Recommended Procedures to Follow When Hiring Subcontractors

Hiring a subcontractor should give you a little extra breathing room when finishing a project, but without the right procedures and documentation in place, they can create risks that may lead to unintended exposure.

On the other hand, following through with your due diligence and ensuring you have the proper contractual language in place can establish a smooth, consistent process for onboarding subs and ensuring that expectations are crystal clear. These expectations should most certainly include all subs having the proper contractor insurance coverage/policies.

You can keep in mind the following tips when engaging subcontractors to reduce your risk and your liabilities.

Investigate Any Subcontracting Companies You Are Considering

Before you decide to hire subcontractors, look into their reputation through multiple sources. Try to go beyond online ratings, which are often skewed and incomplete, and instead look directly to their references and or state specific licensing resources. Ask specific questions about work completion and any issues that arose during their projects.

You can also search through public court records using a service like PACER to see if there is a record of the subcontractor’s company or owner being sued in the past. Everyone makes mistakes, but a consistent history of issues like non-payment, poor work or any sort of unethical behavior on job sites can be a giant red flag.

Make Certain That the Subcontractor Carries Their Own Las Vegas Contractor’s Insurance Policy

It is hard to determine whether a contracting or subcontracting company may meet their financial obligations at first glance. Some subcontracting companies may try to fly a bit under the radar in terms of their financial and legal obligations. In other words, they may not have the insurance they need to protect themselves and ultimately you as the hiring contractor. As a consequence, the hiring contractor, project owner or property owner may end up incurring liability on their behalf.

To help avoid this scenario, require all subs to carry their own Commercial General Liability policy with coverage limits of at least a $1,000,000 per occurrence limit and a $2,000,000 general aggregate limit. You must also be positive that the subcontractor is naming the hiring contractor as  an additional insured by endorsement and also providing a primary/non-contributory endorsement and a per project aggregate endorsement.

Another common issue is that subcontractors may not have Workers’ Compensation for each and every one of their employees. While this may seem like their own risky decision, it can often come back on the hiring contractor, who can end up paying for the workers’ compensation policies or covering an accident claim for someone who was not their employee. Always make sure to also request a certificate of insurance for workers’ compensation and include a request for waiver or subrogation.

Always remember to request evidence of these required insurance policies in the form of an original Certificate of Insurance and insist on receiving endorsements that validate the coverages being evidenced on the certificate. The certificate alone does not extend the contractual risk transfer as perceived.

Include Stipulations in Your Contract

The best way to ensure your subcontractors meet their insurance obligations is to include every type of insurance needed in the contract. Also, stipulate that no payment can be made until you receive a signed original copy of the Certificate of Insurance declaring all the necessary policies.

You can also include in the contract an indemnity/hold harmless clause. These clauses explicitly declare that the subcontractor has no legal right to hold any of the builders or property owners responsible for any damages, losses, expenses and claims that arise from their own performed work or caused by either direct or indirect employees.

These actions can reduce your risk and help you avoid common mistakes, but you should consult with a business contract legal expert and a Las Vegas commercial insurance provider to be certain that you have done everything in your power to avoid risk. When you have, you can hire the most responsible, high-quality subcontractors while enjoying the peace of mind you deserve.