• Subcontractor Agreements: Why You Should Be Using One

    October 20, 2016 in Commercial Lines News by Thompson Insurance, Inc.

    Subcontractors are a without a doubt a very important part of many businesses, especially the construction industry. Because many contractors have long-standing relationships with their Subs, many contractors fail to use a subcontractor agreement. This means that contractors could be exposing themselves to a great deal of risk and liability.

    Simply put, a Subcontractor agreement is a risk control strategy which shifts risk from one party to another. With such an agreement, the contractor is protecting themselves from risk derived from the work of their Subs.

    Why Is Risk Transfer Important?

    → Taking on your Sub’s liability can be costly – Without a Subcontractor Agreement, if your Sub does poor work on a job, that results in loss, you could be held leaglly liable for their work.

    → It can help control the type and the impact of the liabilities a contractor could face

    → Save contractors money by lowering overall costs

    → Certificates of Insurance aren’t always enough.

    Defense and Indemnification

    Since a subcontractor agreement is designed to protect contractors from the intentional or negligent acts of their subs, the agreement should have language that resembles the following:

    “Subcontractor, agrees to defend and indemnify the contractor (and others if applicable) against any claims, lawsuits and damages arising out of the subcontractor’s negligence or intentional acts.”

    Furthermore, language about the sub’s agreement to defend and indemnify the contractor for any misrepresentations (made knowingly or un-knowingly) regarding the sub’s licensing, corporate status or other relevant issues  should be included.

    A contractor can really help themselves avoid liability with a well-written subcontractor agreement. Even though you may have a long-standing relationship with a Sub, the situation could get very sticky should something happen. So, it would be a good idea to let your Subs know that these agreements will be required if they want to work on your job sites.  It’s a good idea to have someone like an attorney or your insurance agent look over or provide you with a solid Subcontractor agreement.

    If you would like to learn more about subcontractor agreements contact us today.

     

     

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