Contract Works or Construction Works insurance is a common requirement in building contracts and financial institutions funding projects normally require that it be held as loan security. Beyond that, it is good business practice to carry this type of policy to protect any building works.
What is Covered by Construction Works insurance?
The purpose of construction works insurance is to cover building works against loss or damage during construction. Insurance can be organised for specific projects or as an annual policy with the premium paid on turnover. When arranging a policy, you should be sure it covers the following:
Loss or damage.
At the very minimum, your policy should cover theft, malicious damage, wind, storm, flood and other water damage, cyclone, tsunami, subsidence and landslip, fire, and earthquake. The costs of correcting any defective work are not normally included. However, it should be clear how the policy will respond to resultant damage to correctly performed work caused by defective materials, workmanship, design, plan or specification in other areas of the work.
Insured works.
This should cover all property in the construction, ancillary and temporary work, including items like formwork, falsework, scaffolding, sheds and on-site amenities, whether owned or hired.
Settlement of claims.
The amount paid should cover costs at the time of repair or replacement and allow for the builder’s margin to be added to any damages.
Plant, machinery, equipment and tools.
These items, both owned and hired, should be covered both on-site and off-site, including any mobile plant. It should also be clear whether cover is for replacement value or depreciated value, and what conditions apply to unattended items, such as locked site huts and vehicles.
Insured parties.
Cover should be applicable to the builder, owner, contractors and subcontractors, financiers and, in certain cases, project managers, architects, engineers and consultants.
Works limitations.
Most policies limit the type of work that is insured. The policy should cover the parameters of your project, especially regarding the scope and type of works, location, project value, construction and defects liability periods.
Cover period.
This period generally covers from commencement, through construction until completion. You should probably include an extra time allowance, as some contracts may have a delayed handover.
Alterations and additions.
A construction works insurance policy only covers the new works being undertaken. In the case of renovations, establish contractual responsibility for cover of the existing property, and the property owner’s cover and liability during your works.
Additional policy contingencies.
There are many additional contingencies to be covered under a construction works policy. These contingencies may be included in the building contract or insured optionally. They may include any or all of the following: owner-supplied materials, professional fees, variations and escalation costs, removal of debris, mitigation expenses, materials in transit, government and other fees, off-site storage and fabrication, and possibly allowance for these circumstances. This information should be seen as a guide but may not be exhaustive. It is essential to read all policy documents and ensure your compliance with the insurance provisions of all building contracts.
