Construction and Contractor Insurance Requirements in Bangladesh

 

Construction and Contractor Insurance Requirements: What Bangladesh Projects Actually Demand

Most contractors in Bangladesh meet insurance requirements for the first time as a line in a tender document: "The Contractor shall provide, in the joint names of the Procuring Entity and the Contractor, insurance cover…" They then buy whatever the broker quotes, file the certificate, and forget it. The problem shows up months later — a trench collapse damages an adjacent building, a transformer is dropped during erection, a rigger dies on a slab edge — and the policy turns out to have the wrong sum insured, the wrong period, or an exclusion that removes the exact event.

Insurance in construction is an engineering-controlled risk-transfer tool. Its numbers (sum insured, limits, deductibles, policy period) come from the project's design, programme and method statements, so the site engineer and the planning engineer should be in the room when it is bought. This article sets out which covers are legally required, which are contractually required, how FIDIC and Bangladesh's Public Procurement Rules 2025 treat them, and how to size them with a worked example.

Scope note. This is an engineering-practice guide, not legal or insurance advice. Policy wording, tariffs and statutory amounts change; confirm against the contract documents, the current statute text and your IDRA-licensed insurer or broker before binding cover.

Three Layers of Requirement: Law, Contract, Prudence

Contractor insurance obligations come from three different places, and confusing them is the most common cause of gaps.

Layer	Source	Typical examples	Who enforces
Statutory	Bangladesh Labour Act 2006 (as amended), motor vehicle law, Insurance Act 2010	Group insurance for large establishments; employer liability for worker injury; third-party motor cover	Labour courts, DIFE, traffic/road authorities
Contractual	Tender documents (PPR 2025 standard documents), FIDIC, lender or employer conditions	CAR/EAR in joint names, third-party liability, employer's liability, cover maintained until a defined date	Employer / Procuring Entity, engineer, lender
Prudential	Your own risk appetite	Contractor's plant cover, transit cover, delay-in-start-up, cyber and theft cover	You and your bank

A policy can satisfy one layer and fail another. A group insurance scheme that satisfies the Labour Act, for example, does nothing for a third-party property claim from a neighbouring owner.

The Legal Framework in Bangladesh

Insurers must be IDRA-licensed

The Insurance Act 2010 and the IDRA Act 2010 replaced the 1938 Act and created the Insurance Development and Regulatory Authority (IDRA) as the sole insurance regulator. Insurance business is conducted by licensed ("admitted") insurers; a non-admitted foreign insurer is generally not permitted to write local risks unless IDRA certifies that the risk cannot be placed in Bangladesh. For projects whose lenders want a particular international insurer, this certificate is a real project-schedule item, and a common route is local fronting with reinsurance behind it, in which Sadharan Bima Corporation (SBC) is the state-owned reinsurer.

Practical consequence: before accepting an insurer nominated in a foreign-funded contract, check its IDRA registration and that the policy is issued in a form the Procuring Entity's e-GP evaluation committee will accept.

Workers: Section 99 and Section 150 of the Labour Act

Two provisions of the Bangladesh Labour Act 2006 matter most on site.

• Section 99 — compulsory group insurance. An establishment employing at least 100 permanent workers must introduce group insurance under the existing insurance laws (the threshold was reduced from 200 by the 2013 amendment). Claims are to be settled within 120 days, and the employer is responsible for recovering and passing the amount to dependants. An establishment with at least 10 workers may also introduce an accident group scheme voluntarily.
• Section 150 — employer liability for injury. If a worker is injured by an accident arising out of and in the course of employment, the employer is liable to pay compensation. Current commentary puts the statutory amounts at Tk 2,00,000 for death and Tk 2,50,000 for permanent total disablement, both widely criticised as inadequate and not linked to wages or age.

