Tender awarded, but the policy doesn't match the contract — what now?

Close the gap before work starts, not at the first progress claim. Under PAM 2018 the public liability cover is a condition precedent — it has to be in force before you begin. And if you cannot produce the policies and premium receipts, Clause 19.5 lets the employer take out the insurance himself and set the cost off against money owed to you. The mismatch is not a paperwork problem you can carry into the job.

Do the comparison in one direction

Start from the contract Appendix, not from the policy. The Appendix is where the figures live — liability limit, deductible, professional fees, debris removal, defects liability period. Write them down, then open the policy schedule and check each one off. Reading it the other way round, policy first, is how gaps get missed: you can only notice something the schedule does not mention if you already know the contract asked for it.

Where an Appendix line is blank, PAM 2018 supplies a default rather than removing the requirement. Third party cover of not less than RM1,000,000. A deductible of not more than RM50,000 for any one occurrence. Professional fees at ten per cent of the contract sum. Debris removal at not less than one per cent. A defects liability period of twelve months. A blank is not a waiver.

Six mismatches that show up most

1. The sum insured is only the contract sum

Clause 20 asks for contract sum plus professional fees for reinstatement plus debris removal, and under 20.C the existing structure and the employer's contents as well. A schedule that shows the contract sum and nothing else is short by the two add-ons, whatever the headline figure looks like. This is the mismatch with the sharpest consequence, because a shortfall does not just reduce a payout — you still have to restore the works with due diligence and you get no additional payment for doing it.

2. Sub-contractors are not in the joint names

Both Clause 19.1 and Clause 20 require the joint names of the employer, the contractor, the sub-contractors and all interested parties. A policy naming only the employer and the main contractor satisfies neither. Check the wording of the named insured on the schedule itself, not the shortened description on the front page.

3. The four endorsements under 19.1 are missing

Cross liability. Architect, consultants and the employer's site staff deemed to be third parties. Waiver of subrogation. Automatic extension up to the Certificate of Making Good Defects. These are named in the contract and are the most common thing to be absent from an otherwise adequate liability policy. Ask for them by name and get the endorsement schedule, not a verbal assurance that "it is covered".

4. The period stops at the completion date

For the worker policies under 19.3 and 19.4, PAM 2018 requires cover to the Completion Date, then extended maintenance cover for the Defects Liability Period plus a further three months. If completion is delayed the insurance has to 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. A policy written to the completion date alone is short by the defects period plus three months from the day it is issued.

5. Perils the contract lists are not endorsed on

Clause 20 lists perils the CAR has to reach. Three of them commonly run the other way in standard wordings, which is exactly why the contract bothers to name them: damage to existing underground cables, pipes and other underground facilities; cessation of work, whether total or partial; and vibration and weakening of support. Theft, strike, riot and civil commotion, malicious damage and trespass are on the same list. Clause 22 adds that where the architect orders work postponed or suspended, whoever took out the insurance keeps it in force through the stoppage.

6. Your own plant was assumed to be inside the CAR

Clause 20 states that 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 — and under 20.B and 20.C, that if the contractor wants that cover he arranges it separately at his own cost. If the excavator and the tower crane are not on a separate schedule somewhere, they are not covered, and this is not a mismatch with the contract so much as a hole the contract warned you about.

If the mismatch is who buys the CAR

This one is different in kind. Clause 20 comes in three versions and two are struck out on execution. If you priced the job assuming 20.B — employer buys — and the surviving version is 20.A, the cost of the CAR is yours and it was never in your tender figure. Resolve which version governs before you take site possession, in writing.

The reverse also has a remedy. Under 20.B and 20.C, where the employer cannot produce a valid policy and premium receipts, the contractor may take out the insurance himself and add the cost to the contract sum. Note the asymmetry with 19.5: when you are the one who fails to produce, the employer deducts; when the employer fails to produce, you add. Both routes exist, and both need documenting at the time rather than argued later.

What does not fix itself

Two things survive whatever the policy says. First, Clause 18: the indemnity you gave the employer is a contractual promise, and every insurance clause opens by preserving it. Insurance that falls short does not shrink the promise — the shortfall lands on you. Second, deductibles: where they are specified the contract puts them on the contractor, including under 20.B and 20.C where the employer bought the policy.

And a mismatch that stays open is not neutral while nothing goes wrong. It is a breach sitting in the file, available to the other side on the day there is a dispute about something else entirely.

Frequently asked

What happens if a contractor cannot produce the insurance the contract requires?

Under Clause 19.5 of PAM 2018 the policies must be placed with insurers approved by the employer, and the originals together with the premium receipts are deposited with the employer. Where the contractor fails to produce them, the employer may take out the insurance himself and set the cost off against money otherwise payable to the contractor. Separately, the public liability cover under Clause 19.1 is a condition precedent, meaning it must be in force before work starts rather than arranged once the contractor is on site.

How do you check an insurance policy against a construction contract?

Work from the contract Appendix to the policy schedule, not the other way round. Copy the Appendix figures for the liability limit, the deductible, professional fees, debris removal and the defects liability period, then check each against the schedule. Where an Appendix line is blank PAM 2018 supplies a default rather than removing the requirement: third party cover of not less than RM1,000,000, a deductible of not more than RM50,000 for any one occurrence, professional fees at ten per cent of the contract sum, debris removal at not less than one per cent, and a defects liability period of twelve months.

The employer was supposed to buy the CAR but has not. What can the contractor do?

Under Clauses 20.B and 20.C, where the employer fails to produce a valid policy and premium receipts, the contractor may take out the insurance himself and add the cost to the contract sum. The position is the mirror image of Clause 19.5, where an employer faced with a contractor who cannot produce insurance may buy it and deduct the cost. Either way the step should be documented when it is taken rather than raised afterwards.

Does adequate insurance limit a contractor's liability under the contract?

No. Clause 18 of PAM 2018 is an indemnity given by the contractor to the employer, and every insurance clause that follows opens by stating that it is without prejudice to that liability. Insurance is the funding arrangement, not the limit of the obligation, so any shortfall between what the policy pays and what is owed remains the contractor's. Deductibles work the same way: where specified they fall on the contractor, including where the employer took out the policy under Clause 20.B or 20.C.

Clause references are to the PAM 2018 standard form of building contract. Other 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 contract.