Do You Need the Insurance Before You Bid?

A tender asks for £10m public liability insurance.

You have £5m.

At this point, three perfectly reasonable thoughts may occur:

• buy more insurance;
• abandon the tender;
• stare at the requirement for several minutes while calculating how expensive the privilege of losing might become.

Before doing any of them, check what the tender is actually asking.

Under the Procurement Act 2023, contracting authorities can use conditions of participation to test whether a supplier has the legal and financial capacity, or technical ability, to perform a contract. Those conditions must be proportionate to the contract.

But the Act places a specific restriction on insurance.

A contracting authority cannot require insurance relating to performance of the contract to already be in place before the contract is awarded.

That rule exists for a fairly sensible reason: suppliers should not have to spend money increasing their insurance cover merely for the opportunity to submit a bid they may never win. Cabinet Office guidance explicitly describes the restriction as a way of avoiding unnecessary cost and reducing barriers to participation, particularly for smaller businesses.

So if you see:

that does not automatically mean:

Those are different propositions.

What the buyer can ask for#

The buyer is still entitled to make sure the successful supplier can obtain the required cover.

For example, Cabinet Office guidance says a contracting authority may ask for evidence such as:

• an insurance certificate showing that the cover is already held; or
• a letter from an insurer indicating that the supplier could obtain the required insurance, together with the supplier's commitment to take it out.

Where a supplier relies on that latter route, the authority can verify that the required insurance has actually been obtained before awarding the contract.

The official Procurement Act training material puts the same point more plainly: buyers may ask suppliers to demonstrate their capability to obtain the insurance after award rather than insisting that every bidder purchase the cover in advance.

This can make a substantial difference to a small bidder.

Being able to obtain £10m of cover is not the same thing as paying for £10m of cover while still one of twelve companies competing for the job.

There is an important exception#

Not every insurance requirement exists only because of the tender.

Some insurance is required independently by law.

Employers' liability insurance is the obvious example. Where an insurance obligation already applies to the supplier outside the contract, the buyer may legitimately ask for evidence of it as part of the conditions of participation.

So the useful distinction is:

The tender documents should tell you which situation you are dealing with.

If they do not, that is a clarification question.

The number itself should also make sense#

There is another wrinkle worth noticing.

Conditions of participation must be proportionate, taking into account the nature, complexity and cost of the contract. The Cabinet Office specifically encourages contracting authorities to consider whether the insurance level they are requesting is actually necessary.

So a very large insurance requirement should not simply be treated as ceremonial procurement furniture.

It should correspond to the risk of the work.

That does not mean a bidder should casually decide that the buyer has asked for too much and ignore the requirement. It means that an apparently disproportionate insurance condition may deserve scrutiny — and, where appropriate, clarification.

Read the tense carefully#

A surprisingly useful habit in tendering is to pay attention to verbs.

There is a large difference between:

and:

And another difference again:

They may appear beside the same £10m figure. Operationally, they ask three different things.

Before buying anything, therefore, locate:

• the exact insurance requirement;
• when it must be satisfied;
• what evidence the buyer requests;
• whether it is a pass/fail condition;
• whether existing cover is required or a commitment to obtain it is sufficient;
• and whether later clarification has changed the position.

If those answers are scattered across the tender pack, keep their sources attached to them. Insurance is precisely the sort of requirement that becomes expensive when one sentence is remembered and the other four are not.

The useful question is not “Do we have it?”#

It is:

That question can turn an apparent disqualification into a perfectly viable bid.

It can also prevent a company from purchasing several million pounds' worth of additional cover for a contract it does not yet have.

A rare case in procurement where reading another paragraph may genuinely be cheaper than buying something.