How to protect yourself when working with subcontractors
If you ever work with subcontractors – and many general contractors and businesses do – there are a few things to consider to make sure they meet contractual obligations and that you’re protected.
- Do you spell out specifically in your contract what you want them to do?
- Do you advise what insurance requirements they need? Do you require your subs to have any bonds? If so, what type of bonds do you ask for? Many contracts do not get into specific details of coverage. Installation coverage, transportation floaters and other requirements, such as details of pollution requirements are not always clear.
- Who is responsible for goods on the job site? Listing the requirements you have for your subcontractors is an important first step.
Becoming an additional insured
A subcontractors’ certificate of insurance is too general to provide adequate protection. Certificates of insurance normally just state the subcontractor’s insurance company, the policy number, date of the policy, and what the limit for commercial general liability. Today, the new standards are to have the sub-trades name your company as an additional insured with respect to the work they are doing for you. There is no cost to have this done and it’s a standard practice in the insurance industry. Adding your name to your sub’s policy gives you rights. It strengthens your position with your subcontractor, and if the policy is ever cancelled you are notified. If they fail to pay their premium you are also notified. If there is a claim, you have the right to speak to the insurance company about it, and if a payment occurs, your company will be included in the pay out.
Putting yourself in control
The following example shows just how quickly things can get out of your control:
A sign manufacturer hires a sub to install the sign. The sign breaks during installation and the installation company agrees to put in a claim on their insurance policy. The claim is paid by the insurance company to the installation company and when the sign company asks to be compensated the installer says, “My business is in trouble and I cannot pay you now; I promise I will sort this out.”
Insurance companies will reward you if you use best practices when working with your supply chain. Ask your insurance broker for guidance.
If you have questions or comments please send them to Judi Smith via e-mail Judi.smith@aon.ca or call 1-855-777-4342. Or you can send a note to Nikki.laskin@aon.ca or 1-289-313-2630.
