Candice Klau has more than 20 years of insurance broking experience and specialises in construction insurance for builders, developers and trade businesses across Australia.
Winning a tender for a larger commercial project is a significant step for any construction business. Before signing the contract, however, there is one important area that can easily be overlooked under the pressure of a tender deadline: whether your insurance meets the requirements written into the head contract.
For commercial builders, civil contractors and specialist trades, head contracts can contain detailed insurance requirements covering policy types, minimum limits, specific conditions and how different parties must be noted on the policy.
Whether you are tendering for commercial construction work in New South Wales, Victoria, Queensland, South Australia, Western Australia or any other state or territory, understanding the insurance requirements in your head contract before you sign is one of the most important steps you can take.
Identifying an insurance gap before signing is generally much easier than discovering one once the project has commenced.
What Insurance Is Commonly Required in a Commercial Head Contract?
Commercial head contracts in Australia commonly require Contract Works Insurance and Public Liability Insurance.
Depending on the project and the responsibilities accepted by the builder, additional cover such as Professional Indemnity Insurance, Plant and Equipment Insurance, Management Liability Insurance, Cyber Insurance or Marine Cargo Insurance may also be required.
The exact requirements vary between contracts, which is why the insurance schedule should be reviewed against your existing insurance program before you sign.
Why Insurance Clauses in Head Contracts Matter
Providing a Certificate of Currency is only one part of meeting the insurance requirements of a commercial construction contract. A head contract may specify:
- Types of insurance required
- Minimum policy limits
- Who needs to be noted on the policy
- Specific clauses or endorsements
- How long insurance must remain in place
- Insurance requirements for subcontractors
If your existing insurance does not align with the contract, there may be a gap between the liabilities you have accepted and the protection provided by your insurance program.
Failing to meet these requirements before signing can mean being unable to commence work, being in breach of contract from day one, or having a claim affected because the policy does not match the contract requirements. A gap identified before signing is generally straightforward to resolve with the help of a specialist construction insurance broker.
Common Insurance Requirements in Commercial Head Contracts
Contract Works Insurance
Contract Works Insurance is commonly required for commercial construction projects. When reviewing the contract, builders should check the following.
Minimum insured value
The contract will typically require Contract Works Insurance for the full value of the works, including variations. The insured value needs to reflect not just the original contract sum but also any agreed variations and potential cost escalation over the build program.
Policy period
The policy must typically cover the full period of the works from commencement through to practical completion, and in some cases through the defects liability period. The policy period should align with the project program, including any likely extensions.
Principal as interested party or additional insured
Many head contracts require the principal or project owner to be noted as an interested party or additional insured on the Contract Works policy. This needs to be arranged with your insurer before the contract commences.
Existing structures
Where construction work is being carried out on or adjacent to existing buildings or structures, the head contract may require that those existing structures are covered under the Contract Works policy. This is not always a standard inclusion and may need to be specifically arranged.
Maintenance period cover
Some contracts extend the insurance requirement through a maintenance or defects liability period after practical completion. It is worth checking whether your policy covers this period or whether a separate arrangement is needed.
Public Liability Insurance
Commercial head contracts may specify Public Liability limits such as $10 million or $20 million, although the required amount varies depending on the contract and project. Builders moving into larger commercial work for the first time are sometimes surprised to find that the limit they have carried for years is no longer sufficient to meet the contract requirements in front of them.
Builders should also check the following.
Cross liability provisions
Many head contracts require a cross liability clause to be included in the Public Liability policy. This clause effectively treats each insured party as a separate entity, so that a claim by one insured against another is treated as if separate policies were held. Not all standard policies include this as a default and it may need to be specifically endorsed.
Principal noted as additional insured
Some head contracts require the principal or project owner to be noted as an additional insured on the Public Liability policy. The specific wording in the contract should be checked carefully, as requirements can differ between principals.
Contractual liability cover
Liability assumed under a contract, beyond what would apply at common law, may not automatically be covered under a standard Public Liability policy. This is worth checking carefully where the head contract includes indemnity clauses or specific liability obligations.
Products liability
Where the contract involves the supply or installation of products, a products liability requirement may be included. This is typically included within a standard Public Liability policy but should be confirmed.
Professional Indemnity Insurance
Professional Indemnity Insurance is increasingly relevant where builders undertake Design and Construct work or accept design or professional responsibilities.
Professional exposure can arise through consultant coordination, shop drawings, specifications, product or material substitutions, performance-based solutions, technical advice and design management.
Where Professional Indemnity Insurance is required, builders should also check the required limit and policy terms against what the contract specifies, and whether the contract requires retroactive cover to be maintained for a period after the project is completed. Professional Indemnity policies are typically written on a claims-made basis, so this is worth discussing with your broker before signing.
