Robin's Ruminations

The wide spread use of sub-contractors, also known as independent contractors or IC's, in the process serving industry has been a rather hot topic for some time.  And, based on some things that have been happening here in Washington, it is likely to become even hotter over the next several months.

At one time or another just about all of us will use an IC.  Larger companies use them extensively but even the smallest of companies will use them when there is a bit too much work to do or when a service needs to be done in an area not in the company's normal coverage area.  So, in effect, there are two types of IC's, local and remote.  For more information on IC's you should have a look at my posts covering this topic.  Use the search tool at the top of the page and search for "IC" to find them.

Some, but by no means all, companies require their local IC's to sign a contract.  This is good business practice and can protect both the company and the IC.  But no one that I know of asks their remote IC's to sign a contract.  For instance, my company is based in Bellingham.  When we need something served in Spokane we forward it to a company in that area (that company is a remote IC to me).  In turn, that company is likely to assign the job to a local IC.  They might even have a contract with the IC.  Yet, until recently, I would never have considered asking the company in Spokane to sign an agreement with me.  Indeed, just sending the assignment to the remote IC, with little or no knowledge of who they are, is standard practice in our industry.

The entire process gets a bit complex.  My client gives me the service assignment (no contract), I send it to the company in Spokane (no contract), and they assign it to a local IC (maybe a contract but I don't know and my client doesn't know).  From a liability point of view, the entire chain of players is potentially liable if something goes wrong.  With nothing in writing as to who is responsible for what.  

So I found this entry on Insurance-Tek's website rather interesting.  And remember, this applies to both local IC's and remote IC's.

Hiring a sub-contractor is common as it keeps the bottom line expense down. A temporary increase in business or a short term job may require additional personnel.  Keeping in mind, the sub-contractor is still an extension of the business and will reflect on the company’s performance.  A client is not aware a sub-contractor was hired just that the work is being done.  Hence the law suit in your company name for damages the sub-contractor may have caused.

1) Know the background and work ethics of the sub-contractor.

2) Have a contract with a hold harmless in place with between your company and the sub-contractor.

3) Obtain verification of insurance from the sub-contractor naming your business as an additional insured.

4) Know what exclusions are in the sub-contractors policy before they perform work.  If a type of operation is excluded, there may be no coverage on your company’s behalf.

5) Review and inspect the work completed by the sub-contractor.

6) Use the same sub-contractor(s) and build the relationship with them. Using different sub-contractors can open up an issue with quality of work performed.

7) Prior claims which could decrease the limit of coverage shown on the certificate of coverage.

8) Liens or open law suits which could affect the performance of the sub-contractors work and/or decrease the policy coverage limit.

9) Is the sub-contractor using their auto for business?  You need to ensure verification of their auto limits are shown on the certificate of insurance.  These limits should be no less than $300,000 to ensure your company is protected.  Most professionals will advise these limits should equal the occurrence limit for the liability.

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Robin Mullins November 15th, 2009 01:06:02 PM

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