Managing subcontractor risk

August 19, 2016 -  By
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Photo: ©istock.com/Gajus

At some point, a growing snow management business reaches a level where it may need to hire a subcontractor. While sometimes necessary, it’s an inherently risky situation. Just because your business holds itself to a certain standard does not mean a subcontractor has equal standards.

Managing risk and liability is essential for long-term success in the snow industry, says Darryl Beckman, who represents snow and ice management professionals as the managing partner of Beckman Ogozalek Paglione Londar Counsellors at Law. He spoke on “Advanced Contractual Issues in Snow and Ice” at the Snow & Ice Management Association’s (SIMA) Snow & Ice Symposium in June.

Simply put, managing risk comes down to collecting the proper and valid documents prior to working with a subcontractor.

Your John Hancock, please

“Your entire relationship with your subcontractor is governed by the contract,” Beckman says. “I wouldn’t allow any subcontractor to do work for me without a contract, valid and effective.”

The contract must be signed and submitted for it to be valid. It may seem simple, but Beckman sees many cases where contractors think a contract is valid just because it was prepared and sent to the subcontractor. It should also have a start and stop date. Once it expires, the subcontractor should sign an updated contract, and the contractor should ensure the terms are still applicable.

Jamie Brabston, a lawyer with Lehr Middlebrooks Vreeland & Thompson, adviser to National Association of Landscape Professionals members, prefers a physical, formal copy of the contract signed by both parties. An email contract is OK—but not great. A verbal contract, on the other hand, is never smart—no matter how well you know the subcontractor you’re hiring.

“(An email agreement) is not the best way to go,” Brabston says. “But it is better than a verbal agreement because it can be used as evidence. You have something that shows intent and that both parties came to an agreement.”

For a subcontractor working on multiple properties, one generic contract will not suffice. Brabston suggests having a stock contract, which states standard terms and company policies. It should include a section requiring compliance with all state and federal laws, such as the Fair Labor Standards Act, immigration laws and the Affordable Care Act. This can be the base of every contract. Then, a line should refer the reader to an attachment, which will contain the statement of work for each property the subcontractor is working on.

“Make sure the subcontractor understands the physical characteristics of every site,” says Beckman, who suggests preseason on-site walkthroughs. “If you have a subcontractor that’s tremendous and knows the site better than you, sign the contract and let him do it. But if you have a new subcontractor, give him more direction in the contract to make sure the job gets done.”

Each job has small quirks, like how the water drains or where to avoid pile-ups. The contract should reflect each quirk. Do not count on a verbal reminder. Get it in writing.

Define any terms that may be confusing. The goal of the contract is to avoid ambiguity between the client, the contractor and the subcontractor. One important term to define is the trigger point, or when the subcontractor needs to start plowing. It’s essential that the term between the contractor and subcontractor match the terms on the client’s contract. A popular subcontractor claim is a limited ability to do a job due to an improper trigger warning or a on-call policy, Beckman says.

For example, if the contractor’s contract with a store says the trigger point, or accumulation point where plowing begins, is 2 inches, the subcontractor’s contract must mirror that language. If their contract states they don’t have to plow until 3 inches or doesn’t express a trigger point, the contractor is likely liable in a slip-and-fall case.

Lastly, the contract should affirm responsibility for monitoring the site after completion, Beckman says. The contract should indicate that the subcontractor will not leave until he or she is comfortable with the conditions. But that doesn’t mean a contractor can’t check up on and monitor the subcontractor. After all, at the end of the day, it’s the contractor’s responsibility to meet the client’s needs.

“If something is wrong, correct it. You have the original contract,” Beckman says. “But deduct (a subcontractor’s pay) when you have to step in, and include this information in the contract.”

Itemized receipts

Proper job documentation can be a lifesaver in court.

“If your subcontractor isn’t giving you documentation, we’re in trouble,” Beckman says. “It just makes good business sense, and it makes good legal sense.”

This documentation should detail all services performed at the site, and a contractor should not accept excuses for not receiving this documentation, Beckman says. It helps to show the subcontractor exactly how you want the paperwork filled out—especially if the subcontractor has a less-than-professional operation. That’s OK. What’s not OK is dealing with a subcontractor that refuses to fill out paperwork or pawns it off on your office staff. It has to be done eventually, and if it’s not the subcontractor filling out the documentation, it’s someone else—taking man-hours away from other tasks.

Beckman suggests an incentive program. In the contract, create a clause that describes the necessary documentation and says the subcontractor will receive payment a specified number of days after the contractor receives documentation.

“If the subcontractor isn’t submitting documentation, don’t pay them,” he says. “But put that in the contract.”

Trusted coverage

Finally, get proof of insurance. Beckman suggests requesting a certificate of insurance, which explicitly states the company is covered to work snow.

“Their policy may cover landscaping but not cover snow,” Beckman says. “I’ve seen this many times. A lot of landscaping insurance excludes coverage for snow.”

Kimberly Jewell, general manager at Snow Management Services in Denver, Colo., takes it a step further. A certificate may show that a subcontractor has some sort of snow coverage, but it doesn’t specify exactly what the policy carries, Jewell says. That’s why she asks for the company’s endorsements, which expressly detail what the policy covers.

But even if you don’t get the endorsements, you can take extra steps to make sure it’s valid. For one, check the issue date. Jewell won’t accept a certificate of insurance or endorsement unless its issue date is within about a week of when she receives it. Just because a subcontractor had insurance in November 2015, she says, doesn’t mean he or she has insurance now. One company she considered working with said it had insurance and gave her a certificate to back up that claim. When she contacted the insurance agency to verify, it said the company didn’t make payments and was dropped by the insurance company months before.

“Just because I get a certificate doesn’t mean it’s true,” Jewell says. “That certificate has to come from the broker.”

Some contractors also put a minimum on the coverage amount, Brabston says. She most frequently sees contracts that state the subcontractor must have a policy that covers at least $500,000 or $1 million.

Ultimately, the job of the contractor is to be sure the job is done and done well—not to just protect himself or herself from any and all liability, Beckman says.

He adds, “If the job doesn’t get done, and you lose it, none of this helps you.”


To download a sample contract provided by the Snow Management Services, click here. 

Photo: ©istock.com/Gajus

About the Author:

Dillon Stewart graduated from Ohio University’s E.W. Scripps School of Journalism, earning a Bachelor of Science in Online Journalism with specializations in business and political science. Stewart is a former associate editor of LM.

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