INSURANCES

• To make sure the risks during execution of

the works can be cover.

• The nature of construction itself is involves

high risks works that may effect to people
and properties.
INTRODUCTION
• When the insurance has been provided
the risk that carried by contracting
parties are now transferred to the
insurance companies to deal with it.

• S.O/Architect is advised to inspect such

policies to make sure that the contractor
complies with the requirements.
 • Clause 14.0 - Indemnities in Respect Of
Personal Injuries And Damage To Property
• Clause 15.0 - Insurance Against Personal
Injuries, Etc.
• Clause 16.0 – Indemnities to Government in
Respect of Claim by Workmen
• Clause 17.0 – Employee Social Security Act
P.W.D. FORM 1969
203A • Clause 18.0- Insurance of Work

(REV. 1/2010)
All the clauses are explaining the procedure
regarding Non-completion which includes:
• Type of insurances
• Scope of cover of insurance
• Insured parties
• Period of insurance
• The procedure and conditions precedent.
 IMPORTANCE OF INSURANCES

To protect both interest Minimization of the

parties against claims by financial risks of the
injured parties in the parties as they are
contract. passed to the insurers.
 ‘No work under this Contract shall commence
unless and until the Performance Bond
stipulated under Clause 13 and such insurance
policy as specified under clauses 15 an 18 shall
be deposited with the Government….’ (Clause
38.1)

… as a condition precedent to the

commencement of any work under this
WHEN TO Contract, effect and
insurances…’ (Clause 15.1(a))
maintain such

PROVIDE
INSURANCE • All insurance policies are required to be taken
before the works are commenced on site.
• This is to ensure that the liability of the
contractor and the sub-contractors are always
covered with the necessary insurances.
• The contractor is not allowed to extension of
time due to the delay in depositing the
necessary insurance policies with the
government.
• The contractor’s employment may be
determined if he does not start work within 2
weeks after the date of possession.
 a) For the works
• Public Liability Insurance (Clause
15.0)
TYPES OF
• Insurance of Works (Clause 16.0)
INSURANCES • Workmen Compensation (Clause
16.0)
• SOCSO (Clause 17.0)
• Contractors’ All Risks

b) Foreign workers insurance

PUBLIC LIABILITY
INSURANCE
 INJURY TO PERSON AND
PROPERTY.
• In clause 14. 1(a)
“… it shall perform all of obligations under this contract at its own risk
and releases….. the Government and their agent and servant from all
claims and demand of every kind resulting from any accident,
damage, injury, or death arising from carrying at of the work”
• Contractor must be responsible for injury or death.
• The government is not responsible for any injury and death
exception due the fault of the government and its servant.
It shall indemnify and keep indemnified by the Government from the
against all action, suits, claims…. To which the government shall or may
….. Become liable in respect of
I. Negligent use.. By the contractor or its personnel.
II. Loss and damage to property or injury … by carrying out the works
the contractor to any person……not caused by the
negligence…of the government.
III. Any loss, damage or injury…to property or person..contributed by
the act, omission… of the contractor or personnel…(clause
14.1(b))
• The contractor must responsible on:
• Injury or death of any person
• Injury or damage to any property
• The contractor must indemnify the government against any claims
by the third party due its negligent unless the negligent fully from
the government.
• The protection must be provided until the issuance of the Final
Certificate or Termination of the contractor.
• The protection to government must be includes:
• Protection for actions, claims and liabilities against the
government’s agent and servant.
• The effectiveness of the protection offered on substance of the
contractor to meet liability.
• Its to prevent from government from liable to any claim from plaintiff
e.g if contractor be comes insolvent.
 INSURANCE
“Without prejudice to his liability to indemnify the Government……” (clause 15.1(a))

• The contract allows for insurances to be effected as the capacity of the contractor
may be inadequate to meet his responsibility to indemnify the employer.

“… the contractor shall… effect and maintain such insurances whether with or without
an excess amount…. to cover the liability of the Contractor and all sub-
contractors…” (Clause 15.1 (a))

• When claim by the party is excess amount from the contractor liability and the risks
to be borne by contractor, this should not be beyond his financial capability

• The contractor indemnifies the employer in respect of :

• Injury or death of any person

• Injury or damage to any property
 AMOUNT INSURED
• Amounts of an insured for public liability insurance is a limit
of liability insurance coverage or claims the maximum that
can be obtained by the insured for each incident.

