Why government contracts create a specific insurance problem
Government contracts — Commonwealth, state, and local government — specify minimum insurance requirements in the contract schedule. These requirements are set to reflect the government client’s risk position, not the contractor’s current insurance level. For SMBs used to standard commercial covers, the gap can be significant.
The problem typically surfaces after the contract is awarded. The business has won the work. It needs to provide proof of insurance before commencing. It discovers that its current policy doesn’t meet the specification. The options available mid-contract are more limited — and more expensive — than those available before tendering.
What government contracts typically require
Requirements vary by contract type, size, and procuring agency. Common minimums:
- Public liability: $20M minimum, per occurrence — the standard across most state and Commonwealth procurement frameworks for any contractor attending government sites. Some large contracts specify $50M or more.
- Professional indemnity: $5M–$20M, depending on the advisory, design, or technical content of the work. IT, engineering, and consulting contracts typically sit at the higher end.
- Product liability: $20M where physical goods are delivered under the contract.
- Workers compensation: Statutory cover in the relevant state or territory — specifically required to be in place before work commences on government sites.
For an SMB currently carrying $10M public liability and $2M PI, these requirements represent a meaningful increase. Achieving them mid-contract is possible, but mid-term limit increases are typically more expensive than renewing at higher limits.
The aggregate vs per-occurrence detail that’s often missed
A contract requiring “$20M public liability” is typically read as a per-occurrence requirement. Your policy may have a $20M per-occurrence limit, but an annual aggregate of $20M — meaning all claims in a given year draw from the same $20M pool.
If your business has a single claim that reaches $15M, your remaining aggregate is $5M for the balance of the year. If the contract’s specification requires $20M per occurrence, you may be in breach of the insurance requirement for the remainder of the contract year — even though the per-occurrence limit is technically correct.
Some government contracts specify per-occurrence limits with a separate, higher aggregate. If you’re quoting from a policy with a shared limit across all claims in a year, confirm it meets the specific contract language.
What’s often missing from the contract review
Named insured requirements
Some contracts require the government agency to be named as an additional insured on your public liability policy. This affects how claims involving the agency’s interests are handled and who the insurer must notify. Not all policies easily accommodate additional insured endorsements — check this before tendering.
Notification obligations
Many government contracts require you to notify the client of any material change to your insurance: cancellation, reduction in limits, or change of insurer. If your policy lapses or is cancelled mid-contract, the agency must be told. This is a compliance obligation, not just an administrative one.
Certificate of Currency format
Some government bodies require COCs in specific formats or with specific wording. A standard COC from your insurer may not satisfy the contract requirement if the specification calls for particular language or declarations. Confirm the required format before the contract commences.
Plan before you tender, not after you win
If you’re regularly tendering for government work, the right time to review your insurance is before submitting — not after winning. Winning a contract and then discovering your insurance doesn’t meet the specification creates delays, cost pressure, and potential for the contract to be compromised.
Review your standard insurance position against your typical contract specifications annually. If the gap is significant, closing it at renewal is more efficient and less expensive than closing it mid-contract under time pressure.