Why Contractors Are Reviewing Their Contract Works Insurance Before Major Summer Projects

A contract works policy arranged at the start of a project has to do something genuinely difficult: predict what a total loss would cost to fix, months or years before that loss might happen, in a construction cost environment that hasn’t stood still in years. Three pressures are converging on Australian building sites this summer: rebuild costs that have outpaced general inflation, a severe weather season that overlaps almost exactly with peak construction, and a construction sector where individual project risk remains elevated even as the headline insolvency figure eases. Here’s what each one means for your cover, and how to check whether yours still holds up.

Why This Is a “Before You Start” Conversation

Contract works insurance is priced and set at a single point in time, project commencement, but it has to remain adequate for the entire build, plus a maintenance period that’s typically 12 months, sometimes extending to 24. A twelve-month renewal cycle papers over gaps reasonably well for most commercial property. A construction project doesn’t have that same regular check-in built in. If costs move materially between the day the policy is arranged and the day a loss occurs, that gap is much harder to fix once you’re under way, and it can be compounded by an average clause if the sum insured falls below the level the policy requires: many contract works policies reduce a payout proportionally, not just by the dollar shortfall, when the declared value doesn’t reflect true reinstatement cost. That’s a second reason getting the figure right at the outset matters more than treating it as something to revisit “at some point.”

Pressure One: Rebuild Costs Have Moved Further Than Most Contract Sums Account For

The Insurance Council of Australia’s Insurance Catastrophe Resilience Report 2025–26, released 1 September 2026, analysed Cotality’s Cordell Construction Cost Index and found building costs rose around 30 per cent in the five years to March 2026, against general inflation of about 24 per cent over the same period.

One caveat worth understanding before applying this to a commercial job: the Cordell index that underpins this figure is modelled on a standard house, a 200m² dwelling with a concrete floor, brick veneer walls and a timber frame. It’s a residential benchmark, so for a commercial or industrial build it’s best read as a proxy for material and labour cost movement, not a direct substitute for a commercial quantity surveyor’s assessment.

The averaged figure also understates the real problem, because the increases aren’t spread evenly. The chart above shows roof tiles up 77 per cent over five years, more than three times the general CPI rate, with structural steel, windows, copper piping, and plaster and plywood all up between 37 and 48 per cent.

For a contract sum specifically: if a project’s material schedule leans on any of these components, and most do, a figure calculated from a general building cost index, or carried over from a similarly sized job priced a year or two ago, is likely to understate current reinstatement cost. This is a live risk for any project currently under construction where the budget was locked in before this latest run of increases, not just a planning-stage consideration.

Pressure Two: Severe Weather Season Overlaps the Construction Calendar

The Bureau of Meteorology’s most recent published guidance, issued ahead of the 2025–26 season, put Australia’s severe weather season at October through to April, with an average of three to four cyclones crossing the coast each season and nine to ten forming in the broader region. Flash and riverine flooding are more common along the east coast of New South Wales and south-east Queensland during these months. 

For a project mid-build, an incomplete structure, exposed framing, incomplete waterproofing, materials staged on site, is often more vulnerable to weather damage than a finished one. A storm event during this window can cause both physical loss to completed work and a completion delay.

On the delay side, this is where the original draft overstated what’s insurable. Delay in start-up cover typically protects a principal or developer against lost revenue from a delayed opening, and it’s usually bought as a separate extension rather than assumed within a standard contract works policy. Liquidated damages exposure sitting with a contractor is generally excluded from contract works and delay in start-up cover alike. Rather than implying either of these is covered, this section should instead point contractors and principals to a specific conversation with their broker about what, if anything, in their program responds to weather-related delay costs, and make clear that LD exposure is typically not an insurable risk transferred through this class of cover.

Pressure Three: The Insolvency Picture Has Eased on Average, Not Everywhere

Analysis of ASIC’s Series 1 insolvency statistics (companies entering external administration for the first time, by construction division), published by construction industry analyst The Good Builder from ASIC’s 13 July 2026 release, found 3,435 construction companies entered external administration for the first time in 2025–26, down from 3,596 the year before, a fall of about 4.5 per cent. Other outlets reporting the same ASIC release cite a higher figure of 3,472, which appears to reflect a broader measure that also includes controller appointments rather than external administrations alone, worth keeping in mind when comparing figures across sources.