Why this matters to a contractor. Construction labour is largely casual or daily-wage. Section 99 counts permanent workers, so a site with 300 daily-wage labourers and 20 permanent staff may owe no statutory group insurance at all, while still carrying full Section 150 liability for every injured worker. The statutory amounts are also not the ceiling of your exposure: a reported fatal-accident claim decided in court has produced an award of roughly Tk 1.7 crore under the general law of wrongful death rather than the Labour Act schedule. The commercial answer is an employer's liability/workmen's compensation policy plus a personal accident (PA) group cover scaled to actual headcount, including subcontractor labour that the contract treats as "Contractor's Personnel."

Verify before use. Labour legislation has been under active reform. Check the current consolidated text of Sections 99 and 150 and the Bangladesh Labour Rules 2015 for amended thresholds or amounts before quoting them in a contract or tender.

Motor and other statutory covers

Site vehicles on public roads (tippers, transit mixers, pickups, crew buses) need compulsory third-party motor cover under the motor vehicle law. A construction all-risks or liability policy does not replace it, and CAR policies typically exclude vehicles licensed for road use. Legal practice guides to Bangladeshi construction contracts also list cargo-in-transit, workers' compensation and employer's liability policies among the covers a construction contract commonly specifies.

BNBC 2020 Part 7: safety duty, not an insurance schedule

BNBC 2020, Part 7 (Construction Practices and Safety) puts the duty on the contractor and subcontractor to ensure personnel safety through planned, organised site practices, and it makes clear that the contract between owner and contractor allocates liability within the relevant statutes. It does not prescribe policy limits. Its value for insurance is practical: a documented Part 7-compliant safety plan (excavation shoring, scaffolding, working at height, temporary electrical) is the evidence an underwriter looks at when pricing your site, and the first thing a claims investigator asks for after a loss.

Public-Sector Tenders: PPR 2025 and Standard Tender Documents

Bangladesh's Public Procurement Rules 2025 (PPR 2025, 154 rules and 21 schedules) took effect on 28 September 2025, replacing PPR 2008, with e-GP use mandatory for public procurement. Standard tender documents (STDs) for works issued by BPPA/CPTU now refer to the Public Procurement Act 2006 and PPR 2025.

Two points affect contractor insurance planning:

1. Insurance is a contract-document obligation, not a PPR rule. The insurance requirement sits in the General Conditions of Contract (GCC) and Particular Conditions. Earlier LGED-style standard documents, for example, require the contractor to provide insurance in the joint names of the Procuring Entity and the Contractor, with types, amounts, and deductibles specified in the contract data. Read the Particular Conditions and Contract Data for your tender; the GCC alone is not enough.
2. Do not confuse performance security with insurance. Performance security is a bank-issued instrument payable on first written demand if you fail to perform; insurance responds to physical loss and legal liability. The STD under PPR 2025 allows payment by bank draft, pay order, or irrevocable unconditional bank guarantee, with the percentage fixed in the tender data sheet, and states that total contractual security shall not exceed 10% of the contract price. Some small low-value procurements under PPR 2025 (Rule 91(6)) require no quotation or performance security at all. That relief does not waive the contract's insurance clause.

Practical tip. In e-GP bids, upload broker-issued cover notes with the bid only if the ITT asks for them. Otherwise commit to the cover in the technical response and obtain the policy within the period stated in the Notification of Award. Missing that deadline can put the award, and the performance security, at risk.

FIDIC Clause 19: The Benchmark for ADB, WB, JICA and Large Private Works

Where a project uses FIDIC (the 2017 Second Edition Red Book, with the 2022 reprint incorporating amendments), Clause 19 is the reference. The 2017 structure sets the contractor's minimum insurances as follows (sub-clause numbers per the 2017 edition; check the contract's own numbering if the employer amended it):

Sub-clause	Cover	Basis	Typical Bangladesh policy form
19.2.1	The Works	Full replacement value, joint names	CAR (civil) / EAR (erection)
19.2.2	Goods (contractor's equipment, materials, plant, temporary works)	Full replacement value, including delivery to site	Plant & machinery floater, marine cargo
19.2.3	Liability for breach of professional duty	Only if contractor has design responsibility; per Contract Data	Professional indemnity
19.2.4	Injury to persons and damage to property	Third-party liability, joint names	Contractor's public / third-party liability
19.2.5	Injury to employees	Contractor's personnel, including subcontractors'	Employer's liability / WC / group PA
19.2.6	Other insurances required by Laws and local practice	As specified	Motor TPL, statutory group insurance

