Subguard Update

1. Subguard Update Presented By: John D. Miller 9-27-2007

2. Subguard® Update: Program Changes • Subcontracts over $40M excluded 4-1-07 going forward subject to approval by Zurich • Zurich must approve all projects with duration over 36 months • Notification on all subcontracts over $20M must be provided by Insured • $150M aggregate exposure on any one Insured per year • Pricing levels increasing 15–30% • Retention levels increasing 15–30 % • Notice to proceed triggers coverage

3. Subguard® Update: The Surety Audit • *One major surety is conducting audits on their clients implementation of Subguard® • “Yes or No” answers and comments are documented by the surety in the following audit areas: -Account management / documentation -Financial and banking documentation -Work Program Documentation -Risk factors pertaining to the subcontractor

4. The Product: Target Customer • Rolling Programs • General Contractors and/or CM’s at risk • Annual subcontract values of $150M or greater • Contractor or CM • Has an appetite for risk • Exhibits strong subcontractor control • Is financially strong • Contractor Controlled Programs: CCIP fits well

5. Why wasSubguard® Created? • Provides consistent and efficient coverage • Puts control of subcontractor default risk in the hands of the Insured • Acts as a cost effective solution to mitigate subcontractor default risk • Moves the claims process forward at the control of the Insured and their insurer

6. Coverage: Simple Structure • One Set of Limits • Up to $50 million per occurrence • Up to $150 million total • Deductible • Co-payment • Retention Aggregates • Annual • Multi-year

7. The Product: Insuring Agreement • Covers loss due to “Default of performance by (your) Subcontractor / Supplier as respects any covered Subcontractor or Purchase Order Agreement” • Subject to limits of insurance • After application of the deductible and co-payment

8. The Product: Definitions • Covered Subcontractor / Supplier • Enrolled during policy period • Premium paid • Coverage in excess of “other” insurance • Does not apply to bonded subcontractor / suppliers • Covered Subcontract or Purchase Order Agreement • Executed during policy period • Default of Performance • Failure of Subcontractor / Supplier to fulfill terms of covered subcontract or purchase order agreement

9. The Product: Definitions (cont’d) • Covered loss means the costs and expenses paid by (you) to the extent caused by a default of performance of a covered Subcontractor / Supplier – less the unpaid balance of the Subcontract / Purchase Order including retention or recovery • Direct Costs • Completion of Subcontractor / Supplier’s obligation under the Subcontract / Purchase Order • Payment of amounts due to third parties under Subcontract / Purchase Order • Cost of correcting defective or non-conforming work • Legal and other professional fees • Costs, charges and expenses paid to investigate, adjust and defend disputes of loss • Multiple defaults by the same Subcontractor on one or more subcontracts are considered a single loss

10. The Product: Definitions (cont’d) • Indirect Costs – Not limited to: • Liquidated damages • Job acceleration • Extended overhead • Proof of Loss • Written description • Copy of Subcontract / Purchase Order • Default notice • Any other supporting evidence • Terrorism • Covered via “TRIA” (Terrorism Risk Ins. Act) • Otherwise Excluded

11. The Product: Exclusions • Bonded Subcontractor / Supplier • Pre-existing defaulted Subcontractor / Supplier • Insured’s dishonesty, fraud, omission or intentional misrepresentation • Transferred Subcontract / Purchase Order – unless agreed by carrier • Breach of warranty of covenant (not absolute) • 3rd Part Bodily Injury • Nuclear events • War • Insured’s professional services (not an E&O policy) • $40 million, or greater, subcontract or purchase orders

12. The Product: Deductible and Co-Payments • Deductible • Amount of each loss borne by the insured • Co-Payment • Applies after application of the deductible • Average annual retention aggregate: $1.6 million • Average 3 year retention aggregate: $2.7 million

13. The Product: Claims History • 350 claims are outstanding • Average claim size $1,034,000 • Average indemnity from Zurich $888,000 • Subcontractor prequalification is a question on over 50% of Subguard claims • Cost to perform replacement work is almost 2 times the original value of the subcontract • The largest claims have a significant rework component

14. Subguard: Claims Process Subcontractor default occurs Insured Incurs loss Payment / Doc. Preparation Proof of Loss Submitted Zurich Reimburses • Subcontractor defaults according to terms of • contract with insured • Written notification submitted to Zurich “as • soon as practicable” • Insured works to mitigate risk and prevent • loss

15. Subguard: Claims Process Subcontractor default occurs Insured Incurs loss Payment / Doc. Preparation Proof of Loss Submitted Zurich Reimburses • Due to contract default, Insured incurs direct • and indirect costs • Insured expends monies to maintain schedule and complete / correct Subs work

16. Subguard: Claims Process Subcontractor default occurs Insured Incurs loss Payment / Doc. Preparation Proof of Loss Submitted Zurich Reimburses • Insured prepares written documentation to • support loss incurred as a direct result of • Subcontractor’s default • Zurich Construction Consultants available to • consult on required documentation.

17. Subguard: Claims Process Subcontractor default occurs Insured Incurs loss Payment / Doc. Preparation Proof of Loss Submitted Zurich Reimburses • No pre-approval required by Zurich on • replacement subcontractor • Insured maintains control and flexibility to • manage project effectively • Can be submitted as costs are incurred and paid • Up to 10 years after substantial completion of the • covered subcontract / purchase order

18. Subguard: Claims Process Subcontractor default occurs Insured Incurs loss Payment / Doc. Preparation Proof of Loss Submitted Zurich Reimburses • Zurich RE reviews proof of loss, requests additional information • as necessary • Zurich RE provides Subguard® Claims Dept. with report based • on review of Insureds proof of loss • Zurich reimburses within 30 days of acceptable proof of loss • Process could include multiple payments up to 95% until net • amount of loss is ascertained • Zurich assumes subrogation

19. Subguard®: Customer Service Plan • Enrollment Process • Zurich Service Team • Rollout Presentations • Site Visits • Actual Service Plan • Presentation / Lessons Learned / Loss Reduction • Premium Reconciliation • Claims Reporting and Handling • Documenting the claim • Electronic Claims Notification • Claim Reconciliation

20. Risk Management First, Risk Transfer Second • Standard form of subcontract agreement • Limit scope to “agreed” prior to award • Schedules of value • Partial and final lien waivers • Check status of work prior to payment • Obtain inventories and bills of sale for stored material • Check subcontractors’ progress against schedule weekly • Monitor second and third tier subs for payment • Issue joint checks where needed • Conduct post project subcontractor evaluations