Either way, after several years of building numbers, this is the first year the count has moved down rather than up.

That eased slightly, but not evenly, and it landed only weeks before one of the sector’s largest recent collapses. Bathla Group, a major Western Sydney developer and builder, entered voluntary administration on 25 August 2026 with combined group debt of around $3.5 billion and roughly 2,000 homes under construction. It’s a useful reminder that an improving aggregate figure doesn’t mean individual project risk has gone away, and that this risk isn’t confined to small subcontractors, even though they remain the more exposed group generally.

On that point, the Australian Institute of Credit Management, drawing on ASIC and Equifax data, reports that construction and hospitality were the two industries with the highest number of insolvencies of any sector over the past two years, and that within construction, enterprises with fewer than 20 full-time staff show measurably weaker profitability and working capital positions than larger firms. Separate peer-reviewed research (Jayawardana, Wijeratne, Vrcelj, Weththasinghe and Sandanayake, Journal of Risk and Financial Management, 2026) found that micro and small firms account for over 90 per cent of reported construction insolvency cases, and that in 2024, construction contributed nearly a quarter of all company insolvencies nationally.

Why this belongs in a contract works conversation, specifically: a subcontractor or principal contractor becoming insolvent mid-project doesn’t trigger contract works cover on its own, that policy responds to physical loss or damage, not financial default. But it changes the risk sitting underneath the policy in several concrete ways. A site that stops moving because a contractor has failed can trigger cessation of works provisions that alter or narrow cover on an idle site. An unattended site is a materially higher target for theft and vandalism than an active one. If a failed subcontractor’s own liability cover lapses along with the business, any defect or damage they’re responsible for may have nowhere left to be recovered from. And replacing a failed trade partner partway through a job often costs more than the original contract allowance, which is exactly the kind of gap a sum insured based on the original figures won’t have anticipated.

Ask Yourself, Before Mobilising

If the honest answer to more than one of these is “no” or “not sure,” that’s a signal to have a specific conversation with your broker before work starts, not after.

1. Has the sum insured been calculated against current material and labour costs, not last year’s project as a benchmark?
2. Does the sum insured account for cost escalation across the life of the project, not just the value at commencement? Longer projects carry more of this exposure simply because more time passes before a loss might occur.
3. Has the policy’s treatment of an incomplete structure been confirmed, rather than assumed to match a finished building?
4. Do the sub-limits reflect the project’s real cost profile? Removal of debris, professional fees, expediting costs, principal-supplied materials, and existing structures are commonly under-set relative to the main sum insured, and each is worth checking individually rather than assuming they scale automatically.
5. Has the policy period itself been checked against the realistic completion date? A single-project policy can expire before practical completion if a build runs over and no extension is arranged in time.
6. Has any thought gone into what happens if a subcontractor on this project became insolvent partway through? Not something a standard contract works policy solves directly, but understanding cessation of works, security, and lapsed subcontractor cover ahead of time is worth doing before it’s tested.

Single Project vs Annual Cover: Which Fits Your Situation

Contract works insurance is available on a single-project basis or as annual cover across multiple projects, and the right structure depends on how a business operates. Neither structure is inherently safer than the other. The risk in both cases is the same: a sum insured that reflects yesterday’s costs being asked to cover today’s loss.

Before You Mobilise

None of the three pressures here, cost inflation, seasonal weather timing, or sector-wide financial risk, are things a single policy review eliminates outright. What a proper review before mobilisation can do is make sure contract works cover reflects the project being built, in the cost environment it’s being built in, rather than a figure that made sense for a different project at a different time.

Want your contract works sum insured checked against current costs before your next project starts? Speak with Knightsbridge Insurance Group about your contract works cover.

Important Disclaimer: This article provides general information only and does not constitute legal or financial advice. Contract works insurance requirements, sum insured calculations, and policy terms vary significantly based on individual projects, contract structures, and insurers. Statistics referenced are drawn from the Insurance Council of Australia, Cotality, the Bureau of Meteorology, ASIC (via The Good Builder’s published analysis), the Australian Institute of Credit Management, and peer-reviewed research published in the Journal of Risk and Financial Management, and reflect the most recently published data at the time of writing. Readers should obtain project-specific advice and consult with qualified insurance professionals before finalising contract works cover. Knightsbridge Insurance Group holds Australian Financial Services Licence 514855.

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