Which insurance policies does a contractor need before tendering?

It depends on which contract form you are tendering under — the contract tells you what to carry, not a general list of policy names. Under the PAM 2018 standard building contract there are three separate obligations: public liability in joint names, worker cover split three ways by who the worker is, and Contractor All Risks — but the CAR only falls on you if Clause 20.A is the version left un-struck. A performance bond is usually required as well, and that is a guarantee, not insurance.

First question: which contract form?

Private work in Malaysia commonly runs on a PAM form. Government work runs on the PWD / JKR family instead. The two are different books and the clause numbers do not line up, so a checklist written against one is not a checklist against the other. Before anything else, find out which form the tender documents are built on. Everything below refers to PAM 2018.

Liability comes first, insurance second

Clause 18 is not an insurance clause at all. It is your promise to indemnify the employer — for injury and death, for damage to property including the works themselves, and for worker claims. The first two only bite where there is negligence, omission, default or breach on your side. Clause 18.4 then adds that the indemnity is not reduced because the employer or architect failed to supervise you properly.

“Without prejudice to his liability to indemnify the Employer under Clause 18.0 …”

Every insurance clause that follows opens with that phrase. Read plainly: buying the policy does not discharge the promise. Whatever the limit does not reach, you still owe.

1 · Public liability, in joint names (Clause 19.1)

This one is a condition precedent — it has to be in force before you are allowed to start work, not arranged once you are on site. It must be taken out in the joint names of the employer, the contractor, the sub-contractors and all interested parties, and it must respond whether the injury or damage was caused by your negligence, the employer's, or a sub-contractor's.

The limits come from the contract Appendix. Where the Appendix is left blank, PAM 2018 supplies defaults: third party cover of not less than RM1,000,000, and a deductible of not more than RM50,000 for any one occurrence.

The four endorsements under 19.1(a)–(d)

These four are named in the contract and are the ones most often absent from the policy that gets handed over. Each one closes a specific hole:

• (a) Cross liability. Each joint insured is treated as separately insured. Without it, when the employer claims against you, the insurer can decline on the basis that both of you are its own insureds.
• (b) Architect, consultants and the employer's site staff deemed to be third parties. Without it, a load dropped on the employer's site engineer is not a third party injury, and the policy does not respond.
• (c) Waiver of subrogation. The insurer gives up its right to recover from the insured parties. Without it, the insurer can pay the employer and then come after you for the same money.
• (d) Automatic extension or renewal up to the Certificate of Making Good Defects. Without it, the policy lapses on its own expiry date and the defects period runs uninsured.

(a) and (c) work as a pair. Cross liability lets an internal claim be paid; waiver of subrogation stops the insurer taking it back out of you afterwards. One without the other achieves very little.

2 · Workers, split three ways (Clauses 19.2–19.4)

The contract does not treat "workers" as one category. It writes three, and they are handled differently:

• 19.2 — local workers within the social security scheme. Registration and contributions, and your sub-contractors have to do it too. This is statutory registration, not a policy you buy.
• 19.3 — local workers outside that scheme. A separate policy is required, it has to extend to common law liability, and it is taken out in the joint names of employer and contractor.
• 19.4 — foreign workers. Note the difference: this one is taken out in the name of the contractor only, not in joint names, and you must make your sub-contractors do the same for their foreign workers.

The period rules for 19.3 and 19.4 are written out twice, identically, and they are strict. Cover runs to the Completion Date. The extended maintenance cover has to run for the Defects Liability Period plus a further three months. If completion is delayed, the insurance must be extended by the same period of delay. And any extension has to be arranged not less than one month before the current policy expires.

3 · The works themselves: CAR (Clause 20)

Clause 20 comes in three versions and the contract instructs that two of them be struck out. Which one survives decides who pays for the CAR policy:

• 20.A — new works, contractor takes out the CAR.
• 20.B — new works, employer takes it out.
• 20.C — alterations or extensions to an existing building, employer takes it out, and the sum insured also has to carry the existing structure and the employer's contents.

If nobody at the tender stage can tell you which one is circled, that is the first thing to resolve. Pricing a job on the assumption that the employer is buying the CAR, when 20.A is the version that survived, is an expensive way to find out.

The sum insured is not the contract sum

All three versions use the same formula. The CAR sum insured has to be the contract sum plus professional fees for reinstatement plus the cost of clearing debris. Where the Appendix leaves those blank, the defaults are ten per cent of the contract sum for professional fees and not less than one per cent for debris removal. Under 20.C the existing structure and the employer's contents are added on top. And as with 19.1, the policy is in joint names including sub-contractors.

Perils the contract wants added back

Clause 20 lists a long run of perils the policy has to cover, by endorsement if the standard wording does not already include them. Three of them are the ones that catch contractors out, because the standard CAR wording tends to treat them the other way:

• Existing underground cables, pipes and other underground facilities. Anyone doing earthworks near live services meets this one eventually.
• Cessation of work, whether total or partial. The standard CAR wording commonly excludes losses during a shutdown, while the contract requires the shutdown to stay covered. Clause 22 reinforces it: where the architect orders work postponed or suspended, whoever took out the insurance has to keep it in force through the stoppage.
• Vibration and weakening of support. Piling that cracks the wall next door. Also commonly excluded as standard.

