Contract works insurance is a packaged construction policy that covers physical loss or damage to the building works during the construction period, along with public and products liability for third-party claims. It is the primary insurance product for protecting a construction project from site risks such as fire, storm damage, theft, vandalism and water damage.
Also known as construction all risks (CAR) insurance or construction works insurance, this policy is designed to cover the interests of all parties involved in a building project — including the builder, principal (property owner), subcontractors and, in some cases, material suppliers.
Key point: Contract works insurance protects the physical construction during building. It is separate from builder's warranty insurance, which protects the homeowner after the project is completed.
What Does Contract Works Insurance Cover?
A typical contract works insurance policy in Australia is divided into two main sections:
Section 1 — Material Damage (Property Cover)
This section covers accidental physical loss or damage to the contract works and associated property. It is an "all risks" cover, meaning it covers any accidental loss or damage that is not specifically excluded. Typical covered items include:
The construction works — the building or structure being constructed, from foundation to completion
Materials on site — building materials, supplies and fittings stored at the construction site
Materials in transit — cover while materials are being transported to or between sites
Materials stored off-site — materials held at a supplier, storage facility or the builder's yard (subject to sub-limits)
Temporary works — formwork, scaffolding, site sheds, hoarding and temporary fencing
Existing structures — buildings being renovated, altered or extended (must be specifically declared)
Employees' tools and equipment — hand and power tools belonging to employees (subject to per-item and aggregate sub-limits)
Principal-supplied materials — materials supplied by the property owner for incorporation into the works
Hired-in plant — rented machinery and equipment on site (depending on policy wording)
Covered events typically include fire, lightning, explosion, storm, tempest, flood, earthquake, theft, burglary, vandalism and malicious damage, impact by vehicles or aircraft, water damage, and collapse.
Section 2 — Legal Liability
This section covers the insured's legal liability to third parties arising from the construction activity. It typically includes:
Public liability — bodily injury to third parties (members of the public, visitors to the site) or damage to third-party property
Products liability — liability arising from defective products installed or supplied as part of the works (typically available on annual policies)
Vibration, weakening and removal of support — liability for damage to neighbouring properties caused by construction vibration or undermining of foundations
Property in care, custody and control — some wordings extend to cover damage to property the builder is working on or has control of
Cross liability — each insured party is treated as if a separate policy was issued, allowing claims between insured parties
Additional Covers (Extensions)
Depending on the insurer and policy wording, you may also be able to add or include:
Advance loss of profits / loss of rent — covers the principal's loss of anticipated rental income or profits if an insured event delays project completion
Delay in start-up — covers additional holding costs if the project is delayed by an insured event
Professional fees — architects, engineers and quantity surveyors' fees incurred in reinstating damage
Expediting expenses — overtime and express freight costs to speed up reinstatement
Defects liability period cover — extends the policy for a specified period after practical completion (typically 12 to 24 months) to cover damage during the defects rectification period
What Is Not Covered?
Like all insurance policies, contract works insurance has exclusions. Understanding these is just as important as knowing what is covered. Common exclusions include:
Defective workmanship, materials or design — the policy will not pay to redo work that was done incorrectly. However, most modern wordings will cover resultant damage (damage to other parts of the works caused by the defect)
Wear and tear, gradual deterioration — normal aging or weathering of materials
Mechanical or electrical breakdown — failure of machinery not caused by an external event
Consequential loss — the builder's own loss of profit or business interruption (unless specifically extended)
War, terrorism, nuclear events — standard market exclusions (terrorism can sometimes be bought back)
Penalties and fines — contractual penalties for late completion or regulatory fines
Pre-existing damage — damage that occurred before the policy inception
Faulty design by the insured — if the builder is also the designer and the design is defective
Broker tip: The treatment of defective workmanship varies significantly between policy wordings. Some older wordings exclude all defect-related costs, while modern wordings cover "resultant damage" from defects. This is one of the most important wording differences to check when comparing policies. Ask your broker to explain the DE3 vs DE5 wording distinction.
Types of Contract Works Insurance Policies
Single-Project Policy
A single-project contract works policy covers one specific construction project for a defined period. It is ideal for:
Builders taking on an unusually large project that exceeds their annual policy limits
Property developers insuring a specific development
The sum insured is based on the total contract value (including materials, labour and GST), and the premium is a one-off payment for the construction period.
Annual Turnover Policy
An annual policy covers all projects commenced during a 12-month period. The premium is based on estimated annual turnover, with a declaration and adjustment at renewal. This is the most common policy type for active builders and is generally more cost-effective than insuring each project individually. Read more about how contract works insurance is priced.
Who Needs Contract Works Insurance?
In Australia, the following parties typically need contract works insurance:
Licensed builders — Most standard building contracts (HIA, MBA, Fair Trading) require the builder to hold contract works insurance covering the full contract value
Owner-builders — As the project manager, the owner-builder takes on the responsibility for insuring the works
Subcontractors — While often covered under the head contractor's policy for on-site works, subcontractors running their own projects need independent cover
Property developers — May arrange principal-controlled policies for larger commercial developments
Civil contractors — Road works, bridges, tunnels and other civil engineering projects require specialised contract works cover
How to Get Contract Works Insurance
The process for obtaining contract works insurance is straightforward when you work with a specialist broker:
Contact a broker — Provide details of your project or business (or request a quote online)
Risk assessment — Your broker assesses the project risks and determines the appropriate level of cover
Market comparison — The broker obtains quotes from multiple insurers and compares wordings and pricing
Policy placement — Once you approve the quote, the broker places the policy and issues a certificate of insurance
Ongoing management — For annual policies, your broker manages renewals, turnover declarations and any mid-term changes
Need Contract Works Insurance?
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Contract works insurance covers physical loss or damage to the building works during construction (fire, storm, theft, vandalism, water damage), materials on site and in transit, temporary works, employees' tools (subject to sub-limits), and legal liability for third-party injury or property damage arising from the construction activity.
Common exclusions include defective workmanship (the cost to redo faulty work), wear and tear, gradual deterioration, mechanical breakdown, war and terrorism, penalties and fines, and damage to existing structures not declared on the policy. The policy also will not cover the builder's own loss of profit unless specifically extended.
Yes. Contract works insurance and construction all risks (CAR) insurance are the same product. The terms are used interchangeably in the Australian market, though "contract works" is the more common name among brokers and builders.
A standard policy covers only the new works. Existing structures being renovated or altered can be covered but must be specifically noted on the policy with an agreed value. This is critical for renovation and extension projects — always confirm with your broker.
Yes, most contract works policies include a legal liability section covering public liability and products liability. The public liability cover is often broader than a standalone policy, including sub-contractor liability, vibration cover and property in care, custody and control.
A single-project policy runs for the nominated construction period. An annual policy runs for 12 months. Both can be extended if a project runs overtime, subject to insurer approval and additional premium. Most policies also offer a defects liability period extension of 12 to 24 months after practical completion.