Building Construction Consultants - insurance requirements
Treasurer's Instruction 1216 requires that agencies must ensure that consultants retain suitable levels of Professional Indemnity (PI) insurance and Public Liability (PL) insurance for the scope of the services for which they are engaged. The level of insurance should be appropriate to the identified risk exposure. Insurance requirements are included in contracts to ensure that the consultant has the financial resources to respond to claims where it is found liable.
The Department of Treasury and Finance maintains a Consultant Prequalification Scheme for building construction consultants and will ensure that any prequalified consultants have a minimum level of acceptable insurance cover at the time of registration. However, this minimum level may not be sufficient to appropriately cover the contract work being undertaken. You must assess the risk associated with each project and adjust the level of cover required in the contract, according to the assessed risk.
A consultant must not be commissioned for Government building services unless adequate PI and PL insurances are in place and agencies are responsible for ensuring that insurance is current at the time of the engagement and is appropriate for the assessed level of risk of the project.
The current minimum levels of insurance required for registration under the CPS are:
Type of Insurance
Minimum level required
Professional Indemnity Insurance
Public Liability Insurance
Agencies are also responsible for ensuring that consultants who are not prequalified have appropriate levels of insurance.
Limiting liability by sharing the risks involved in complex, high-risk projects should only be considered by agencies in exceptional cases and with advice from Crown Law. However, it is recognised that for particular activities (eg asbestos, toxic mould and terrorism) insurance may not be available and that Government may need to accept some of the risk.
Secondary and sub-consultants should have the same insurance requirements as the prime consultant. It is therefore important that agencies authorise consultants only to engage sub-consultants, where applicable prequalification categories exist, who are registered under the CPS, for projects within their level of registration.
Information in relation to risk assessment, suggested minimum levels of insurance per contract value and explanatory information in relation to the insurance types is available in the publication Guidelines: Professional Indemnity and Public Liability Insurance.
Notification of a Claim
It is important that the Crown Solicitor be advised of any circumstances that could give rise to a claim. This will allow the Crown Solicitor to:
- record relevant information without delay;
- appoint officers who are best able to protect Government's interest, to handle the claim; and
- provide advice and assistance on the possibility of settling the claim out of court.
No costs or expenses should be incurred in connection with the claim without the involvement of the Crown Solicitor.
For further information or advice in relation to insurance in contracts or policy terms and conditions it is recommended that agencies contact the Crown Solicitor.
Building Construction Contractors - insurance requirements
Treasury has negotiated an insurance policy for use by contractors for works and public liability insurance. Part of the advantages of the Principal-nominated insurance policy is that insurance cover is on terms known and satisfactory to the Government. An overview of the policy (including excluded works) and the current premium rates can be found in the Publications section of this website. These rates change annually.
It is mandatory for agencies to ensure that contractors effect insurance of the works and public liability insurance through the Government's Principal-nominated insurance policy for all major works building construction projects.
Reference to this requirement and information on the premiums etc is included in the Crown Solicitor pro forma Request for Tender documentation for major works.
It is also mandatory that this policy be used for all minor works projects with a value of $50 000 and above, unless a risk assessment undertaken by the agency indicates that the use of the Principal-nominated insurance policy is not warranted.
Agencies should consider insurance issues as early as possible before the competitive process commences.
Where the policy is to be used for minor works, the agency should consult Crown Law to ensure that the procurement documentation issued, as well as the ultimate contract with the contractor, will reflect the need for the contractor to use the Principal-nominated policy.
It is the agency's responsibility to ensure that appropriate insurance is in place, including that to cover existing buildings. Agencies must advise the Government's insurance broker of contracts to be covered by the policy (or requiring insurance if works are excluded under the policy) in a timely manner following the awarding of contracts to ensure that appropriate insurance is initiated. The advice to the broker should include the contract sum and the value of any Principal-supplied materials.
Advice can be provided to the Government's insurance broker, Jardine Lloyd Thompson Pty Ltd (JLT) either through the Tenders website (for contracts above $50 000) or by emailing the completed pro forma Building Construction Contract Award Advice Form to JLT. Agencies should ensure that awarded contract information is entered onto the Tenders website within the time required by Treasurer's Instruction 1212, as this will trigger an email to the broker which will act as a check on insurance requirements.