Other Insurance Requirements to Look For
Depending on the project, additional requirements may include:
- Plant and Equipment Insurance: where the builder is responsible for significant plant or machinery on the project
- Management Liability Insurance: increasingly required by larger principals and government bodies as part of prequalification or contract requirements
- Marine Cargo or Transit Insurance: where significant materials or equipment are being transported over long distances
- Cyber Insurance: an emerging requirement on larger commercial and government projects where the builder manages project data or digital platforms
Not every project will require these policies, so the contract and insurance schedule should be reviewed carefully before signing.
What Should Builders Check Before Signing a Head Contract?
Before signing any commercial head contract, builders should ask the following questions:
- What insurance policies are required?
- What minimum limits apply?
- Does the principal need to be noted on any policies?
- Are specific clauses or endorsements required such as cross liability or contractual liability?
- How long must each policy remain in place?
- Does insurance need to continue beyond practical completion through a defects liability or maintenance period?
- Are there specific subcontractor insurance requirements?
- When do Certificates of Currency need to be supplied?
If something is unclear, a construction insurance broker can review the insurance requirements against your existing program. Questions involving the interpretation of contractual obligations may also require advice from a qualified legal adviser.
Head Contract Insurance Checklist for Builders
Before signing a commercial head contract, builders should confirm the following:
- Contract Works Insurance meets the required project value including likely variations
- The policy period covers the required construction period including any maintenance or defects liability period
- Principal is noted as interested party or additional insured on Contract Works policy if required
- Existing structures cover is included if required under the contract
- Public Liability limits meet the contract requirements
- Cross liability provisions are included in the Public Liability policy
- Contractual liability cover is confirmed
- Principal is noted as additional insured on Public Liability policy if required
- Professional Indemnity Insurance is in place if the contract is Design and Construct or involves design or professional responsibility
- Workers Compensation is current and covers all employees on the project
- Certificates of Currency contain the correct business name, policy dates, limits and insured entities
- Subcontractor insurance requirements have been reviewed and Certificates of Currency are being collected
- Any additional insurance requirements such as Management Liability, Cyber or Marine Cargo have been identified and addressed
Frequently Asked Questions
What insurance is typically required in a commercial head contract in Australia?
Commercial head contracts in Australia commonly require Contract Works Insurance and Public Liability Insurance as a minimum. Depending on the project and the responsibilities accepted by the builder, Professional Indemnity Insurance and other covers such as Management Liability or Cyber Insurance may also be required. The specific requirements vary between contracts and principals, which is why the insurance schedule should always be reviewed before signing.
What Public Liability limit do builders need for commercial head contracts?
There is no single limit that applies to every commercial construction project. Head contracts may specify limits such as $10 million or $20 million, while some government or infrastructure projects may require higher amounts. Builders should check the specific requirement in the contract before tendering rather than assuming their current limit is sufficient.
Do I need Professional Indemnity Insurance for a Design and Construct contract?
Professional Indemnity Insurance is commonly required where a builder accepts design or professional responsibilities under a Design and Construct contract. Even where an external designer or consultant is engaged, the builder may still carry professional exposure through design coordination, shop drawings or performance-based specifications. It is worth reviewing this with your broker before signing.
What does it mean to note the principal as an additional insured?
Noting the principal as an additional insured means the principal or project owner is included as an insured party under your policy. This is a common head contract requirement that needs to be specifically arranged with your insurer before the contract commences. It is not a default inclusion on most policies.
What is a cross liability clause and why does it matter?
A cross liability clause treats each insured party under a policy as if they held a separate policy, so that a claim by one insured against another can be covered. This is a common requirement in commercial head contracts and may need to be specifically endorsed onto your Public Liability policy if it is not already included as a standard feature.
Can an insurance broker review a head contract before I sign it?
Yes. A construction insurance broker can review the insurance schedule and insurance clauses against your existing insurance program to help identify required limits, policy conditions, endorsements or potential gaps. If questions arise about the interpretation of contractual obligations, a qualified legal adviser should also be consulted.
What should I do if my insurance doesn’t meet the head contract requirements?
Speak with your insurance broker before signing. Depending on the requirement, it may be possible to adjust limits, request endorsements or arrange additional cover before you commit to the project. The same gaps are significantly more difficult and costly to address after a contract has been signed or a claim has occurred.
Need Help Reviewing a Head Contract Insurance Schedule?
At Be Covered Insurance Brokers, we work with commercial builders, civil contractors and construction businesses across Australia to review insurance requirements contained in tenders and head contracts.
Have a head contract or tender to review? Speak with the Be Covered team before you sign.
General information only: This article provides general information and does not take into account your specific business, contracts, projects or insurance needs. You should seek advice from a qualified insurance broker and, where appropriate, a legal adviser before making decisions about your insurance or contractual obligations.
