Michelle Cirson (00:01)
Hello, welcome to the Subbies' Toolbox podcast. I'm your host, Michelle Cirson construction lawyer, adjudicator, and the creator of the Subbies Toolbox. Today on my podcast, we're talking about Contract Works Insurance. This is going to be a interesting and possibly controversial podcast. ⁓ But my goal is to help subcontractors understand what Contract Works Insurance is, why your builder keeps asking you for it.
how to work out where it is in your contract and make sure that you are complying with the terms of your contracts with your builder if you are required to have this Contract Works Insurance policy and help you work out when Contract Works Insurance would apply versus public liability. So in the first instance, what is Contract Works Insurance? So Contract Works Insurance is an insurance policy that ensures loss or damage to your work.
It's the work that you are carrying out. So if you are a water proofer, you're installing a waterproofing membrane, there is a value in the work that you've carried out. And if that work was to be lost or damaged and you had to do the rework, the person under the contract that is obliged to reinstate the work should really hold the insurance policy. Now this is where it gets a bit tricky because
For different trades, it makes sense for some subcontractors to hold contract works insurance, but for other trades, it's completely ridiculous. So for example, if I'm a demolition subcontractor and my contract says that I must hold a contract works insurance policy to reinstate the work that I'm carrying out, then it would make very little sense.
for that demolition subcontractor to have a policy because there's never going to be anything that's actually insurable because we're demolishing things and taking them away. So you see how you really need to logic through with your particular trade, whether or not contract works, insurance would be relevant. So the trick to working this out is thinking about in the context of your trade, when do you have work for value or when are you doing something valuable or
When are you in the care of materials, equipment or goods that the builder has given you to install in connection with the work? And do you have insurance if something were to go pear shaped at that point in time? So an interesting scenario to think about would be if you were a crane subcontractor. So tower crane companies that hire tower cranes to builders, they usually have on and off hook.
contract works insurance policies. And that's because you can imagine if you had the tower crane in operation and you were lifting something at a particular point in time, say you're lifting a very piece, expensive piece of mechanical equipment to the rooftop of the building and the crane has that expensive equipment in the crane operators care for the period that it is on the hook and off the hook.
Now the way that most builders contracts are written, the builder's contract will require you to care for the work up until 4pm on the date of practical completion. So if you're a water proofer, that means that you might go and do the membrane to the basement, might install the basement waterproofing system. And then you might, it might be two years before you go and do a rooftop waterproofing membrane or
apartment waterproofing membranes because the project goes for that long. But under the terms of your contract, you would be required to care for and reinstate the waterproofing membranes from the ground floor while the Tyler comes in and installs over the top of your membrane. The shower screen subcontractor might be fixing shower screens and putting fixings into the substrate. There are a whole raft of other trades that are going to follow you who could damage your work.
Strictly in accordance with the contract, the contract, you left it at you caring for the work up until 4pm on the date for practical completion, you would be the party obliged to reinstate the membrane if somebody damaged it. Now the reason builders want you to have this in your contract is because builders have very big excesses to pay on their contract works insurance policies. That's because when the builder gets a policy for contract works insurance, it covers the whole project.
So the work that the builder is undertaking under the contract is under the head contract that their contract works insurance policy would cover is normally all of the trades work. So it makes sense for the builder to have one policy that covers all of the trades. And that's because if there was a big fire and the whole building burnt to the ground, the builder is not going to want to go and ask every single individual subcontractor to make a claim under their contract works insurance policy.
wait for that claim to be processed so that the subcontractors can afford to go and reinstate the work. Instead, the builder holds the contract works insurance policy for the whole of project. And if the whole building burnt to the ground, every trade should get a variation to come back and do the rework involved in that. Now, the exception to that would be if you are the subcontractor who caused the fire that burnt the whole building to the ground. So obviously, unless the loss or damage
is caused by you, shouldn't really be required to reinstate for the loss of damage. Now guys, I have to caveat this with, I'm talking to you from a common sense perspective here. The way that builders contracts are written, they're written to automate in favor of the builder. And so the builders lawyers in the insurance clauses almost always require subcontractors to number one, care for the work.
