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Transfering risk from construction contractors to subcontractors

It's quite rare and highly unlikely these days that a general construction contractor will perform all of the work on a project. More than likely, the contractor will bring in numerous subcontractors as needed to handle a particular portion of the work.

Regardless of how careful a construction contractor is, issues can arise on any job, especially when subcontractors become involved. Controlling every action of a particular subcontractor is nearly impossible. For this reason, contractors should make sure that subcontractors meet the appropriate insurance requirements.

You can transfer the risk to the subcontractor

When it comes to risk management, the primary goal is to make sure that the party closest to the problem assumes the liability. As the general contractor, you will need the requisite indemnification from your subcontractors. For instance, if you use a subcontractor for electrical issues and something goes wrong with those systems, you want the electrician to assume the liability, not you.

To make sure this happens, you need to make sure you receive a specific indemnification from the subcontractor. It's not enough that you are an additional insured on a policy. Insurance and indemnification are two separate matters, and your contracts with subcontractors need to reflect that.

Are you really covered by the subcontractor's policy?

As a construction contractor, you probably take steps to limit your liability when things go wrong by purchasing adequate insurance to cover any losses. You may assume that your subcontractors do the same, but that assumption could get you into trouble. You need to make sure that the risk transfers to the subcontractor and that the subcontractor provides you with the appropriate indemnifications and liability coverage.

Your subcontractors may have a blanket endorsement that indicates the contractor is an additional insured, but that may not be enough to protect you. You may want to make sure the subcontractor's endorsement specifically names you and/or your company. Moreover, if your construction contract requires that the property owner or others above you receive the same endorsement from subcontractors, they may need specific endorsements as well since some policies require a direct connection to each additional insured via a contract.

Making sure it's done right

Obviously, getting these issues right will probably not be simple. Instead of attempting to work them out on your own, you would more than likely benefit from involving a North Carolina construction law attorney in your dealings with subcontractors in order to make sure you receive the maximum amount of protection possible.

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