What is contract works insurance? In short, it covers the project itself — the building, structure or civil works — against physical loss or damage while it is being built. Fire, storm, theft, malicious damage and accidental damage to partly completed work are the typical events. It is usually written together with public liability, and it is often a condition of the building contract. Our contract works insurance page covers the options we arrange; this article explains how the cover works in practice.
What Is Contract Works Insurance Protecting?
Until practical completion, a project is exposed in ways a finished building is not. Frames are open to wind, excavations fill with water, materials sit on site, and hot work, temporary power and several trades all operate at once. A standard building policy is not designed for a structure still under construction, and an owner’s existing property policy often restricts cover during major works.
Contract works cover fills that gap. The policy responds to physical loss or damage to:
- The permanent works — everything that will form part of the finished project.
- Temporary works — formwork, falsework, shoring and hoardings that form part of the contract.
- Materials on site intended for incorporation into the works, including materials supplied by the principal if they are declared.
- Materials off site or in transit, usually under a sub-limit, where the policy extends to them.
The sum insured should be the full contract value, including variations as they are approved and any materials the principal supplies. If the declared value falls short, the insurer may reduce a claim in proportion — the same principle explained in our guide to underinsurance and co-insurance.
Common Extensions Worth Understanding
The core cover is the works. The extensions are where policies differ, and where a claim is often won or lost.
- Removal of debris. Clearing a damaged site before rebuilding can be expensive and needs its own limit.
- Professional fees. Architects’, engineers’ and surveyors’ fees to redesign or certify reinstatement work.
- Expediting costs. Overtime and express freight to get a project back on programme after insured damage.
- Escalation. An allowance for cost increases over a long project.
- Existing structures. On renovations and extensions, damage to the existing building is commonly excluded or limited unless declared. This is a frequent gap on alteration work.
- Contractor’s plant and tools. Site sheds, scaffolding you own, hand tools and plant can sometimes be added, although many contractors insure these under a separate plant or tools policy.
- Defects liability period. Cover usually continues in a limited form after practical completion, typically for damage you cause while returning to fix defects.
The Public Liability Section
Contract works policies are commonly written as a combined construction policy, with a public liability section alongside the material damage cover. The liability section responds to injury to third parties and damage to their property arising from the work — a neighbour’s wall cracked by excavation, a passer-by struck by falling material, a parked car damaged by site activity.
Points to check in the liability section:
- The limit matches what the contract requires. See public liability insurance for how limits and the occupation description interact.
- Vibration, and removal or weakening of support, is covered. Some policies exclude it or apply a higher excess, which matters on any job with excavation, piling or demolition next to existing buildings.
- Damage to underground services is covered, and the conditions attached — service location, dial-before-you-dig records — are ones you can actually meet.
- Subcontractors are either covered under your policy or required to carry their own. Our guide to subcontractor insurance requirements goes through that decision.
What the Contract Will Ask For
Building contracts usually include an insurance clause setting out who must insure the works, for what value and on what terms. Principals, head contractors and financiers commonly ask for:
- The works insured for full reinstatement value, including principal-supplied materials.
- The principal named as an insured or noted as an interested party, so the policy recognises their interest in the project.
- A principal’s indemnity or principal’s interest clause, extending liability cover to the principal for claims arising from the contractor’s work.
- A cross liabilities clause, so each named insured is treated as if separately insured.
- A waiver of subrogation in favour of the principal.
- A stated public liability limit.
- A certificate of currency before work starts — see what a certificate of currency shows.
Read the insurance clause before you sign, not when the principal asks for your certificate. If the contract requires something your policy does not provide, the time to fix it is before the work starts. Some clauses also ask the contractor to indemnify the principal for losses well beyond what any policy would pay. That is a contract negotiation issue as much as an insurance one, but your broker can show you where the gap sits.
Project-Specific Versus Annual Policies
There are two common structures.
Annual policies, sometimes called turnover policies, cover projects started during the policy period, up to a maximum contract value per project. They suit builders and contractors running a steady flow of similar jobs. The premium is typically based on declared annual turnover and may be adjusted at the end of the period. The discipline is checking every new contract against the maximum project value, the type of work covered and any geographic limits.
Project-specific policies cover a single named project from commencement to practical completion, plus the defects period. They are used for projects above an annual policy’s limit, for unusual or higher-risk work, for owner-builders, and where a principal wants control of the insurance.
A project that exceeds your annual limit, or involves work the annual policy excludes, needs its own policy arranged before work starts. Finding out after a loss is too late.
Common Exclusions
Contract works cover responds to sudden physical loss or damage. It is not a warranty on the quality of the work. Common exclusions include:
- Defective workmanship, design or materials. The cost of fixing the defect itself is generally excluded. Some wordings cover resulting damage to other parts of the works; others do not. Design faults may fall to a designer’s professional indemnity insurance.
- Wear and tear and gradual deterioration. Rust, rot and slow deterioration are not sudden events.
- Consequential loss. Liquidated damages, delay penalties and lost profits are generally outside cover.
- Mechanical or electrical breakdown of plant, unless separately insured.
- Unexplained losses, such as shortages discovered at a stocktake, and in some wordings theft without signs of forced entry.
- Existing structures that were not declared.
- Water in open works. Higher excesses or specific conditions for open excavations and incomplete roofs during storms are common.
Who Should Insure: Builder or Owner?
The contract decides, and it can go either way.
In many building contracts the builder or head contractor insures the works and the principal is noted on the policy. The builder controls the site, so it makes sense for the builder to control the insurance. Subcontractors are then usually covered under the head contractor’s policy for their work on that project, but their own tools and plant are not.
Some principals prefer a principal-controlled policy covering all parties, particularly on larger projects. Owner-builders, and owners managing their own renovations with trades engaged directly, need to arrange cover themselves, because there is no head contractor policy to sit under.
The real risk is duplication or, worse, a gap where each party assumes the other has insured. Confirm in writing who holds the policy, check the certificate, and make sure the values and the parties named match the contract.
Home warranty or domestic building insurance is a different product again, with requirements that vary by state and territory. It is not a substitute for contract works cover, and contract works cover is not a substitute for it.
For how contract works fits alongside plant, vehicles, liability and tools, see our construction industry insurance page.
Common Questions
Is contract works insurance compulsory?
It is usually a condition of the contract rather than a general legal requirement. Read the insurance clause, and check with your licensing body whether it expects you to hold any separate insurance, as requirements vary by state and territory.
Does contract works cover my tools?
Not automatically. Some policies add contractor’s plant and tools as an extension, but many contractors insure tools separately.
What happens if the contract value increases?
Tell your broker. Variations increase the value at risk, and an annual policy has a maximum project value the revised contract must still fit within.
Does it cover my faulty work?
Generally no. The cost of rectifying defective workmanship is excluded, although some wordings cover resulting damage elsewhere in the works.
Talk It Through
Request a quote or call 1300 983 940 and we will match your contract works insurance to the insurance clause in your contract.
General advice only. This article does not take your objectives, financial situation or needs into account. Consider the relevant PDS and Target Market Determination before deciding on a policy.