which is of a similar material and quality, and is used for the same or similar purpose.

What is “Actual Cash Value”?

“Fit market value” is what some courts have interpreted “Actual Cash Value” to mean. This is the amount a willing buyer would pay a seller if neither of them were under any time constraints.

The insurance traditional definition which has been upheld by most courts is; the cost to replace with new property of like kind and quality, less depreciation.

A deduction for depreciation is all that differentiates between replacement cost and actual cash value.  The basis for both is the current cost to replace the damaged or lost property, with property of a comparable quality or condition.

To get a quote to insure your construction plant, click here.



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Yes, damage to surrounding property is covered by a construction all risk policy, provided it’s included as an add-on to the Contract Works cover. This means an extra premium would be charged to get the specified surrounding property covered.

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What is not covered by a Contractors All Risk Policy?

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How Does a Contractor Claim For An Extension of Time?

A Contractor can claim for an extension of time, thus extending the Due Completion Date for a project. He can also claim for any costs which will increase due to being on site for longer (called time-related General Items).

What is ‘Practical Completion’?

Practical Completion doesn’t mean the Contractor has finished the Works in every detail. It means the Works are sufficiently complete to be safely used by the Employer for the purpose he intended. The Contractor may still complete minor items and fix defects after Practical Completion, as long as the Employer isn’t inconvenienced.

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Why is a Contract Works Policy Necessary?

When it comes to planning a new construction project, insurance doesn’t always get the priority it requires, with contractors often wondering whether it is really necessary to take out a contract works policy at all. Very often the contract works policy is arranged at the last minute, or even after the project has already started.

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