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How integrated project insurance (IPI) is changing UK construction project risk

Find out how integrated project insurance is improving certainty related to costs and build times.

14/07/2026 · 8 minute read

The dominance of traditional design-and-build procurement is being challenged by an alternative form of insurance-backed alliancing (IBA), backed by IPI. This is an approach that addresses many of the disadvantages of the conventional model and brings a range of significant strategic advantages.

In 1862, at the height of the industrial revolution, Dudley College of Technology opened its doors. More than a 150 years later, it is at the heart of another revolution: this time in the way construction projects are procured and delivered.

The college is the site for some of the first UK construction projects to have been procured using advanced insurance-backed alliancing (IBA), supported by IPI. The developments include three multi-million pound facilities,  all of which have delivered significant cost and programme savings.

IPI is an innovative approach to the procurement of insurance cover for clients and all other project partners. It is often described as “blame free” because it is designed to remove the adversarial culture that can develop when projects run into trouble.

Advanced IBA is a method of working that eliminates many of the potentially negative characteristics associated with traditional design-and-build models. These negatives include:

  • Lowest cost tendering
  • Cost-cutting to maximise profit
  • The fragmentation and the transfer of risk down the supply chain to parties least able to manage it

These practices have resulted in numerous disputes in which legal and forensic costs have debilitated both winners and losers. In professional indemnity insurance (PII) claims, it is estimated that up to 80% of the costs are attributable to legal and forensic activities, leaving only 20% to rectify the underlying defect or issue.

The concept of alliancing

The concept of alliancing dates back to the 1980s, where it was first used in the oil and gas sector. Its use then spread to the infrastructure sector, particularly the water industry.

The principle involves all parties entering into a cooperative form of contract that aligns commercial interests and promotes the joint management of risks. The approach makes it easier for construction companies and other stakeholders to pool their expertise, manage costs more effectively, and weather tough construction insurance markets.

Crucially, for an industry operating within tight profit margins, alliancing incorporates fair and transparent profit mechanisms. It also changes the way projects are insured, by providing cost-overrun cover alongside 12-year latent defects insurance (LDI) policies. This is achieved by removing any reliance on traditional PII.

Cost-overrun cover is a form of construction insurance intended to protect the financial performance of a project. Until recently, such cover has rarely been available. This is due to a clutch of high profile, multi-million-pound claims, both in the UK and abroad.

However, the alliancing approach supports an improved risk profile — allowing insurers to provide cost-overrun cover within the IPI framework. Although limitations may still apply, this represents a potentially game-changing opportunity for UK project procurement and delivery.

How does the advanced IBA approach work?

Advanced IBA is an incentive-based arrangement between the project owner and the stakeholders responsible for delivery, including contractors, architects, engineers, and subcontractors. It aims to optimise the capabilities of all of the stakeholders, remove conflicts, and drive efficiencies through transparency and collaborative working.

Alliance team members are often selected using behavioural workshops, ensuring that each one is capable of working as part of a coherent project team. All parties collaborate on a detailed brief, design, and construction cost plan. This enables the pooling of knowledge and best practices.

The alliance members — including the client — sign up to a single contract. This contains provisions that stipulate and incentivise shared responsibility. Both pain and gain are shared collectively. In practice, this means that all parties can benefit from the opportunities, while jointly managing the responsibilities and risks associated with project delivery.

In this approach, both “pain” and gain are linked to overall performance and not to the individual performance of specific parties. Above all, the risks associated with design, delivery, and cost are the equal responsibility of all members. This changes perspectives on issues such as innovation and efficiency.

How does advanced IBA interplay with construction insurance, including cost-overrun cover?

Construction insurance is a key element in the success of advanced alliancing contracts. Generally, no claims are allowed between parties, except in limited circumstances, such as wilful misconduct or statutory breach. This is designed to minimise each party’s potential legal exposure.

The IBA approach dispenses with separate insurance products for the construction phase, which are typically divided between professional services and construction delivery cover. Instead, the project is protected by a single integrated insurance policy covering both the client's investment and the project team’s potential liabilities above the agreed pain-share level — the level of risk to be collectively borne by the team.

Integrated project insurance (IPI) challenges conventional practices that are centred on protecting each firm’s interests and deflecting future claims. Instead, they promote a collective “best for project” mentality.

To provide reassurance to the insurers, the project team is supported by an independent facilitator, a technical independent risk assurer (TIRA), and a financial independent risk assurer (FIRA). In projects where Marsh is involved, the project team is also supported by our strategic expertise.

As part of IPI, the team is given a target price for the project. Participants are incentivised to collaborate to deliver the project below this target, as they will share in any savings that are achieved. However, they must also collectively share the cost of overruns up to an agreed capped sum. Beyond this threshold, the IPI cost-overrun insurance comes into play.

As already mentioned, IPI is designed to preclude the need for expensive PII cover, which is particularly valuable in the current market. Under the IPI-backed alliancing approach, traditional liability-driven PII (which requires proof of fault before responding) is replaced by project financial loss cover. Under this model, out-turn costs exceeding the target cost and agreed pain-share level are insured. This is combined with a bespoke 12-year LDI policy.

Why has the IBA approach not replaced design and build?

Alliancing is only used in an estimated 1% of projects in the UK. This is due to a number of challenges inherent in the approach:

  • Openness and trust are required between all the parties in this type of contract. Stakeholders depend on each other for success.
  • The approach requires changes in culture, attitude, and ways of working. This begins with the client’s initial approach, and applies to all parties, including those within the supply chain.

These issues have hampered IBA take-up in the UK. This reluctance has been compounded by the construction industry's traditional wariness of new processes and procedures. Adoption has also been hindered by the fact that, when moving to alliance contracts, there is a need to change the way construction projects are insured.

However, there are many reasons why IBA should be seen as an attractive prospect for project owners and developers. These include:

  • The success of the Dudley College projects (see box and table).
  • The fact that the IPI model of IBA is government-backed.
  • The availability of appropriate bespoke insurance products covering the works, third-party liability, cost overruns, and latent defects.

Based on these positives, Marsh is a strong advocate for this innovative approach.

Supporting collaboration in the UK construction industry

The proven success of IPI/IBA supports Marsh Risk’s belief that risk advisors and construction insurance brokers have an important role to play in continually challenging the insurance market, and supporting innovative, positive change.

Case Study:

How Dudley College of Technology exceeded its targets by using advanced IBA

Dudley College’s first alliancing project was the Advance II Construction Training Centre. This came in within 1% of the project budget, and 6.5% below the client’s investment target. This success was driven by the collaboration enabled through advanced IBA. In addition, the Advance II project met 99% of its success criteria and exceeded 23% of its targets.

The success of Advance II paved the way for the now-complete £32 million Institute of Transformational Technologies (IoTT), which handed over ahead of programme and under budget. Further projects followed (see box).

The insurance-backed alliance that delivered these projects was facilitated by procurement consultancy IPInitiatives, with construction insurances brokered by Marsh.

These outcomes are particularly notable, when compared with wider industry performance. The National Audit Office reports that 70% of construction projects exceed budgets, averaging 18% overruns. Typically, when projects exceed their budgets, the additional costs are covered by charging clients for design or scope changes, with main contractors also transferring risk to subcontractors and suppliers.

Our people

Ryan Knowles

Ryan Knowles

Vice President, Construction, Infrastructure & Surety Practice

  • United Kingdom

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