You need contract works insurance in place before a peg is put in the ground. Many things can go wrong in a project, from the excavation and foundation stage to the construction itself, and even building materials can be stolen or the site could experience storm, earthquake, fire or malicious damage.
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Contract works insurance is vital, but why is it necessary?
When it comes to planning a new construction project, insurance doesn’t always get the priority it requires. Very often it is left to the last minute or even until after the work has started.
However, having appropriate insurance in place is a requirement of all standard construction contracts, so it’s something that must be sorted before the project starts.
- The bank will want an insurance certificate before it will release any funds. Trying to arrange insurance after work has begun can delay your project while this is sorted out.
- The project must be insured for the full replacement value including any materials or goods you are supplying, for example kitchen appliances or electronic equipment. These are most vulnerable when they have just been installed and the house is not occupied or secured.
Note, banks sometimes refer to contract works insurance as “builders risk“ insurance, but they’re talking about the same thing.
Managing risks in building
All construction work, no matter how small or simple, contains an element of risk. This will vary from project to project but risks common to all construction works include:
- Construction collapse
- Natural disaster – earthquake, flooding, storm
- Defective design, workmanship or materials
- Damage or loss by a third party
If something happens you may face additional costs to repair or replace the damage to the Works, or to compensate a third party. To protect the project from these risks during the construction period contract works and liability policies are required.
Who arranges the contract works insurance?
For new houses most standard building contracts will require the builder to arrange the contract works insurance.
Where a project includes work on an existing property, perhaps through renovation or an extension, the contract will normally state that the contract works insurance should be arranged by the homeowner/principal. This is because the homeowner is best placed to deal with the insurer of the existing property, and it is preferable to have one insurer covering both the existing structure and the construction work.
However, some domestic house insurers are reluctant to insure construction work, or may charge excessively, and in this case the homeowner can request cover from a specialist insurance company.