• The limit of liability is difficult to determine. Normally the

employer fixed it based on the value of the contact.

• The risk factors normally considered by the employer in

determining insured amount include:
• Sources of risks
• Site safety
• Public access to site
• Physical conditions of surrounding buildings
• Types of works example is renovation
• Types of plants and machineries used
Minimum coverage for Public Liability
Insurances
“…. the Contractor shall repair, replace or make good such
damage or loss from the amount of insurance claimed, if
sufficient, or if insufficient, using his own resources.” (Clause 15.5)

The coverage will be higher for works with extra ordinary risks
such as risks to existing attached building or for high rise
construction

The contractor is advisable to make sure that the insurance

provides sufficient covered for any damages or loss that may
occur during the execution of the work.

The contractor is required to make good any loss or damage

irrespective of the amount of insurance claimed.
 INSURED PARTIES
Such insurance….. shall be affected with an insurance company
as approved by the Government and maintained in the joint
names of the Government and Contractor and all sub-
contractors…” (Clause 15.1(c))

• The clause are describe the insurance is to be taken

under the joint names of the employer and the
contractor.
• For the sub-contract work is under the joint names of
the employer, contractor and the sub-contractor.
 PERIOD OF INSURANCE
“…. cover from the period of the date of possession of site until the
date of issuance of Certificate of Making Good Defects for any
claim occasioned by the Contractor or any sub-contractor in the
course of any operations carried out by the Contractor or any sub-
contractor for the purpose of complying with his obligations under
Clause 48….” ( Clause 15(1))
 CALCULATION OF PREMIUM
“…. cover from the period of the date of possession of site until the date
of issuance of Certificate of Making Good Defects for any claim
occasioned by the Contractor or any sub-contractor in the course of
any operations carried out by the Contractor or any sub-contractor
for the purpose of complying with his obligations under Clause 48….” (
Clause 15(1))
• The contractor is required to furnish the S.O the insurance policy
and the receipt
• However, sometimes the premium is calculated based on
average rates for a number of limitations of liability such as RM
1,000.00 for each limit of liability of RM100,000.00.
• Contractor is normally given discount up to 50% of amount
premium payable and this depends much on their business
relationship.
 CALCULATION OF
PREMIUM
“If the Contractor fails to effect or renew….. the Government …. may affect
or renew such insurance and shall be entitled to deduct a sum equivalent
to the amount in respect of the premiums paid and On-Cost Charges …
from any money due or to become due to the Contractor under this
Contract or to recover the same from the Performance Bond…” (Clause
15.3)
• The contractor is responsible to renew insurance policy.
• for case of extension of time, the cost is to be borne by the contractor.
• If not, the employer may renew the insurance on behalf of the contractor.
• The government is entitled to the on-cost charges as stated in the
appendix without the need to prove the actual administration cost
involve.
• The on-cost charge in this case is 5% of the premium paid.
• The employer may deduct the renewing costs from the Performance
Bond.
 CANCELLATION OF INSURANCE
“… any insurance…. only be cancelled by the insurer after the expiry of thirty
(30) days from the date of receipt by the Government of a written
notice…. the Contractor has been issued with the Certificate of Making
Good Defects… “ (Clause 15.4(a))

• The cancellation of insurance can be done when the certification of

making good defect has been issued to the contractor.
• The contractor can only make any cancellation to the insurance policy
within 30 days after the notice of cancellation is issued to the employer.
• The 30-day period gives ample time for the government to take necessary
action

“The Contractor shall not at any time permit or cause to be done any
act….any insurance…. being vitiated or rendered void…. (Clause 15.4(b))
• The government rights and benefits are to be protected from any default
by the contractor
WORKMEN COMPENSATION
 INDEMNITY TO
GOVERNMENT

“The Contractor shall be liable for and indemnify and keep indemnified
the Government and its offices or servants from all liabilities arising out
of claims by any workman employed by the Contractor in and for the
performance of this Contract …” (Clause 16.1 (a))
• This insurance protects the main contractor’s workmen and including
sub-contractors’ workmen.
• The contractor will be responsible to the worker on personal injury,
death and disease while at work.
• The insurance is based on Workmen’s Compensation Act 1952 and
Employee’s Social Security Act 1969 allowed the reliable
compensation or indemnified to the workmen during the execution of
works.
 INSURANCE