up to 4pm on the date of practical completion. Number two, reinstate the work that is lost or damaged while that work is in your care. So at any point up until 4pm on the date for practical completion, the subcontractor would be required to reinstate if the work is lost or damaged. So this is a real problem. The contract works requirements under builders contracts often can't be
It's not possible to comply with them for every trade. So if you're a form worker and you're trying to get a contract works insurance policy, it's going to be very difficult for you to even obtain a policy because all of your work is temporary. Likewise, waterproofers have real problems for the reasons that I've talked about in this podcast. You're going to be putting your membrane down and other trades are going to be following. If you're a plasterer and the painter follows you and you're actually, you're a sub, what I call a substrate trade where
you're the sandwich, the meat between the sandwich. There's another trade that's come before you who's effectively given you a substrate. You're going to install your component of work and then another trade will come by after you. And if you're a ceilings and petitions subcontractor, it's the painter, it's the Tyler, it's the joinery subcontractor. It's anybody who's effectively fixing things into the walls and ceilings that you've installed. If you are required to care for the work up until 4pm on the date for practical completion,
there's a good chance the builder is going to argue that if your work is lost or damaged, that you have to make a claim under your own insurance policy. They're going to want that because they don't want to pay their excess if you can pay your excess and get that problem fixed. So the way that we see this play out most commonly is electricians having copper cable that is stolen. So if you deliver a whole bunch of cable to site,
anything copper really for any of the trades that are doing that at the moment. If it gets stolen, it's not going to be a big enough cost for the builder to warrant going in, paying the excess under their contract works insurance policy to get paid out for the lost or stolen goods. Instead, what the builder will do is they'll come to you and say, no, you were required to care for the work up until 4pm on the date for practical completion. You have to reinstate your cost.
Now, if the building did burn to the ground and you were required to hold a contract works insurance policy and you didn't have that policy, or even if you did have the policy and the contract required you to have the policy, that means that the builder's insurer may well come after you for your portion of what your insurance policy should cover. So that could play out well after the incident is resolved. You might have already completed your work again.
and your insurers are now fighting with each other, which could have a bearing on how much you pay for a policy moving forward. So some of the ways that builders bully subcontractors into holding these insurance policies is to say, well, listen, if you were a really sophisticated, a professional business, it's reckless for you to not have insurance over your work. Well, that's actually not the case. The work is insured. The work is insured under the builders contract works insurance policy.
And most principles under the head contract will require the builder to hold the contract works insurance policy. We have seen some exceptions with this. Think maybe Cross River Rail and some of the big government projects. There's insurance policies held by the government at the top level. And because it covers multiple main contractors for work that's being carried out. But the way that you can get around this in your contracts.
is number one, go and check clause 16 of any Australian standard contract or the insurance clauses. They may have been renumbered if the lawyers renumbering them when they're drafting them. But if it's an Australian standard contract, usually somewhere between clause 15 and clause 19, the insurance clauses will pop up and where it says insurance of the contract works, that's what you're looking for there.
Don't assume just because the builder in the part A schedule has not listed contract works insurance that it doesn't apply because the clause may well just say inside the clause itself that you have to hold the policy. It might not say if item 17 states that you must hold the policy, then you have to hold the policy. ⁓ Most contracts that I've seen recently don't actually list contract works in the schedule. They just talk about it in the general conditions.
So you're going to need to cross out the requirements, hold contract works insurance. The other thing that you want to be marking up is the period for which you have to care for the works. And that period should really only be the period in which the work is in your possession or control. So if you don't have site possession, you don't have any authority to
direct any other subcontractors to do anything. You don't have any contractual right to backcharge other subcontractors if they damage your work. And other trades are coming in and taking possession of your work and doing their work over the top of your work. Really, you should not be caring for the work any longer than the timeframe it took you to supply and install the work in the first place. So one of the markups we do in our contract review process is to ensure that the
risk of the work passes to the builder upon incorporation and sign off with an ITP. So we say look once we've got out each progressive area of work complete and signed off with an ITP and we effectively move out of that area and then trades that follow us come in that is the point at which the builder takes on the risk of the works and so the builder has to care for the work from the point that we hand it over to the next trade that follows. So that's the first
thing that I like to mark up in a builder's contract is we're only going to care for the work up to the point that we no longer have possession of it. Once you take possession of the work, it's on you build up to hold the insurance policy. The second thing I like to mark up is typically contracts will have a clause called accepted risks. And I'm going to spell that for you because it's not easy to find it's E X C E P T E D accepted risks.