JLT will issue an invoice for the premium to the appropriate notified party. For roads and bridges this will generally be to the Department of State Growth. For all other contracts, the invoice will be issued to the person nominated by the agency in the form of advice - this is usually the contractor. At the same time that JLT issues the invoice for premium, a copy will be emailed to the agency contact officer. This email will operate as evidence that cover has been placed to enable agencies to comply with the requirements of the Treasurer's Instructions in relation to commencement of work ie agencies must ensure that a successful contractor does not commence work until evidence has been received by the Superintendent or the agency that the Principal-nominated insurance is in place. Cover will be arranged by the Government broker and will generally run from the date of advice provided to the broker.
An agency must make arrangements to effect cover, should a contractor fail to do so.
If the Government's broker is advised of a contract that is required to be covered under the policy but the contractor fails to pay the premium, the insurance broker will advise the agency's contact officer. The Superintendent is to be notified and is to make arrangements for the agency to pay the outstanding premium and, where allowed for in the contract, is to deduct this amount, plus $250 to cover the principal's costs from any amounts becoming due to the contractor under the contract.
When using the Crown Solicitor's pro forma RFT document for major works, this is referred to in clause 13 of Annexure Part C. For minor works projects, agencies should ensure that similar provisions are included in the contract documentation. If necessary, advice from the Crown Solicitor should be obtained on changes to documentation.
The actual procedures to be used are at the discretion of the agency.
Failure by the contractor to pay the premium on any Principal-nominated insurance does not invalidate the cover. The Principal may effect or maintain the insurances, and provided the matter is covered by the procurement documentation issued, the amount of any premiums paid to the broker, plus an amount of $250 to cover the costs, shall then be a debt due from the contractor.
A copy of the Principal-nominated insurance policy is available from the Manager, Contract Management Unit, Department of Treasury and Finance, Procurement and Property Branch.
Information on what works are covered or excluded in the Policy is available by contacting the Government's insurance broker, Jardine Lloyd Thompson Pty Ltd, at Level 3/2 Kirksway Place, Battery Point (Ph: (03) 6220 7401). A brief summary of the policy and premium payable can also be provided by the broker directly to the contractor, if required.
An information sheet explaining what Principal-nominated insurance is and when and why it is required etc, has been prepared to help building construction contractors understand a bit more about Principal-nominated insurance. Agencies are encouraged to distribute, or refer, the information sheet to contractors seeking information about the insurance. The information sheet Principal-nominated insurance - Information for building construction contractors can be located on the Winning Government Business website or by following this link.
When cover has been placed, agencies are responsible for advising JLT as soon as possible (preferably by email) when any one of the following occurs:
- if a contract is to be extended beyond that originally advised AND the construction period is likely to exceed 18 months from the date that the cover becomes effective (ie. the date of notification to JLT that the cover needs to be placed); and/or
- if there is a material change in risk in relation to the contract. Generally, this means a change to the contract outside of the original scope or specifications.
If in doubt, agencies are encouraged to contact JLT for advice. Outside of these circumstances there is no obligation on agencies to advise JLT when the contract has completed, nor is there a requirement to advise the final contract price.
The contractor must notify the insurance broker immediately of any accident or circumstance which might give rise to a third-party liability claim. The contractor is to make claims direct to the broker and is responsible for meeting any excesses under the policy.
Professional Indemnity Insurance
Professional indemnity insurance is applicable only for Design and Construct (D&C) and Design Develop and Construct (DD&C) (AS 4902-2000) contracts and is to cover any design or documentation of the works by the contractor or sub-contractor.
Before commencing work under the contract, the contractor shall effect a professional indemnity insurance policy. The policy shall cover the contractor for liability to the Principal for a minimum amount of $1 000 000 or 20% of the contract sum, whichever is the greater, to a maximum of $5 000 000 for loss (whether economic loss only or other loss) in a single occurrence arising from errors or omissions in design or documentation of the works carried out by the contractor or any subcontractor. The policy is to include at least one automatic reinstatement after claims have been paid.
The policy shall be effected with an insurer and in terms approved in writing by the Principal. The policy shall be effected before commencing work covered by the policies and be maintained until the Final Payment Certificate is issued.
Insurance of Employees
Before commencing work, a contractor is obliged, under AS 2124-1992, Clause 20, to insure against liability for death of or injury of any persons employed by the contractor, including liability by statute or common law. The contractor must also ensure that every sub-contractor is similarly insured.
As soon as possible after the award of the contract and before any contract work commences, the Superintendent must receive proof of insurance cover from the contractor.
Roads and bridges
Insurance for roads and bridges works is managed and paid for by the Department of State Growth.