Professional Indemnity Insurance Requirement

Professional indemnity (PI) insurance is the insurance class that protects against claims arising from professional errors, negligent advice, design failures, or omissions in the delivery of services requiring specialist knowledge or skill. In public procurement across Europe, contracting authorities routinely require bidders to demonstrate that they hold, or will hold on contract commencement, a PI policy meeting specified minimum indemnity limits.

What is a Professional Indemnity Insurance Requirement?

A PI insurance requirement is a condition of participation or a contract condition specifying that the successful supplier must maintain PI cover for the duration of the contract, often with cover continuing for a defined run-off period after contract expiry to protect against latent claims. The required indemnity limit is typically proportionate to the contract value and the nature of the professional risk involved. Requirements commonly range from EUR 500,000 per claim for smaller advisory engagements to EUR 5 million or more for major engineering, IT systems, or construction design contracts.

Under Directive 2014/24/EU, insurance requirements may be imposed as part of technical and professional ability assessment or as contract performance conditions. The requirement must be stated in the contract notice or procurement documents before bidders submit, and must be proportionate to the subject matter of the contract. Setting excessively high PI limits that cannot be met by smaller, competent suppliers may be challenged as a barrier to competition.

Professional indemnity insurance is particularly relevant to contracts for architectural and engineering design, legal and financial advisory services, IT development and systems integration, environmental consultancy, and any other engagement where the supplier's professional judgement or expertise is central to the service. In the UK under the Procurement Act 2023, insurance requirements must similarly be proportionate and stated in advance.

PI insurance is distinct from public liability insurance, which covers bodily injury or property damage caused to third parties, and from employer's liability insurance, which covers workplace injuries to employees. A comprehensive bid package for a professional services contract will typically need to demonstrate all three types of cover.

Evidence of PI insurance is usually provided by a broker's certificate or a copy of the policy schedule. Some contracting authorities require the certificate to name the contracting authority as an interested party or to contain a notification clause obliging the insurer to inform the authority if cover lapses.

Why it matters for bidders

PI insurance premiums and available limits are directly linked to a supplier's claims history and risk profile. A supplier with a clean claims record and a strong balance sheet will typically obtain cover at competitive rates. A supplier with prior claims may face higher premiums, reduced limits, or policy exclusions that make it difficult to meet the specified requirement.

Bidders should check their existing PI policy against the procurement requirements before submitting. Gaps in cover, such as limits below the specified minimum or exclusions relevant to the contract scope, must be addressed before submission. Insurers may impose conditions or require additional premium for project-specific endorsements, so early engagement with the broker is advisable.

Example

A French metropolitan authority procures urban planning advisory services and requires bidders to hold PI insurance with a minimum indemnity of EUR 2 million per claim and EUR 4 million in aggregate annually, maintained for the three-year contract term and for five years after completion. A bidding consultancy confirms with its broker that its existing policy meets these limits and obtains a certificate of insurance naming the authority as an interested party, which it includes in its submission.

Frequently Asked Questions

Can a contracting authority require PI insurance to be in place before submitting a bid?

Yes. Some authorities require evidence of existing cover as a condition of tendering, reflecting the view that a supplier unable to obtain PI insurance at tender stage is unlikely to maintain adequate cover during the contract. Other authorities require only a commitment to obtain the required cover on award, with evidence provided before the contract is signed. The procurement documents specify the timing.

What is run-off cover and why is it relevant to public contracts?

Run-off cover (also called extended reporting period cover) is PI insurance that remains in force after the contract ends, covering claims that arise from work done during the contract period but are notified to the insurer after the policy renewal date. Many professional services contracts include latent defect risk, meaning a design error or negligent advice may not become apparent until years after completion. Run-off requirements of three to six years are common in public contracts involving design or advisory work.

Can a consortium bid satisfy the PI requirement collectively?

Generally yes, but the structure matters. If each consortium member is individually liable for its own scope, each must hold its own PI cover meeting the relevant requirements. If the consortium is jointly and severally liable under the contract, the combined cover may be assessed in aggregate. Bidders should clarify the liability structure and confirm the approach with their broker and the contracting authority during the pre-submission phase.