Bidding on a project is an art form. A new project contract will start by outlining job expectations, timeline, and who will ultimately complete each detail that is requested. If your business is taking on part of the project, it's crucial that you understand the legal liability associated with your role and what types of insurance will be required. In this article, we will discuss the differences between contractor and subcontractor liabilities and what you should consider before taking out your policy.
When an organization wants to take on work that won't be handled by its employees or owners, it will typically retain the necessary services from another business or individual on a freelance basis. This is what is known as an independent contractor. Once that project is completed, that contractor is free to move on to the next job.
To the contractor, the hiring organization is a client. The client will typically put together a detailed plan as to what the job will entail and consider what type of time frame it should take to complete.
In some cases, such as for a building project, the client will accept bids from various businesses or contractors that are willing to work within their parameters of budget, time frame, and quality of work. However, these may not be the client's only considerations when looking at the various bids that have been submitted.
This would be no different than if you were obtaining quotes to hire someone to build a garage on the back of your home. You would want to know how much it is going to cost in labor, materials, and time. It's also wise to consider a contractor's reputation, and you might look at reviews. We all know that cheaper is not always better.
While you may come in way under budget, a cheap contractor might cut corners in craftsmanship just to complete the work. This would leave you with more headaches and costs down the road if you have to repair the work that you have already paid for to be completed once. That is never an ideal situation.
After the contract is secure, the contractor may realize that there is too much work to be completed by just one person. At this point, they may enlist the help of subcontractors to complete the project.
To understand subcontracting further, let's use a small home renovation as an example. In this scenario, you're a two-man contracting team that has been hired to complete a full kitchen upgrade to a farmhouse that is almost 100 years old.
You and your partner agree that this project is going to require the help of different types of subcontractors such as electricians, plumbers, drywallers, and flooring specialists to get everything completed in the set four-week time frame.
By hiring other specialists not on your team, you and your partner will be able to focus on the overall project and any bigger tasks you assign yourselves. Meanwhile, the specialists will tackle the other jobs that they have specifically been hired to do.
Keep in mind, these experts are not your employees. Each subcontractor understands that your company secured the contract. There is an understanding built in that these subcontractors are paid by the contractor and are subcontracted employees until the project is complete.
These subcontractors will help complete the project, but they will report directly to the contractor. Once their portion of the work is complete, they are then able to move on to projects that are no longer part of the contract.
Leveraging people and skill sets can be crucial in business. The more projects that are completed, the more revenue for everyone involved. If you're a contractor, you can only spread yourself so thin. This could make a simple task drag on for a much longer time than needed.
Hiring additional help could be key to meeting certain parameters within a contract. Some contracts include additional incentives to the hired contractor if the project is completed ahead of schedule. This creates more urgency for the winning bidder to stay on time and budget.
By using subcontractors, you'll be able to leverage the time and expertise of other professionals in order to meet a deadline. You may know how to complete all of the work requested, but you may not have the time or ability to duplicate yourself to meet the deadline.
Subcontractors, therefore, provide essential services. However, when you hire subcontractors, you are taking on more risks that might add to your insurance liability.
It is not uncommon for a hiring client to ask to be added to your independent liability insurance policy. This is going to provide your client an extra layer of protection if they are named in a lawsuit that was filed as a result of the work that they have hired you to do.
This would allow your insurance provider to step in and cover legal bills and expenses associated with the claim. The coverage would then be capped at the policy's limits. You will want to discuss the coverage of your policy and limitations with your licensed insurance agent.
Your clients trust you enough to hire you, but it might be in their best interest to inquire about the insurance coverage of your work. Even if they do not openly state that coverage is a prerequisite to start working, it is still a good investment for your business.
For high-value or larger projects, an errors and omissions (E&O) policy (also referred to as professional liability coverage) may be required to protect the parties from costs that could be associated from lawsuits claiming that the work is unsatisfactory due to inaccuracies, missed deadlines, or being incomplete.
It doesn't matter what kind of subcontractors you are looking to hire. You should still consider adding them to your E&O policy if you are unsure of the coverage they bring to the table. Subcontractors who are business owners might already have a policy that covers their work, which is the best-case scenario as not all insurance policies will allow for subcontractors to be added. If you are in a profession that works closely with subcontractors, consider this when you are comparing various E&O insurance policies.
When you decide to add a subcontractor to your insurance policies, it should be a pretty simple process. Your licensed insurance agent will ask you to provide the person's name and the name of their business, if they work under one.
You might ask your agent for future reference if this is a task that requires the assistance of an agent or if this is something you can do online in a customer portal. Once your new subcontractors have been added to the policy, you should be able to download or print the new certificate of insurance to provide to the client.
Other clients might request that the contractors they are hiring present a surety bond. This request will be made only to the contractors and will not apply to each subcontractor that is working on the project. If you are chosen to complete a project that you back out of for any reason, this surety bond is going to help cover the costs of acquiring a new replacement.
As you are comparing different insurance providers to obtain the bond, you will want to pay close attention to how much of the total you are required to pay. You may have to pay anywhere from 1% to 15% of the total bond needed up front. This is not always going to be required, and you will want to go over the specifications with your client. Your licensed insurance agent is going to be a great resource for you to discuss your options.
If you don't know what you're looking for, an insurance policy can read like a foreign language. In some situations, having the right coverage can make or break a bid. This is especially true when you are up against several competitors bidding on the same project.
A knowledgeable, licensed insurance agent can help you sort through the different policies and products that your clients might require. The insurance experts at CoverWallet can help answer your questions and show you the variety of policies available for your situation.
Whether you work alone or with five employees, we can assist you in selecting the right contractor insurance policy for your needs. Keep in mind, having insurance is about more than making your company more attractive to clients. It could ultimately save your contractor business if a liability issue ever comes up. Get your quote today.