Theft, strike, riot and civil commotion, malicious damage and trespass are on the same list. None of this is automatic — it is what the contract requires the policy to reach, which is a different thing from what the policy gives you out of the box.

Your own plant and machinery are not in it

Clause 20 says so in terms: unless the standard CAR policy covers it, the CAR excludes construction plant, tools and equipment owned or hired by the contractor or any sub-contractor. The 20.B and 20.C wording puts it even more directly — if the contractor wants that cover, he arranges it separately at his own cost. Excavators, cranes, formwork and site tools sit under a contractors' plant and machinery policy, not under the CAR.

Two things about the money

First, the deductible is yours even when the CAR is not. Where deductibles are specified, the contract puts them on the contractor — including under 20.B and 20.C where the employer bought the policy.

Second, and this is the cash flow one: after a loss you must restore, replace and repair with due diligence and carry on with the works. You do not get to wait for the insurer. The insurance money is paid to the employer in the first place and released to you against certificates, and you are not entitled to any additional payment for the reinstatement beyond what the insurance produces. A sum insured that is twenty per cent short is twenty per cent of a rebuild funded out of your own working capital, while the programme keeps running.

4 · The bond is not insurance

Tenders frequently ask for a bid or tender bond at submission and a performance bond on award. It is easy to file these mentally alongside the policies. They do not behave the same way. A bond is a guarantee to the employer: if it is called, the guarantor pays the employer and then recovers that money from you. Insurance transfers a loss; a bond advances one on your behalf and then collects. Underwriting reflects that — a bond is assessed on your financial standing, not on the probability of an accident.

For tender pricing, the practical point is that a called bond is money you will repay. It is not protection you have bought.

Before you submit: what to check

• Which contract form is this tender on — PAM 2018, or a PWD / JKR form?
• Which of 20.A, 20.B or 20.C survived? That decides whether the CAR is your cost or the employer's.
• Copy the Appendix figures — liability limit, deductible, professional fees, debris removal, defects liability period — and price against those, not against assumptions.
• Does the CAR sum insured include professional fees and debris removal, and under 20.C the existing structure and contents?
• Do the joint names include your sub-contractors?
• How many of the four 19.1 endorsements are actually on the liability policy?
• Do the periods run to completion plus the defects liability period plus three months, and is there a plan for extending if the job runs late?
• Underground services, cessation of work, vibration and weakening of support — endorsed, or assumed?
• Is plant and machinery arranged separately, and is it in the tender price?
• Have the originals and premium receipts been prepared for the employer? Clause 19.5 lets the employer take out the insurance himself and set the cost off against your progress payments if you do not produce them.

Frequently asked

Which insurance policies does a contractor need before tendering in Malaysia?

The contract form decides, not a generic list. Under the PAM 2018 standard building contract a contractor needs public liability insurance in the joint names of employer, contractor, sub-contractors and all interested parties, in force before work starts; worker cover arranged three different ways depending on whether the worker is local and within the social security scheme, local and outside it, or foreign; and Contractor All Risks, but only where Clause 20.A is the version left un-struck, since 20.B and 20.C place that on the employer. Plant and machinery owned or hired by the contractor is excluded from the CAR and must be arranged separately. A performance bond is a guarantee rather than insurance.

Who pays for Contractor All Risks insurance, the contractor or the employer?

It depends which version of Clause 20 survives in the contract. PAM 2018 offers 20.A, 20.B and 20.C and instructs that two be struck out. Under 20.A the contractor takes out the CAR. Under 20.B the employer does. Under 20.C, used for alterations or extensions to an existing building, the employer takes it out and the sum insured must also carry the existing structure and the employer's contents. Deductibles remain the contractor's responsibility even where the employer bought the policy.

What endorsements does PAM 2018 require on a contractor's public liability policy?

Clause 19.1 names four. A cross liability endorsement, so each joint insured is treated as separately insured and an internal claim can be paid. An endorsement deeming the architect, consultants, site staff and the employer's employees and representatives to be third parties. A waiver of all expressed or implied rights of subrogation, so the insurer cannot recover from an insured party after paying. And automatic extension or renewal up to the issuance of the Certificate of Making Good Defects, so cover does not lapse during the defects period.

How should a CAR sum insured be calculated under PAM 2018?

The sum insured is the contract sum plus professional fees for reinstatement plus the cost of clearing debris, and under Clause 20.C the value of the existing structure and the employer's contents on top. Where the contract Appendix is left blank, PAM 2018 defaults professional fees to ten per cent of the contract sum and debris removal to not less than one per cent. An under-stated sum insured reduces the payout while the contractor still has to restore the works with due diligence and is not entitled to additional payment for doing so.

Clause references are to the PAM 2018 standard form of building contract. Other contract forms, including the PWD / JKR family used on government work, are structured differently and the clause numbers do not correspond. Appendix figures quoted are the defaults that apply where the Appendix is left blank — the figures in your own contract govern. This page is general information, not advice on a specific tender.