How to Mitigate Risk When Hiring Construction Contractors
If your company relies on construction contractors to complete work on projects, you need to take steps to effectively manage your risks to avoid potential exposures to liability and other problems. A good way to approach managing risk when hiring contractors is to create a management plan and a formal policy that includes procedures for how contractors will be selected and managed. Once you create a plan and policy, you will then need to make sure that you communicate it to all the construction contractors and your employees who will work with them to ensure that they understand your expectations.
Before you choose a contractor and enter into a contract, make sure that you include the full scope of the work that they will undertake, including any required preparatory steps and every step they will need to do to complete the project. This can help you identify areas of your project that require specialized skills and the risks you might face. Here are some essential steps to take to effectively mitigate risk when you work with construction contractors.
Choose the Right Contractor
When you are considering different contractors for your project, your first step is to ensure they have current contractor licenses. Ask to see their contractor's license and photocopy it to keep in your file. You shouldn't rely on a physical copy of a license and should instead contact the governmental body that issued it to verify that it is current and valid. You should also make sure that the contractor has the necessary experience for your project by requesting references of past suppliers, project owners, and subcontractors with whom they have done business. Contact their references to verify what you have been told.
A good way to protect your business from risk is to require any contractor you hire to obtain a construction bond. There are a few different types of construction bonds that can protect you if something goes wrong with the project. Some types of construction bonds you might consider asking construction contractors to secure include the following:
- Bid bond - This type of bond guarantees that a contractor who submits the winning bid will follow through with your contract even if they forget to include something in their bid.
- Performance bond - This bond guarantees the contractor you contract with for your project will perform their contractual duties as called for by the provisions of your contract.
- Payment bond - This bond guarantees the contractor will pay its suppliers and subcontractors on time for their work and protects your business against mechanic's liens.
If you operate in a state that requires contractors to secure licenses, the contractors you work with should also have contractor license bonds as a licensing requirement. These bonds guarantee that the contractor will comply with all laws and regulations.
Construction bonds allow you to file claims against the contractor's bonds if a contractor fails to perform under your contract, violates the law, or engages in other types of misconduct. If you require a contractor to secure a payment bond, it also helps protect you against potential mechanic's liens since any suppliers or subcontractors who aren't paid can file claims against the contractor's payment bond instead of filing mechanic's liens against your project.
Make Sure Contractors Have a Work Safety Policy
Another thing you should verify is that any contractors with which you do business have safety policies in place that they can provide to you upon your request. If a contractor doesn't have a safety policy, they might not be a good candidate for your project.
Make sure the contractor knows that you will hold them responsible for ensuring that all of their employees will be required to follow safety practices while they perform work. The contractor's employees should also be qualified to perform their jobs and follow procedures. If the contractor will be using subcontractors, they should explain the qualifications of the subcontractors to you before hiring them. The contractor should also show that they have trained their employees in safe working practices per the safety guidelines from the Occupational Safety and Health Administration (OSHA). They should also provide safety gear to every worker who will perform work on your project.
Include Protections in Your Contracts
Your policies and procedures will not be binding on the contractor unless you include them in your contracts. You can include a clause that requires contractors to follow your site protocols. You should also provide a manual that lists the protocols and procedures to the contractor and their employees before they begin work.
Include performance benchmarks in your contract including provisions about safety, quality standards, project specifications, expectations of adherence to procedures, and your policies. When the contract is completed, review the contractor's work. Doing so can help you develop a list of contractors that you will return to for business in the future and help you make adjustments to your contracts and policies if something less than desired happens.
Make sure to specify in your contract that all property damage and incidents are required to be reported at the time they occur and that the contractor is responsible for maintaining your equipment, facility, or project site in good condition.
You should have a designated employee who can oversee the contractor's work and monitor its quality. The employee should complete spot checks of tools and the contractor's compliance with your site policies and procedures. They should also inspect the work at different points as it progresses. The designated employee should meet regularly with the contractor and record any issues that occur.
Ask the contractor and all subcontractors to wear name tags so that they can be identified when they are working on site. You might also include a sign-in process so that you will know where they are working each day, which can help with monitoring and supervision.
Make Sure All Contractors Know Your Safety Protocols and Procedures
It isn't enough to verify that a contractor has a safety policy. You should also ensure that all contractors, subcontractors, and their employees know your company's safety policy before they begin work. Make sure they understand the unique features of the worksite, potential hazards, and any protection systems you have in place.
You should maintain records of any safety training you provide that includes the date, the person who conducted it, and the dates of additional training the contractors complete when you have a long-term contract. Make sure they sign an acknowledgment of their receipt of training.
Your training might cover the following topics:
- How the site can be accessed
- Identification requirements
- How contractors will be supervised
- All hazards at the worksite
- Procedure for reporting property damage and incidents
- Emergency procedures
- Fire prevention
- Lockout/tagout procedures
- Security of the worksite
- Environmental protection
- Procedures for specific hazards, including hot work, waste disposal, electrical work, working in confined spaces, and others
- Smoking policy
Make Sure Your Contractors Are Insured
In addition to being bonded and licensed, you should also make sure that the contractors you hire are insured. They should have workers' compensation, commercial auto insurance, and professional indemnity coverage with current policies. Ask them to provide you with current certificates and provide you with renewal certificates when their policies expire.
If your company hires construction contractors, it is important to take steps to mitigate risks. If you follow the steps listed above, you should be protected in case something goes wrong during your contract.