“… The Contractor shall effect and maintain throughout the Contract

Period a Workmen Compensation Insurance …” (Clause 16.1 (b))
• The contractor is required to take up insurances to provide better
financial protection to the government against claims by the workers.
• If the insurance fails to indemnify adequately, the contractor is still
responsible to meet the situation.
• Workers covered under this insurance are:
• Those earning more than RM3,000/month.
• Local workers (Malaysian citizen).
PERIOD OF INSURANCE
CALCULATION OF
PREMIUM
INSURANCE OF WORK
 SCOPE OF COVER

• The scope of cover means that all the things

that covered by the insurance. The insurance
will cover all the work that must be done by
the contractor.
• The contractor must insure the full value of
work that must be done.
• Insurance work provided in the contract
protects the client and the contractor
against any claims arising from the risks listed
in the clause 18.1(a)
 Restore,
replace and Remove or
repair any dispose of any
damaged debris
works/materials.

Proceed with carrying

out and completion of
work.
 CALCULATION OF
PREMIUM

• Premium = Rate x Amount insured

• Rate of premium depends on:
• Types of building
• Types of construction
• Classification of town
 PAYMENT OF INSURANCE
• the payments from the insurance company will
be paid to the employer not the contractor.
• The payments then will be pay to the
contractor based on work done i.e. the repair
works and removal debris, through the interim
payments.
• The payment to the contractor is limited by the
amount received by the employer from the
insurance company.
• Besides that, if the cost of repair exceeds the
amount of compensation by insurance
company, the contractor will bear the loss.
 CONTRACTOR’S ALL RISKS
SCOPE OF COVER INSURANCE
- The contractor opt for this policy in place of Public liability policy
and insurance of works

-Insurance cover
a) Any loss/damage to property on site
b) Third party liability

Insured parties

-The insurance is to be taken under the joint names of the employer,

contractor and the sub-contractor

Period of Insurance

-Coverage period starts from the date of site possession until the
issuance of the certification of Completion of Making Good Defects
Calculation of premium

Premium= Rate x Amount insured

Rates to be used depend on the types of building insured. E.g.:

a) 1-2 storey residential and shop houses =0.20%

b) Road=0.30%
c) Bridges=0.40%

Amount insured include the following:

a) Work executed on site

b) Temporary buildings on site
c) Plant and machinery on site
d) Removal of debris= rm50,000.00
e) Professional fees= 10% to 12% of contract sum
Example

Assumptions:
Professional fees= 10% of contract sum
Rate= 0.20%
Amount insured= contract sum + removing debris + professional fee
= RM10,000,000.00 + RM50,000.00 + RM1,000,000.00
= RM11,050,000.00

Premium = 0.20% x RM11,050,000.00 = RM22,100.00

5% service tax = 1,105.00
Stamp duty = 10.00

23,215.00
15% profit & overhead = 3,482.25

Price = RM26, 697.25

 SOCIAL SECURITY ACT 1969
PWD 203A Rev. 2010 : Clause 17.1

"….the Contractor shall register or cause to register all local workmen

employed in the execution of the works who are subject to registration under
the Employee's Social Security Scheme ('the SOCSO Scheme') in accordance
with the Employee's Social Security Act 1969 or any subsequent modification
or re-enactment of the said Act. For the purpose of this sub-clause, the term
"local workmen" shall include workmen who are Malaysian citizens and those
who have permanent resident status "
Explanation
-Employers must cover their employees even if they have other private insurance coverage for
them.
-The contractor is required to register his workers with SOCSO.
-The contractor is issued an employer's Code Number and each worker the Social Security
Number.
-Workers covered under this insurance are:
a)Local workers i.e. Malaysians and permanent residents only.
b)Those earning not more than RM3000.00/month
For workers earning more than RM3000.00 monthly:
a)Workers who have previously registered and have contributed to SOCSO
must compulsorily continue to contribute even if the present wage exceeds
RM3000.00 per month.
b)Workers who receive monthly wage exceeding RM3000.00 and who
have not previously registered or paid contributions to SOCSO are given an
option to be covered under Act
SOCSO COVERAGE

Employment injury
protection

Invalidity pension
scheme protection
Employment injury
protection

Occupation diseases

Arising out of
employment

Traveling(commuting
accident)
Invalidity pension scheme
protection

24 hour coverage to an
employee against invalidity or
death due to any cause

Serious disablement or morbid

condition of permanent nature that is
either incurable or not likely to be cure

Chronic ailments or disease

Benefits

a)Employment injury protection

•The scheme provides a worker benefits are follows:

1. Medical benefit
2. Temporary disablement benefit
3. Permanent disablement benefit
4. Constant attendance allowance
5. Dependant's benefit
6. Funeral benefit
7. Rehabilitation benefit

b)Invalidity pension Scheme Protection

1. Invalidity pension
2. Invalidity grant
3. Constant attendance allowance
4. Survivors pension
5. Funeral benefit
6. Rehabilitation benefit
Contribution
PWD 203A Rev. 2010 : Clause 17.2

"The contractor shall submit the Code Number and Social Security
Numbers of all the workmen registered under the SOCSO scheme to
the S.O for verification. The contractor shall make payment of all
contribution from time to time on the first contribution day on which
the same ought to be paid and until the completion of this Contract
and it shall be the duty of the Contractor to produce to the S.O
contribution statement vouchers as evidence of payment of such
contribution, whether demanded or not."
Explanation

For verification, the contractor must submit the Code Number and
Social Security Numbers of all the workmen registered under SOCSO. The
contractor should make payment from time to time start on the first
contribution days until completion of this contract as the following:

•The contractor must make a monthly contribution for each eligible

employee according to the rates specified under Act.

•The employee's share of 0.5% of wages should be paid for coverage

under the Invalidity Pension Scheme.

•The employer pays 1.75% for the Employment injury insurance Scheme
and the Invalidity Pension Scheme

•The rate contribution is based on the monthly wage of the worker.

•Contributions should be made from the first month the employee is

employed.
Types and categories of contribution:

a)The first category (Employment Injury Insurance Scheme and

Invalidity Pension Scheme). The payment of the contribution is
by both the contractor and worker.

b)The second category (Employment Injury Insurance Scheme

Only). The payment of contributions is made only by the
contractor, i.e. for a worker who is not eligible for coverage
under the Invalidity Pension Scheme.

-The workers who exceed age 55 will continue to be protected

under the employment injury scheme if they continue to be
employed after that age
 Default in complying with SOCSO
PWD 203A Rev. 2010 : Clause 17.3

"If the contractor fails to comply with the terms of this clause, the
Government or the S.O. on its behalf may without prejudice to any
other remedy available to the Government for breach of any terms
of this Contract:
(a)Withhold an amount from any money which would otherwise be
due to the contractor under this contract and which in the opinion
of the S.O. will satisfy any claims for compensation by workmen that
would have borne by SOCSO Scheme had the Contractor not
made default in maintaining the contribution; and/or

(b)Pay such contributions as have become due and remain unpaid

and deduct the amount of such contributions including On-Cost
Charges (calculated by applying the Percentage of On-Cost
charges stated in Appendix to the contributions paid), from any
money due to or to become due to the contractor under this
contract, and falling which such contributions shall be recovered
from the Performance Bond or as a debt due from the contractor."
Explanation :
-The contractor must make the monthly contributors for all the workers. If
not or fail to comply the term, the government can:
(a)Retain some money which is due to the contractor to pay for any
claim made by the workers.
(b)Pay the contributions which are not paid by the contractor. The
amount for the contribution includes the on-cost charges

-The payments for the contributions and the on-cost charges are made
through deduction from the amount payable to the contractor in the
interim or final certificates.

-If the amount is not sufficient, the employer may cover the contributions
from:
a)The performance bond i.e. by demanding payment from the
guarantor, the third party who guarantees the contractor's
performance, or
b)As a debt

-The employer is also entitled to on-cost charges i.e. the cost incurred by
the employer in managing payments for the contributions to SOCSO.
 FOREIGN WORKERS COMPENSATION INSURANCE SCHAME
(SPPA)
-The countries that are allowed to recruit foreign workers in the
sector construction is Philippines (male), Indonesia, Colombia,
Kazakhstan, Laos, Myanmar ,Nepal, Thailand, Turkmenistan,
Uzbekistan and Vietnam, Bangladesh (effective 1 August 2006).
There is no express provision in the contract for the insurance for
foreign workers.