Three FIDIC mechanics are easy to miss:

• Minimum requirement. The Clause 19 insurances are minimums; a contractor may buy more at its own cost.
• Evidence. The contractor must supply policy evidence and keep cover in force; if it fails to, the Employer may take out the insurance and recover the premium from the contractor.
• Exceptional Events. In the second edition, the contractor bears no liability for loss to the Works or Goods caused by an Exceptional Event (the successor to "Employer's risks/force majeure" allocation). Policy exclusions for war, nuclear risks and similar events should be read alongside this clause so that the uninsured residual risk lies where the contract says it does.

CAR vs EAR vs "Builders' Risk": Choosing the Right Policy

The names are used loosely in the market. Match the policy to the work, not to the broker's template.

Policy	Use for	Covers	Watch for
Contractor's All Risks (CAR)	Buildings, bridges, roads, drainage, piling, civil works	Physical loss or damage to the Works during construction, plus a Section II third-party liability extension	Sum insured below full value; defects/maintenance period not extended; design-defect exclusion
Erection All Risks (EAR)	Substation erection, GIS and transformer installation, switchgear, mechanical plant, cable systems	Physical loss during erection, testing and commissioning, plus third-party liability	Exclusion or sub-limit for testing and commissioning; faulty design, materials and workmanship (DE clauses)
Contractor's Plant & Equipment (CPE)	Cranes, piling rigs, excavators, HDD rigs	Owned or hired plant on site	Hired-in plant excluded; depreciation basis
Marine cargo (transit)	Imported cable drums, transformers, GIS bays	Sea, air and inland transit to site	Warehouse-to-warehouse extension; port storage period
Third-party liability (TPL)	Any site with neighbours, public roads or live utilities	Bodily injury or property damage to third parties	Cross-liability; underground utility damage; vibration and settlement exclusions
Professional indemnity (PI)	Design-and-build, design-assist	Claims arising from design errors	Claims-made basis; retroactive date

For electrical and utility contractors specifically — the segment WAZIPOINT readers work in — three policy details deserve a line-by-line read:

1. Testing and commissioning. Energisation, hot-testing and trial runs are where transformers, GIS bays and cable terminations are most likely to be damaged by internal fault. Many EAR wordings limit or exclude cover during the "testing period" or require the maintenance extension for it. Confirm the policy covers energisation up to Taking-Over (see the related protection article on circuit breaker tripping diagnostics for the faults that typically surface during commissioning).
2. Underground services and HDD. Horizontal directional drilling and trench excavation strike buried gas lines, power cables and telecom ducts. Check whether TPL covers damage to underground property and whether a deductible applies per event. Many standard forms exclude or sub-limit it unless the cover is specifically requested.
3. Grid-connected and renewable EPC works. For solar and storage projects tied to the national grid roadmap (see our renewable energy in Bangladesh 2041 roadmap), lenders usually add delay-in-start-up cover and require named loss payees. Ask for these before financial close, not after.

Sizing the Cover: Formulas and a Worked Example

Sum insured (Section I — material damage)

The sum insured for the Works should equal the full completed value at replacement cost, not the lowest quoted tender price; otherwise the insurer applies average (proportional reduction) on a partial loss.

SI(Works) = C + F + E + (optional) D

C = Contract price (final completed value, excluding VAT)
F = Value of employer free-issue materials / equipment
E = Escalation allowance = C × (e% over the policy period)
D = Debris-removal and professional-fee extension (often a % sub-limit)

Premium estimate

Rates are quoted by the insurer for the project; do not assume a tariff rate for engineering classes without confirming. For budgeting:

Premium ≈ SI × r × t_f   (+ applicable VAT / stamp duty)

r   = quoted rate (% of SI for the stated period)
t_f = factor for construction period plus any maintenance extension

Worked example: Tk 48 crore building contract

A contractor wins a 24-month, Tk 48 crore building contract with a 6-month defects period. The Procuring Entity issues Tk 2 crore of fire-rated door sets and lifts as free-issue items, and the contract allows a 5% price adjustment.

