General Contractors wouldn’t dream of bringing in a subcontractor that didn’t have insurance. If a subcontractor makes an error that leads to a lawsuit, the GC doesn’t want to be held liable, right?
RIGHT..but WRONG too.
Just having a valid certificate of insurance is only ONE component that is necessary to protect the GC. A detailed, written and signed Subcontractor Agreement is a critical way to make sure the General Contractor is shielded from liability. At the very least, the Subcontractor Agreement should detail the following.
1. The Scope of the work.
In this section you want to share the plan for the job as a whole and detail the specific responsibilities of the subcontractor.
2. Any Deadlines for the work.
Include details for when work should be done, how long the job should take the subcontractor to complete, and the status as a continual or intermittent job.
3. The Compensation for the work.
Specify the rate and method of compensation, whether it is based on job completion or time spent, paid in a lump sum or in segments. Be clear about the job components covered in the compensation.
4. Any Confidential Information for the work.
Particularly if the Master Agreement requires non-disclosure of details related to the project, that needs to be included in any related Subcontractor Agreement, clearly defining what is included under the umbrella of “confidential information.”
5. The Ownership of the work.
Clearly stating in the agreement that the work product belongs to the General Contractor, rather than the Subcontractor, protects the GC from shady actions on the part of the Sub, such as attempting to sell work directly to the client at a lesser rate. Once the work is completed, the GC has the full right and responsibility to present it to the client.
Tips to remember…
- The Master Agreement between the General Contractor and the client should include language that doesn’t hold the GC responsible for errors on the part of the subcontractor, a hold-harmless agreement.
- Be careful of making your agreement so specific in directing timing and actions that subcontractors need to be defined as employees.
- Make the deadlines in your Subcontractor Agreement well in advance of the ones you have set with the client. This gives you time to deal with any problems that arise.
- Make sure to specify that the subcontractor is an independent contractor. This language confirms that a GC is not responsible for any tax-related deductions.
- Even with Subcontractors that are continually completing jobs, it is important to review the Agreement annually to make sure it accurately reflects the professional relationship between GC and Sub.
Requesting a Certificate of Insurance is critical when hiring Subcontractors. However, it does NOT take the place of a detailed Subcontractor Agreement or liability insurance on the part of the GC. If something goes wrong, you WILL be sued. The Subcontractor Agreement is a way to limit liability by clearly delineating what the General Contractor is and IS NOT responsible for.
Not sure if your agreements cover you in the best way? Let one of our commercial insurance experts take a look.