-The Workmen’s Compensation Act 1952 was amended in August

1996. Under section 26(2) of the Amended Act, it is mandatory for
every employer to insure all the foreign workers employed by him
under an approved insurance scheme in respect of any liability he
may incur under the Workmen’s Compensation Act 1952.Any
employer who fails to insure the foreign workers under the approved
insurance scheme shall be guilty of an offence and shall be liable,
on conviction, to a fine not exceeding RM20, 000 or to imprisonment
for a term not exceeding 2 years or both

-Under the Worker compensation Act 1952, an employer must

ensure that a legitimately hired foreign worker is insured with any
one of the insurance companies appointed to the panel of the
Foreign Workers Compensation Insurance Scheme.
Scope of cover and benefits
a)Workmen’s Compensation
This section covers the insured’s foreign worker against personal injury
by accident or disease arising out of or in the course of employment
with the insured.
b)Repatriation Expenses

This section will indemnify the insured for the actual repatriation
expenses incurred or RM 4,800.00 whichever is the lesser, in the event
the insured worker dies or suffers permanent total disablement.

c)Personal Accident Insurance (Off-Work Hours)

This section will pray the insured person or his legal representative for
personal injury sustained in an accident, which occurs outside the
working hours.
Calculation of Premium
Premium to be paid by the contractor is RM72.00 per year for every
foreign worker employed by him as approved by the ministry of
Human resources.

Example
Assumption: no of worker = 20
Contract period = 2 years

Premium = RM72.00 x 20 workers x 2years = RM 2,880.00

5% services tax = 144.00
Stamp duty = 10.00

= 3,034.00
15% profit & overhead = 455.10
Prices = RM 3,489.00
PAM CONTRACT 2018

Consists of 2 clauses

Clause 18, 19.0 and

clause 20.0
respectively
 CLAUSE 19.0
• Clause 19.0 consists of 5 subtopics
• Clause 19.1 stated that before the commencement of works
for construction the insurance should be deposited. The
insurance must consists of:
I. names of Employer, Contractor and Sub-contractor
II. Any personal injuries or death and loss or damage of
property should be by the reason of the execution of
construction works and effect of the negligence,
omission and default by the Contractor
• Clause 19.2 said that all local workmen and sub-contractors’ local
workmen must be register under SOCSO and the Contractor shall
make payment of all contributions to make sure all Sub-contractors
pay similar payments from time to time.
• Clause 19.3 and 19.4 stated about the validity time of insurance. The
insurance must be valid until Defects Liability Period plus a further 3
months and if there is an extension of time the insurance must be valid
until the agreed extension of time.
• Clause 19.5 said that the insurance license must be approved by the
Employer and Contractor should deposit the insurance.
• Receipt of premium paid should be attached to the Employer and
Consultant for checking and Employer need to renew the insurance if
the Contractor did not renew the insurance.
 CLAUSE 20.0
• In clause 20.0 stated that the insurance may cover for the loss and
damage that caused by the Mother Nature or Act of God
• The loss and damage to the building that are not caused by
aforementioned case, the contractor should bear the losses.
• The contractor require to identify the risk that covered by the
Contractors’ All Risk as stated in the contract.
• The receipt of premium paid should be attached to the Employer
and Consultant for checking.
• If the contractor does not renew the insurance, the Employer needs
to renew the insurance and claim to the contractor. If there has loss
and damage to the works, and the insurance claim does not been
made, the contractor should carefulness restore, replace or repair
the defects until completion of the works.
• The Employer should retain the money until the Contractor finish up
his/her works.
• Clause 20.B same provision under Clause 20.A, but the Employer is more
liable and responsible to the loss and damage to property.

• For Clause 20.B1, some of the specified risk like theft, vandalism, trespass
and close of works were not required under Clause 20.A, which left it to
the contractor to consider taking out additional insurance.

• Under clause 20.B2, any risks shall be specified in the Contract Bill and
Employer must make sure the all risks in the Contract Bill covered by CAR
Insurance policy.

• Under clause 20.B3, with the request by contractor, the employer shall
maintain policy to against a fore side risks and must keep receipt last
premium paid for renewal.

• For clause 20.B4, when the contractor joint the names Employer,
Consultant, Sub- Contractor and all parties in the CAR insurance policy,
and the employer fails to fulfill the request of contactor same under clause
20.B3, the contractor shall produce it.
• Clause 20.C same provision under Clause 20.B.

• Clause 20.C.2 allows the contractor if he desires to insure for other

additional risk at his own cost. Clause 20.C.3 requires the employer to
maintain the specified policy and produce it for the contractor’s
inspection together with the receipt of the last premium paid.

• Clause 20.C.4 said if employer fails to produce a receipt, the

contractor may insure against the specified risk. Clause 20.C.5 requires
the contractor immediately and diligently proceeds with the
restoration replacement or repair of the works which are damaged
lost through of such even.
THANK YOU…