Materials Supplied by Others
When undertaking a contract for the construction of a building it is typical that the owner may wish to supply certain aspects of the finished product themselves.
This could be as simple as the door knobs or be as major as the raw materials used in the construction. (I know of one client who imported two entire containers of stone, timber, bathroom fittings and furniture from Bali for use in the construction of their home.) We refer to such materials as 'Free Issue' or 'Principal Supplied' materials.
Under the building contract it generally falls upon the builder who becomes responsible for such materials.
This raises two important issues to consider:-
1.    The Contract Sum insured;
2.    Does your insurance extend to cover Principal Supplied Materials?
We deal with each of these.

The Contract Sum insured

Builders are obligated under nearly all building contracts to arrange insurance for Construction Risks Material Damage and Liability risks arising from the project.
In most cases the Builder will select a sum insured for the risk of material damage equal to the Contract Sum as this represents the cost of building the project in the event of total destruction. However, if a principal supplies materials that are to be used in the construction, these costs do not normally form part of the Contract Sum. Despite this the Builder is still held liable for the completed works until handover which includes the value of the principal supplied materials.
If the value of such materials is significant - in the case above the value exceeded $100,000 - then the sum insured under the Contract Works insurance may not be sufficient. You need to increase it!

Does your insurance extend to cover Principal Supplied Materials?

Under some Contract Works insurance policies cover is automatically provided by way of an extension for a nominated value of principal supplied materials. For example under the BRIC managed policy this is a standard $25,000. Therefore the materials are covered automatically, however most policies will state that this limit is INCLUDED within the overall policy sum insured - as above. Hence if the Builder has selected the Contract Sum as the limit of the sum insured then despite this 'automatic extension' they will be underinsured.
Under the BRIC policy the sum insured for principal supplied materials - referred to as 'Free Issue Materials' is IN ADDITION to the sum insured and hence this means an additional cover of $25,000 is automatically added to the Contract Sum Insured.
Under many policies cover does not exist at all unless you ask for it - at an additional premium.
You will also need to make sure that the sum insured specified for 'Free Issue' or rather 'Principal Supplied' materials is adequate to cover the actual cost of replacement. If this is getting another container from Bali then you will need to factor in the freight costs and delay costs associated with that. Alternatively, if you end up having to source locally they may be significantly more expensive.
For more information please call us on 1800 077 933.


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