And in the list of accepted risks, you'll see things like war, ionizing radiations, all of the really far fetched things that don't happen very often. But it does normally say that any actor or mission of the main contractor, i.e. the builder, would be an accepted risk. And ⁓ any loss or damage caused by the builder's subcontractors usually is covered by that clause.
defects in design. So in the Australian standard contract clause for accepted risks, those are the risks that you are not responsible for insuring for. So if you do have a Contract Works insurance policy, sometimes subcontractors will have a Contract Works insurance policy simply because you have a broad form policy and it comes in a package, a business pack that you get. ⁓ It's still important for you to be reviewing your contracts.
making sure that you know the period for which you have to care for the work. And that means that's the duration for which if something went pear shaped, you would have to reinstate it at your cost. So you would not get a variation to do the rework. The accepted risks are the exception to the rule where you would have to reinstate. So I like to mark up that list of accepted risks in a builder's contract to also include loss or damage caused by 30
third parties and that could be vandalism or theft. That's not your fault. You don't have site possession. You're not in charge of the security of the site. Once you've delivered to site, ideally the builders insurance policy should apply. And most builders contracts will say that they own your gear once you deliver it. So if title of all the goods and materials that you're providing passes to the builder upon delivery, then the risk of those goods and it should come under their insurance policy as well. So
accepted risk should be loss or damage by third parties including that vandalism and theft. The other thing is what we call major perils. Major perils is an insurance term for earthquake, fire, floods, tsunami, sinkhole, landslide, all of the natural disaster type things that have nothing to do with you, you have no control over it, it's possibly also falls within the definition of a force majeure.
However, ⁓ major perils is the insurance terminology for natural disasters and acts of God that are completely outside of your control. So if you're to be beefing out your accepted risks list, those are the two that are at least I include in almost all of our contract reviews. And it could be the case that some of those things are never going to happen to you. So it could be that ⁓ tsunami, earthquake, fire, flood, landslide.
Sinkhole is very unlikely to occur if you are a Joinery subcontractor that's putting kitchens into an apartment building But if you were the piling subcontractor those things may well be incredibly likely that those things could occur so Making sure that you completely understand how those clauses interact with each other
This is actually quite a technical point. There are a lot of lawyers, construction lawyers even, who don't understand how the interplay between caring for the works, reinstating the works if it's lost or damaged, and the contract works insurance policy interact with each other in a construction contract. And even the builders who do understand it do cute things with their contract drafting like delete the entire accepted risks clause.
meaning that you have to reinstate in every scenario, even if the builder is the one that causes the loss or damage to your work. So Contract Works Insurance, ⁓ the industry is trending towards requiring every single subcontractor under every single subcontract to hold a Contract Works Insurance policy. If you are a subcontractor,
where it makes sense for you to hold a ContractWorks insurance policy, then you might consider getting one for your business anyway. And a good example of subcontractors who might benefit from one could be somebody like a facade subcontractor who may well, where you've bespoke manufactured a component of the building and you're going to deliver that building and effectively install it on site. That is something that I think would be worthwhile looking into ContractWorks insurance anyway.
as a good insurance policy for you to have. Joinery subcontractors could probably benefit from a contract works insurance policy because you do have work that is being undertaken offsite and onsite. And if you're not going to be paid for that work until it is installed, that means that the builder will just say, if even if your joinery became, say for example, you had your joinery onsite,
and it didn't get installed straight away for some reason, and it all went moldy and had to be replaced. It's arguable that that work was just never fit for purpose at the point of installation. So you've not actually delivered goods and services that could be, ⁓ you've delivered goods and services that could be defected and therefore you wouldn't be entitled to be paid for it. So making sure that if you can get care of the works to pass upon delivery, that way once it's in the builder's possession, ⁓
it would come under the Builders Contract Works insurance policy. If you are delivering expensive pieces of equipment to site and they not being installed straight away, for example, there might be a fire pump that you are installing. And I know a lot of our fire subcontractors will deliver the pump and they can bolt it to the ground, but it's not been commissioned and they'll be able to be paid for it because it's effectively installed, but not commissioned.