Item	Calculation	Tk (crore)
Contract price, C	given	48.00
Free-issue items, F	given	2.00
Escalation allowance, E	5% × 48.00	2.40
Sum insured, SI	48.00 + 2.00 + 2.40	52.40

CAR sum insured build-up for a Tk 48 crore building contract

Illustrative budgeting only. If the insurer quotes an all-in rate of 0.25% of SI for the construction period and a maintenance extension (a placeholder, not a market rate):

Premium ≈ 52.40 cr × 0.25% = Tk 13.1 lakh  (before VAT and duties)

The error that costs money here is under-insurance. If the contractor insured only the Tk 48 crore tender price, a Tk 10 crore loss would be paid at 48.00 / 52.40 = 91.6% under the average clause, a Tk 84 lakh shortfall:

Recovery = Loss × (SI insured / SI required) = 10.00 × (48.00 / 52.40) = Tk 9.16 crore
Shortfall = 10.00 − 9.16 = Tk 0.84 crore (Tk 84 lakh)

That shortfall is roughly six times the Tk 13.1 lakh premium in this example. Review the average and escalation provisions before accepting the lowest quote.

Deductible and limit decisions

Parameter	How to set it	Engineering input needed
Deductible (Section I)	Balance premium savings against the loss you can fund from cash flow without delaying the programme	Monthly cash plan, retention exposure
Third-party limit (any one event)	Not less than the credible loss to adjacent structures, utilities and persons within the excavation or crane influence zone	Site layout, adjacent building survey, crane radius plan
Aggregate limit	Match the contract's value and period	Programme duration
Period	Construction + testing + maintenance/defects period required by the contract	Master programme with float and extension-of-time risk

Cover period timeline from commencement through defects period

Programme slippage is the quiet cause of lapsed cover. If the CAR policy expires at the original completion date and the contract is extended by six months, the Works are uninsured during the overrun. Build an automatic extension mechanism into the policy wording, and tie a calendar alert to the contract's extension-of-time register.

Common Exclusions That Defeat Claims on Real Projects

Exclusion/condition	What it means on site	Mitigation
Faulty design, materials and workmanship	The defective item itself is not paid, only resulting damage (varies by DE1–DE5 clause level)	Request DE3-type cover where available; keep inspection/test records
Wear and tear, gradual deterioration	Corrosion, seepage and settlement over time are not "sudden and accidental"	Keep daily site diaries and dated photographs
Contractual penalties and delay LDs	Liquidated damages are generally not covered	Price LD risk through schedule contingency, not insurance
Unprotected/unfenced excavation, scaffolding collapse	Insurer may argue non-compliance with minimum safety conditions	Follow BNBC Part 7 shoring and scaffolding provisions
Theft without forced entry; inventory shortage	Unexplained shortages are not covered	Store control, gated yard, material issue logs
Pre-existing defects in existing structures	Renovation, extension or underpinning works need specific cover	Pre-condition survey of neighbouring and existing structures
Vehicles licensed for road use	Excluded from CAR/CPE	Separate motor cover

Claims Practice: What Engineers Should Record

An insurer pays on evidence. The engineer's contribution to a claim is documentation produced before the loss.

1. Baseline records: progress photos, quantity certificates, material test reports, and pre-construction condition surveys of adjacent buildings.
2. Incident protocol: make the site safe, preserve the scene where practicable, photograph before cleanup, notify the insurer and employer as required by the policy conditions (check the notice period in the policy; it is short for many conditions).
3. Loss quantification: separate "Works damaged" from "temporary works damaged" and "third-party damage," because they fall under different policy sections and limits.
4. Independent adjuster access: keep method statements, as-built records and permit-to-work logs available.
5. Do not admit liability to third parties before consulting the insurer; many policies treat an unauthorised admission as a breach of condition.

