What You Need to Know Before Hiring a Sub-Contractor

Knowing whom you hire to do work for you, as a sub-contractor is one of the most important business decisions you make today. Why, because your sub-contractor is representing YOU to your customer. YOU the general contractor are responsible for the work a sub-contractor does for you. YOU are responsible to correct any problems created by your sub-contractors.
Let me tell you a true story. 

 
Joe a general contractor who has been in business 26 years and has hundreds of projects under his belt constructed and finished a house for his customers Mr. And Mrs. Jones in 1996. In March of 2001 five years later the house caught fire and burnt to the ground. The Jones's homeowners insurance company after investigating how the fire started stated the proximate cause of the fire was faulty wiring. The electrical sub-contractor Frank who Joe had hired to do this job was brought into the suit. Regrettably Frank retired two years ago and no longer had insurance to protect him or Joe. The Jones's homeowners insurance company is suing Joe the General Contractor for Frank's Construction Defect! Joe did not do the work, but he hired the sub-contractor Frank. Joe's insurance company has cancelled Joe for hiring an uninsured sub-contractor. Even though Frank the sub-contractor was insured at the time he did the job. Joe lost his general liability insurance and had to look for another insurance carrier to cover his business. The cost of his new insurance is 153% higher than what he previously paid. The moral of the story is:
 

1.  MAKE SURE YOUR SUB-CONTRACTORS ARE INSURED! If you are doing business with a sub-contractor year after year, make it a habit to ask for current certificates of insurance. Make sure you are named as an additional insured. Also check that his limits of liability match yours. In other words if you carry $1,000,000.00 limit than your sub-contractors need to carry the same limits as you. Some insurance companies are considering undocumented sub-contractors (no certificates of insurance on file) as employees. These companies are using the amount you paid the sub as payroll. The cost of your general liability is determined on your payroll, and cost of your insured sub-contractors.  If you do not have a Sub-Contract Agreement with a good indemnity clause, call us and we will fax or email you our Sample Sub-Contract Agreement. 

2.  Before you hire a sub-contractor make sure he is licensed with the Arizona Registrar of Contractors. Make sure his license is up-to-date. You can check on this by going to azroc.gov. If you have the sub-contractor's license number you can enter it and check to see if his status is current. While you are at the ROC's web site you can also check for any complaints logged against the sub-contractor. You do not want to hire someone who will cause you problems. 

 
3.  If your Sub-contractor doesn't have a license of his own, he cannot work on jobs where materials and labor total more than $1000. He will be working under your license and has to be paid on a W-2. If you pay him on a 1099 you are aiding and abetting an unlicensed contractor. Check out the ROC's Most Wanted List! 
 
 
4.  Ask to see examples of the sub-contractors work. Ask for referrals from other general contractors who have used him in the past. 
 
 
5.  Have a written contract between you and the sub-contractor as to what you expect from him and how you are going to pay him. Make it understood who is responsible for correction of errors. You or the sub­contractor. This will protect both parties. 
 
 
6.  Have a written list of material used. If there are any changes make sure you the General Contractor, the owner and the sub-contractor signs off on the changes. 
 
 
7.  Do a walkthrough of the site make sure your sub-contractors know what you want done. Leave nothing to guess work. Remember you will pay for his bad decisions. Do not let your customers deal with your sub-contractors. As a general contractor you are responsible for any problems arising from your sub-contractors. 
 

8.  After the sub-contractor has finished his job, do a walk through and inspection of his work with the owner and sub-contractor. If there are any items that you or the owner feel need to be repaired, make a list. After the repairs are completed do another walk through with the owner and  sub-contractor and have everyone sign off that they are completely satisfied with the work. 
 
 
9.  If the sub-contractor has employees make sure the sub-contractor is carrying Workers Compensation Insurance. You do not want to become the responsible party if his employees are hurt on your job site and he has no insurance. Ask for a certificate of insurance showing workers compensation is currently in place. 
 
 
10. We advise that you keep documentation for each project. This includes contracts, list of repairs and their costs, current copies of certificates of insurances. According to the Arizona Statute of Repose you are responsible  for 8 years after the completion of the project. You never know when this documentation could save you millions. 
 
 
Keep In Mind....
 
 
When you retire you are legally responsible for the last thing you built for a period of eight years. This is the law in the state of Arizona. You should continue to carry General Liability Insurance for 8 years after you complete your last job. Do not let your retirement savings disappear because you are in court without the financial back up of a large insurance company and their lawyers. Our society is getting more and more litigious, Do Not take a chance and hope you won't be sued!

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