FYI If You Hire Subcontractors

Do you know how to protect your company if you hire subcontractors?

An issue that regularly comes across our desks, but sometimes catches businesses off guard: subcontractor risk management. 

There are a number of categories subcontractors may fit into: You may hire companies or workers to perform jobs for your clients (like application development or construction) or for your own firm (like landscaping or cleaning at your building). You may pay these workers on a 1099 basis or pay an invoice in a business-to-business transaction. Either way, you are taking on additional risk.

How to Manage This Risk

The proper risk management approach will vary depending on what the sub is doing for you and can involve several different disciplines. For example, you may want to check the sub’s background, ask for references, and review credentials. 

Today, we will focus on two particularly important risk management tools: Contracts and Insurance.

Contracts — While we are not attorneys, we know that a good hold harmless or indemnification agreement can protect you. With these agreements, if a third party alleges they were harmed by your sub’s actions, you and your insurance policies may not need to pay. 

We have sample materials on this that we can share with you – just let me know if you’d like us to send them your way.  

Insurance — Having an agreement in place is a great start. But ideally, the sub should carry insurance to back up that agreement. In general, you should ask that the sub provide you with a Certificate of Insurance (COI) annually.  The COI will evidence adequate limits and name your firm as an additional insured for General Liability, Auto Liability, and Professional Liability (these last two if applicable). If workers will be on-site, they should also carry workers’ compensation insurance.

Whether or not you should be asking subs to show that they have additional coverage and what appropriate limits are will depend on the situation. 

Know that we are available to work through these issues with you. Please do not hesitate to reach out to us for guidance regarding the management of your subcontractors.

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