Risk and Safety Instructions

• Insurance does not replace site safety. Underwriters can decline or reduce a claim where minimum safety conditions were ignored, and insurance does nothing for a worker's life. Implement a permit-to-work system, working-at-height controls, excavation shoring and lockout/tagout, and keep the records.
• Count every person on site. Include casual labour, subcontractor workers, and visiting staff in the headcount basis for employer's liability and PA cover; under-declared headcount is a recognised ground for claim disputes.
• Never backdate cover. A policy bound after a loss is void for that loss. Bind before mobilisation, and confirm the cover note in writing before the first excavation or lift.
• Joint-name endorsements are not optional. If the contract requires cover in the joint names of the Procuring Entity and the Contractor, obtain a policy endorsement, not just a letter.
• Check the insurer. Confirm IDRA registration and the insurer's claim-paying record before binding, especially for large sums insured.
• Disclose fully. Insurance contracts operate on utmost good faith. Non-disclosure of known hazards, such as a high water table, adjacent old structures or a prior loss history, can give the insurer grounds to avoid the claim.

Pre-Bid and Pre-Mobilisation Checklist

Contractor insurance procurement workflow

Stage	Action	Owner
Pre-bid	Read ITT, TDS/contract data and GCC/PCC insurance clauses; list every cover, sum, limit, deductible and period required	Estimator
Pre-bid	Add premium, deductible allowance, and security cost to the tender price	Estimator/commercial
Award	Meet the contract deadline for evidence of insurance	Commercial manager
Mobilisation	Bind CAR/EAR, TPL, employer's liability, PA, motor before first site activity	Project manager
Execution	Update declared headcount, plant list and sum insured on variations	Site engineer / QS
Programme change	Extend policy periods when extension of time is granted	Planning engineer
Taking-Over	Confirm the maintenance/defects cover required by the contract is in force	Project manager
Closure	Retain policies, endorsements and claim records for the limitation period	Contracts team

Quick-Reference Decision Matrix

Your situation	Minimum covers to check	Key trap
Building contract, public tender (PPR 2025)	CAR in joint names, TPL, employer's liability/WC, group PA, motor TPL	Insurance clause sits in PCC / contract data, not the PPR
Substation / GIS/cable works	EAR with testing & commissioning, marine cargo, TPL with underground services	Testing period exclusion; transit cover end point
FIDIC-based, multilateral-funded	Full Clause 19.2.1–19.2.6 set, PI if design is yours	Joint names, evidence timing, local insurer vs foreign insurer
Large workforce (100+ permanent)	Section 99 group insurance plus employer's liability	Casual labour not counted in Section 99 but still your liability
Solar / storage EPC	EAR, delay-in-start-up, TPL, PI if design-build	Lender loss-payee and extension requirements
Small subcontract works	Proof of subcontractor's own cover or inclusion under main policy	Sub-contractor personnel treated as your personnel under FIDIC 19.2.5

Conclusion

Insurance on a Bangladeshi construction project is not one policy but a layered set of covers, each tied to a different source of obligation: the Labour Act for workers, the motor law for vehicles, the contract (and FIDIC Clause 19 where used) for the Works and third parties, and your own balance sheet for everything else. The cheapest way to get it wrong is to treat the certificate as a tender formality. The two errors that cost the most are the ones engineers can prevent: a sum insured that ignores free-issue items and escalation, and a policy period that ends before the project does.

Before the next bid, put the insurance schedule from the contract data beside your programme and your headcount plan, and ask the broker to quote against that schedule line by line. Ask specifically about the testing period, underground utility damage, and the average clause. Those three questions find most of the gaps.

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Have you dealt with a CAR/EAR claim, a lapsed cover period, or a joint-name endorsement dispute on a Bangladeshi project? Share what you learned in the comments. WAZIPOINT is building a contracts-and-risk reference series for practicing engineers in South Asia.