Contractual Liability for Contractors- Subcontractor Agreements -
By: Tony Matera / twitter @InsuringWI
Over the last few years we have seen many large construction groups break off into smaller Artisan Contractors due to changes in the economy. Many times the smaller Artisans reconnect on larger projects. Just because they are not on your payroll and you are “friends” generals on the project need to be careful when hiring subs. Here are some helpful tips when working with subcontractors that can protect you from liability, and possible workers compensation exposures.
The most important thing to remember is when hiring a subcontractor; the key is “managing” the relationship before the start of the project. This means establishing clear expectations (i.e. responsibilities and accountabilities for each party). The best way to manage your expectations is by having a written subcontractor agreement form.
The agreement should establish each parties job duties and responsibilities. It should start with a good narrative of the nature of the job. Then, it should describe the work to be completed by the subcontractor. This portion of the agreement is typically called the “Scope of Work.” It’s important to be as specific as possible in this area. In the scope of work many times an agreement will reference materials, blueprints, and purchase and/or work orders.
As a general contractor ultimately the responsibility and, therefore the bulk of the liability lies on you. But there are things a Subcontractor Agreement Form can do to help transfer some exposures to your subcontractors if done right.
In lawsuits over jobsite accidents and poor work quality, if subcontractors are determined to be employees, you might be found liable for taxes, payroll, job accidents, and injuries to third parties. A good agreement should designate a sub as an independent contractor. This will help avoid these pitfalls
Another strong tool every Subcontractor Agreement Form should have in place is an indemnification clause. The indemnification clause provides you with further protection for work performed by your subcontractor. Simply stated, by indemnifying, your subcontractor promises it will stand by its work and protect you from all claims – including those for defective work, jobsite injuries and property damage. The subcontractor will assume the defense and pay attorney fees for all complaints arising out of the work performed by the subcontractor, its employees or sub-subcontractors.
Having a signed Subcontractor Agreement Form in place isn’t enough however. You will still need to ensure that each subcontractor you contract with has their own insurance in place. This includes workers compensation – including employer’s liability insurance, auto liability and general liability insurance, you may also want to require a level of professional liability insurance depending on the job of your subcontractor.
The last tool every Subcontractor Agreement Form should have is asking your subcontractor to name you (your company) as an “additional insured” under the subcontractor’s general liability policy for any liability claims that occur out of the performance of their work and requesting a certificate of insuracne on file showing your subs evidance of coverage.
By not having or requesting the tools listed above a general contractor is assuming all responsibilities and therefore liability exposures. This may result in worst case scenario crippling lawsuits or at the very least additional premium at the end of your insurance policy after year end audits.
Ask your insurance agent and/or your lawyer to review your current Subcontractor Agreement Form (if you already have one in place) or for suggestions on how to establish one.
I hope this week’s look at insurance and minimizing your risk exposures has helped you see how contractors can avoid major exposures with proper communication and written agreements in place when managed properly. As always if you want more information or have questions please feel free to contact me directly. Thanks for checking in.
Tony Matera is a licensed independent insurance advisor with Ansay and Associates out of Port Washington WI. And is the Servicing Agent for ONMILWAUKEE.COM For more information contact him at firstname.lastname@example.org or call directly at 262-376-3248 www.linkedin.com/in/TONYMATERA