Contract works cover

​Benefits of local government controlled contract works insurance

Is your local government embarking on a major works project, like the construction of a new building, upgrade, or extension of an existing asset? Then you need contract works insurance – to give you control should anything go wrong on your big project.

Contract w​orks insurance is designed to cover losses during the construction, alteration, or extension of a local government building. The policy usually includes material damage cover (damage to insured property) and public liability cover (damage to third party persons or property).

As materials are incorporated into the structure during the construction period, the works progressively become the property of the member. However none of the work will be covered by your property protection insurance until the work is completed, handed over, and notified to LGIS. This gap is where contract works insurance comes in.

Insurance for 'material damage' covers the works against damage or destruction while under construction, and provides for reinstatement or reconstruction of works that are damaged or destroyed. The amount the work is insured for should be sufficient to fund the reinstatement of the works in the event of destruction or damage.

The 'liability' section covers liability for personal injury, death, property damage, or other loss sustained by parties, arising out of the project or contract. Unlike a general public liability policy, this includes any liabilities accepted by an insured party by way of the building contract e.g. defects liability or indemnity for the existing site.

Traditionally, local governments pass the responsibility for implementing insurance of the works and third party liability to the contractor, due to perceived ease and cost saving. The contractor then includes the costs of these insurances into their project fee.

However, there are significant benefits for LGIS members in holding onto this insurance responsibility, and arranging it is simple.  A bespoke principally controlled policy through LGIS comes with the following advantages:

Control of cover
You know best what your local government risks are and how you wish to manage them.  Your points of concern may not rank so highly on a contractor's list of priorities, who may arrange cover simply to provide for their own contractual or technical risks.  The cover must aim to take account of every party's needs, but procurement of the insurances by the local government allows the cover to be tailored to ensure your specific aims are satisfied.

Control of claims
The primary function of any insurance policy is the payment of claims, yet any claim has the potential to become complicated.  From first notification and loss adjuster site visits, through to the production of supporting information, negotiation and eventual settlement of the claim, you'd want the process to run smoothly and promptly.  Having a direct relationship with insurers and loss adjusters (often established during the procurement process) can ensure the successful conclusion of difficult claims.

Control of deductibles
Almost all insurance policies require the insured parties to bear a deductible.  If you, the member, lead the procurement of insurance, it gives you the ability to select suitable deductible levels, balancing the need to encourage contractors without being overly punitive.

Compliance with lending and funding requirements
It is common for financiers and funding bodies, including the state and federal governments, to ensure the insurances are controlled by local government, so that they can step-in to the right of the local government in the event of default under the lending/funding agreements.

Avoidance of cross-claims and disputes
A common panel of insurers across the project removes the potential for claims between parties and their respective insurers, as each seeks to protect its own interests.

Elimination of on-costs
With direct control of the procurement process, you can ensure that no additional premium mark up is passed on by the contractor.  Furthermore, even if the insurances were to be placed by the contractor, you'd still need to expend considerable time ensuring that insurances have been implemented to your satisfaction.

Protection from contractor default
In the event of a contractor being unable to fulfil their contractual obligations due to breach of conditions, contractual disputes leading to termination or contractor insolvency, you retain ownership of the policy and remain protected while retendering the project and replacing the contractor.  This greatly reduces your risk exposure from a contractor default and avoids difficulties associated with a new contractor insuring partially completed works.  The policy even provides an amount up to $25,000 for your cost to retender. 

LGIS can help you enjoy these benefits and using only the essential contract information can instantly provide quotes and bind cover for your construction projects with bespoke policy documents for the respective project provided immediately.

We have negotiated the broadest possible policy wording with our key market leading underwriting partners, allowing us to access competitive premiums whilst still obtaining robust coverage for local governments.

For more information, please contact your member services account manager on 9483 8888.