Construction Insurance Requirements for Government Contractors: Complete Guide 2025

Understanding Construction Insurance Requirements

Why Insurance Matters for Government Work

Risk Transfer:

Essential

Protects all parties

Contract Requirement:

Mandatory

No insurance = no award

Annual Cost:

2-5%

Of contract value

Government construction contracts have strict insurance requirements that contractors must meet before starting work. These requirements protect the public entity, the contractor, subcontractors, and the public. Understanding and properly managing insurance is essential for winning and successfully executing government contracts.

Standard Insurance Requirements

Required Coverage Types

• Commercial General Liability (CGL)
• Workers Compensation
• Automobile Liability
• Umbrella/Excess Liability

Project-Specific Coverage

• Builders Risk
• Professional Liability (if design)
• Pollution Liability
• Installation Floater

Commercial General Liability (CGL)

CGL Coverage Requirements

CGL is the foundation of construction insurance. Government contracts typically require occurrence-based policies, not claims-made.

Standard Limits

• Each Occurrence: $1,000,000 - $2,000,000

• General Aggregate: $2,000,000 - $4,000,000

• Products/Completed Operations: $2,000,000

• Personal & Advertising Injury: $1,000,000

Required Endorsements

• Additional Insured - Owner/Public Entity
• Primary and Non-Contributory
• Waiver of Subrogation
• Per Project Aggregate

What CGL Covers

Bodily injury to third parties
Property damage to others
Completed operations claims
Personal injury claims
Legal defense costs

CGL Exclusions

Your own work (during construction)
Professional liability/design errors
Pollution (standard exclusion)
Employee injuries (WC covers)
Intentional acts

Builders Risk Insurance

Coverage for Projects Under Construction

What Builders Risk Covers

Physical damage to the project during construction from fire, wind, theft, vandalism, and other covered perils. Typically covers the structure, materials on site, and materials in transit.

Policy Limit

Usually equals the completed value of the project. Increases as construction progresses (reporting form) or set at full value from start.

Who Provides Coverage

Owner-provided or contractor-provided depending on contract. Government contracts often require contractor to provide with owner as loss payee.

Common Builders Risk Requirements

Standard Coverage

• All-risk or special form
• Soft costs coverage
• Delay in completion
• Testing coverage

Named Insureds

• Owner/Public Entity
• General Contractor
• Subcontractors
• Lenders (if applicable)

Professional Liability Insurance

When Professional Liability is Required

Required for design-build projects or any contract where the contractor provides professional services (engineering, architecture, surveying).

Typical Limits

• $1,000,000 per claim minimum
• $2,000,000 aggregate
• Higher for large projects
• Project-specific policies available

Coverage Duration

• Claims-made policy form
• Extended reporting period
• Typically 3-10 years post-completion
• Tail coverage requirements

Workers Compensation Insurance

Statutory Requirements

Coverage A - Workers Compensation

Statutory limits as required by state law. Covers medical expenses, lost wages, and death benefits for injured workers.

Coverage B - Employers Liability

Typical limits: $1,000,000 each accident / $1,000,000 disease-policy limit / $1,000,000 disease-each employee.

Special Endorsements

Waiver of subrogation, USL&H coverage for maritime work, voluntary compensation for exempt workers.

Experience Modification Rate (EMR)

Many government contracts require contractors to have an EMR below a certain threshold, typically 1.0 or lower.

< 0.85

Excellent safety record

0.85 - 1.0

Average performance

> 1.0

May disqualify from bids

Bonding Requirements

Types of Construction Bonds

Bid Bond

Guarantees contractor will enter contract if awarded. Typically 5-10% of bid amount. Required with bid submission.

Performance Bond

Guarantees contractor will complete work per contract terms. Typically 100% of contract value. Required for federal projects over $150,000.

Payment Bond

Guarantees payment to subcontractors and suppliers. Typically 100% of contract value. Required by Miller Act for federal projects.

Federal Requirements (Miller Act)

Projects over $150,000 require bonds
100% performance bond required
100% payment bond required
Treasury-listed surety required

State/Local Requirements

Little Miller Acts vary by state
Thresholds range $25K - $150K
Some allow alternatives to bonds
Check specific jurisdiction

OCIP and CCIP Programs

Wrap-Up Insurance Programs

OCIP (Owner Controlled)

Owner purchases single policy covering all contractors on project.

• Owner controls coverage and costs
• Contractors reduce insurance from bids
• Common on large public projects
• Owner assumes administration burden

CCIP (Contractor Controlled)

General contractor purchases policy covering all subs.

• GC controls coverage uniformity
• Subs exclude coverage from bids
• Simplifies claims handling
• Volume discounts possible

When Wrap-Ups Apply

Wrap-up programs are typically used on projects exceeding $50-100 million. Contractors must understand enrollment procedures and coverage gaps.

Review enrollment requirements carefully
Understand what coverage to exclude from bid
Know gaps - off-site work often excluded
Professional liability usually not included

Insurance Best Practices

Managing Insurance for Government Work

Review Requirements Before Bidding
Verify you can meet all insurance requirements before submitting bid. Non-compliance can result in bid rejection.
Work with Construction-Specialized Broker
Brokers experienced in government work understand endorsement requirements and can obtain compliant certificates quickly.
Build Surety Relationships
Strong surety relationships increase bonding capacity. Provide annual financials and maintain communication.
Include Insurance Costs in Estimates
Factor all insurance costs into bids - general liability, project-specific coverage, bonds, and OCIP adjustments.
Maintain Safety Programs
Good safety records lower EMR and insurance costs. Many agencies require safety programs and OSHA compliance.

Common Insurance Pitfalls

Not obtaining certificates before contract execution deadline
Missing required endorsements (additional insured, waiver of subrogation)
Insufficient limits for contract requirements
Not flowing down requirements to subcontractors
Letting policies lapse during project