Clause 18.2 – Insurance for Works & Contractor’s Equipment
Your contract’s financial safety net during construction!
Clause 18.2 is integral to the risk management strategy in construction contracts under the FIDIC Yellow Book 1999. It specifically addresses the insurance requirements for the physical components of a construction project, including the Works and the Contractor’s Equipment.
This clause ensures that there is adequate financial protection against potential losses or damages that might occur during the construction process. It’s especially critical for complex projects where risks of damage to materials, equipment, or the works themselves are significant.
Did you know?
Clause 18.2 requires the Contractor to insure not just the works in progress, but also construction plant, materials, and even temporary works—all until the Taking-Over Certificate is issued.
Clause 18.2 requires the Contractor to insure not just the works in progress, but also construction plant, materials, and even temporary works—all until the Taking-Over Certificate is issued.
- The Works – including all materials and parts intended to become part of the permanent works
- Contractor’s Equipment – all major plant and equipment on site
- Temporary Works – scaffolding, formwork, access structures
- Materials off-site (if designated in the contract)
The Contractor must arrange and maintain the insurance, unless otherwise specified in the contract. The cost is usually included in the Contract Price.
Without proper insurance, any major accident, theft, or natural disaster could lead to crippling costs for the contractor or employer—sometimes halting the project entirely. Clause 18.2 is your contractual safety valve!
Clause 18.2: Insurance for Works and Contractor’s Equipment
Understanding the nuts and bolts of FIDIC’s insurance requirements for physical project assets and contractor equipment.
Comprehensive coverage for the Works, Plant, Materials, and Contractor’s Documents, including:
- Full reinstatement cost (including demolition, debris removal, professional fees, and profit)
- Coverage for physical loss, damage, or destruction
- Contractor’s Equipment insured for full replacement value (including transport to site)
Insurance should be in place from the evidence of insurance submission date, through to the issuance of the Taking-Over Certificate. Some risks (e.g. latent defects) must be insured until the Performance Certificate is issued.
Insurance policies are typically in the joint names of the Contractor and Employer. Payments are allocated for rectifying any covered loss or damage, ensuring funds are available for necessary repairs.
Coverage usually excludes Employer’s Risks and defects in design, materials, or workmanship, but these should be explicitly checked. Always review both inclusions and exclusions as detailed in the policy!
If the required insurance cover becomes unavailable on commercially reasonable terms, the Contractor must notify the Employer without delay, so alternative arrangements can be explored.
How does the insurance process work?
1. Assess Needs
Identify what must be insured under the contract: Works, Equipment, Materials.
2. Secure Policies
Obtain policies for full reinstatement/replacement cost (with coverage details checked).
3. Maintain Coverage
Ensure continuous insurance from start date until the Taking-Over and Performance Certificates.
4. Arrange Joint Names
Policies should name both Contractor and Employer as insured parties.
5. Handle Changes
Notify the Employer promptly if cover becomes unavailable or terms change.
Where does Clause 18.2 apply?
Diverse Interpretations of Clause 18.2: Insurance for Works and Contractor’s Equipment
🎯
Primary Objective
Ensure comprehensive insurance coverage for the works, plant, materials, and contractor’s documents on every project.
🛡️
Risk Mitigation
Provides a safety net for both the Contractor and Employer by managing financial risks linked to construction losses.
💰
Financial Security
Prevents unforeseen costs from derailing the project or unduly burdening either party in the event of damage or loss.
⚖️
Legal Compliance
Helps ensure the contract meets legal obligations and best practice for construction risk management.
Insurance must cover the full reinstatement cost of the works, plant, materials, and contractor’s documents—including demolition, debris removal, and professional fees.
Insurance is effective from a specified start date (often when evidence is provided) and continues until the Taking-Over Certificate, with some coverage lasting until the Performance Certificate.
The Contractor’s Equipment must be insured for its full replacement value, including transport to site.
Typically, insurance is in the joint names of both the Contractor and Employer, ensuring both parties are protected and can claim.
Carefully lists which risks are excluded (often Employer’s Risks and certain defects) and what is included. Always review contract and policy wording!
Practical Uses of Clause 18.2
🔎 Project Planning: Integrate insurance details early to guide risk assessment and project costing.
✍️ Contract Negotiation: Clarify responsibilities and avoid disputes by discussing insurance at negotiation stage.
🚦 Risk Management: Maintain coverage throughout construction for ongoing risk mitigation.
🔗 Link to Other Clauses: Ensure 18.2 is coordinated with indemnity, liability, and claims clauses.
Expert Opinions on Clause 18.2
“Clause 18.2 is a cornerstone for the financial stability and success of complex construction projects.”
“Precise implementation and clarity in insurance arrangements prevent costly disputes between contractors and employers.”
“A dynamic, flexible approach is needed—insurance requirements may evolve as risks and market conditions change.”
“Integration with other contract clauses ensures a cohesive risk management framework.”
Interaction of Clause 18.2 with Other Clauses in FIDIC Yellow Book 1999
Clause 18.2 does not stand alone—its requirements for insurance and risk management are deeply connected with several other clauses in the FIDIC Yellow Book 1999. Understanding these relationships is essential for comprehensive project protection.
18.1 General Requirements for Insurances
Clause 18.2 builds on the broad insurance obligations and framework set by 18.1.
The effectiveness of Clause 18.2’s insurance coverage depends on compliance with the foundations set in 18.1. 18.2 makes those general obligations project-specific for works and equipment.
17 Risk and Responsibility
Defines the risk allocation between parties, directly influencing what must be insured under 18.2.
Clauses 17 and 18.2 work together to ensure that all allocated risks are backed by suitable insurance—so that liability is not only allocated but also covered financially.
4 & 5 The Contractor & Subcontractors
Clause 4 (Contractor’s duties) and 5 (Nominated Subcontractors) require 18.2 insurance to cover all activities, including those by subcontractors.
Insurance must be comprehensive enough to include liabilities from the Contractor and any activities performed by nominated subcontractors—making 18.2’s coverage essential during all phases.
11 & 12 Defects Liability & Tests after Completion
18.2’s insurance often extends into the post-construction phase, aligning with Clauses 11 and 12.
Coverage under 18.2 may remain active during defects liability and testing after completion, so risks during these stages are not overlooked.
In summary: Clause 18.2 sits at the center of a network of provisions, extending and supporting general insurance, risk allocation, contractor responsibilities, and post-completion protection.
Sequence of Interactions Related to Clause 18.2: Insurance for Works and Contractor’s Equipment
Follow each step for watertight implementation of Clause 18.2. Click on any step for details and outcome highlights!