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Subcontractor coverage

  • Darryl Beckman
- Posted: September 1, 2014
Companies who use subcontractors for snow-clearing operations need to make sure a sound legal document is in place that outlines the responsibilities of the subcontract. I recommend the following be part of every agreement:

Legal identifiers
  • Specify that the subcontractor is an independent contractor. You do not want to be legally responsible for any omissions or negligence by the subcontractor, and you want the agreement to clearly note that the subcontractor is not acting as an agent or employee of your company.
  • The agreement should reflect that no employment relationship is created by the agreement, and the subcontractor expressly confirms its business is not limited to services for your company.
Insurance requirements
  • Require proof of general liability insurance with a specified coverage limit (I recommend not less than $1 million per occurrence and an aggregate limit not less than $2 million); workers’ compensation insurance for all employees (I recommend a limit not less than $1 million); and auto liability insurance (I recommend limits not less than $1 million per accident).
  • Require certificates of insurance reflecting these coverages.
  • Require the subcontractor to name your company as an additional insured on insurance certificates and that insurance coverage for your company must be primary and noncontributory.
  • Require the subcontractor to indemnify, defend and hold harmless your company from all claims, lawsuits, expenses, judgments and penalties, including costs, expenses and attorney fees, arising out of the subcontractor’s performance or failure to perform the duties and services under the agreement.
Service and reporting requirements
  • The contract should clearly list each location to be serviced along with the pricing for each location - even if they service multiple locations.
  • Require the subcontractor to report all services performed, including times and types of services provided, and actual materials utilized during a snow event. This information is important for client billing, job pricing, and litigation should a legal claim arise from services performed by the subcontractor.
  • Set a time frame for the subcontractor to report services and for payment to be made to the subcontractor. I recommend that reporting time not be more than a week.
  • Require that the subcontractor assume responsibility to repair any damage caused by its employees. You may include language reflecting that the subcontractor’s payment may be withheld until all damages are corrected.
  • Note that the subcontractor is responsible for the work assigned and for the conduct of all of the subcontractor’s employees. It should specify that the subcontractor will provide adequate supervision for all employees and will assure all work is provided in a good and workmanlike fashion, in accordance with the standards established by your company.
  • It is fine to note that the subcontractor agrees to coordinate with work schedules and job specifications set by your company, and all services are subject to your right of inspection and must meet with your approval. However, expressly state that the subcontractor will perform the final inspection before leaving any job location and will not rely upon any inspection by your company. In the event of litigation, you do not want the subcontractor to argue it relied upon your company for inspections unless you are actually inspecting the work before the subcontractor is released from the premises.
Subcontracting to subcontractors
  • The agreement should reflect whether the subcontractor is permitted to subcontract any work. Depending on your preference and history with a subcontractor, you may require that the subcontractor self-perform all services, or allow the subcontractor to subcontract all or a portion of the work. I generally recommend new subcontractors be required to self-perform all services for at least the first year of any contract.
  • If you allow a subcontractor to utilize a second-tier contractor, require that the subcontractor obtain your written approval and provide contact information for the second-tier contractor, including the company name, primary contact information and phone numbers for company officers.
  • All second-tier contractors must be required to provide your company with the insurance certifications and be held to the same insurance and indemnification standards as the original subcontractor.
  • Expressly note that the subcontractor shall be considered to have materially breached the agreement should it utilize the services of a second-tier contractor without the written approval of your company.
Human resources
  • The agreement should note it is the subcontractor’s obligation to abide by all local, state and federal hiring guidelines, and the subcontractor agrees to employ only workers who are legally permitted to gain employment within North America.
  • The agreement should briefly touch on drug and alcohol abuse, noting that your company and the subcontractor recognize the problems created by drug and alcohol abuse, and have a commitment to provide a safe working environment.
  • I recommend a noncompete clause, reflecting that the subcontractor agrees not to compete with your company in any capacity by providing the services to your clients that are the subject of the agreement. The requirement should last for a predetermined period of time upon expiration of the agreement, such as two years.  
Darryl Beckman is the managing partner of Beckman Ogozalek Perez Paglione. Beckman works for major insurance carriers and represents and consults with snow and ice management companies throughout North America.
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