That's how they get around those types of things. So if you've got machinery or equipment that is going to be incorporated in the building that you're delivering to site and not installing for a long time, that is something that you really need to make sure that title and risk passes to the builder ⁓ upon delivery so that it can be covered by the insurance policy. This is probably quite a mind blowing podcast for a lot of you who are thinking
this insurance policy? I don't have it in my contracts. Go and have a look at your subcontracts with your builder and work out whether you were required to hold a contract works insurance policy. It is called insurance of the works, insurance of the contract works. Some contracts call it construction risk insurance and if you're having issues with it by all means reach out. ⁓ This is the type of
breach of contract that can be really difficult to fix retrospectively. So if you have signed a contract with a builder and you don't have this insurance policy and you were required to have that insurance policy, the ship might've sailed with you being able to get one at this point in time because ensuring the contract works at this point, insurers may not be able to give you a retrospective policy.
depending on the nature of your trade, how far along in the job you are, all those types of things. But these policies are not cheap and more and more we are seeing subcontractors who actually have these insurance policies in their contracts and they're not aware of those things either. So hopefully this podcast was helpful. ⁓ I do want to leave off with saying, I don't think there's a right and wrong when it comes to contract works. But if a builder wants you to go and buy an insurance policy to ensure work,
that they have in their possession, in their control that they own, then by golly you should be being paid to provide that service because you're paying for their insurance policy. ⁓ And if the builder doesn't have a Contract Works insurance policy, you need to know because doing the comparison of what the builder's policy covers and then your policy covers, you really want to make sure there's no gaps in that because ⁓ that's a very high risk area for disputes if something was to go pear shaped.
There is a project down the Gold Coast that many of you might've seen, I think maybe it was 12 months ago now, where it was almost at practical completion. was literally two, two weeks out. I think it was the star casino down at the Gold Coast and just about to be handed over by the main contractor. And there was a big water leak in a pipe in one of the top floors of the building. And it ruined the internal linings and finishes of
several floors in a high-rise building. So the Contract Works insurance policy probably would have ⁓ applied in those circumstances because it would have been loss or damage to work being carried out under a contract where practical completion had not yet occurred. ⁓ So when you're looking at which insurance policy would apply,
you've got contract works insurance and then you've got public liability. The difference between the two is that contract works insurance covers loss or damage to the work that is being done. Public liability covers claims by third parties for loss or damage to third party property. So for example, if you were a piling subcontractor and you were doing work on the boundary and the work that you did, ⁓ you undermined the
building next door and the building started to be the leading tower of Pisa or the fence collapses in it. It's a very expensive fence. You have damaged third party property and that is where public liability insurance would come into play to cover the loss of third party property. Whereas if you are a piling subcontractor and you're doing a, ⁓ you're doing shotcrete to a soldier pile wall that you've just completed and you accidentally back into
one of the piles and the pile gets damaged, you've lost or damaged your own work. And that is where your contract works insurance policy would come into play. Now, sometimes both policies could cover the same issue or components of the same issues. This is quite a gray area of muddy waters, but by and large, ⁓ if there is to be loss or damage to your work, the best thing you can do is scenario out or
effectively map the journey of where the goods and services are that you provide at any given time. A form worker may get a jump form system that they partially hire from a formwork supplier and they might partially manufacture it in their yard. They then put that system onto their truck, they drive it to site, they unload it on site and they install it onto the project. The insurance policies that may well apply could have been
the insurance policy that applies to the truck from Acro to the form worker's yard. Acro would have had an insurance policy for that. While the form work system was in that form worker's yard, their premises insurance policy may have applied to the materials and equipment at that time. Then they might put that system onto a truck. It's possible that their CTP policy or their truck insurance or ⁓
If they have a contract works insurance policy, which is quite unlikely, but form workers typically can't get contract works insurance policies as a general rule because it's temporary work. But in this instance, if they were ⁓ manufacturing or fabricating a system that will be used again, and it's not temporary, it's materials and equipment to be used again and again again on different jobs. They then would have that on a truck that they'd take to site. There would be an insurance policy over the work while it's on the truck.
Then once it gets to site, you could then possibly, providing your contract says that care of the works is by the builder after delivery. Once the goods are delivered to site, the builder's insurance policy would kick in. So you can see how for every different trade, that would be different. And it would be different if you were a crane subcontractor where you've got on and off hook insurance, but your builder's contracts are written for a one size fits all scenario where your builder
will default to be in the best position possible. So it's up to you to locate those clauses in your builder's contract, work out what your scenario is, and then have the appropriate markups for your contracts.
