How to Mitigate Risks 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 liability exposures and other issues. A good way to approach risk management when hiring contractors is to create a management plan and formal policy that includes procedures for how contractors will be selected and managed. Once you have created a plan and policy, you will need to communicate it to all construction contractors and the employees who will work with them to ensure they understand your expectations.
Before choosing a contractor and entering into a contract, be sure to include the full scope of the work they will perform, including all necessary preparatory steps and all steps they will need to take to complete the project. This can help you identify areas of your project that require specialized skills and the risks you may face. Here are some essential steps to take to effectively mitigate risk when working with construction contractors.
Choose the right contractor
When considering different contractors for your project, the first step is to ensure they have current contractor licenses. Ask to see the contractor's license and photocopy it to keep in your file. You should not rely on a physical copy of a license and should instead contact the government body that issued it to verify that it is current and valid. You should also make sure the contractor has the experience you need for your project by requesting references from previous vendors, project owners, and subcontractors with whom they have done business. Contact your references to verify what you were 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 Guarantee – This type of guarantee guarantees that the contractor who submits the winning bid will fulfill his contract, even if he forgets to include something in his bid.
- Performance Guarantee – This guarantee guarantees that the contractor you contract with for your project will fulfill their contractual obligations as required by the provisions of your contract.
- Payment bond – This bond guarantees that the contractor will timely pay his suppliers and subcontractors for their work and protects your business against mechanical liens.
If you operate in a state that requires contractors to obtain licenses, the contractors you work with must also have contractor license titles as a licensing requirement. These bonds guarantee that the contractor will comply with all laws and regulations.
Construction bonds allow you to make claims against the contractor's bonds if a contractor fails to fulfill his contract, violates the law, or engages in other types of misconduct. If you require a contractor to secure a payment bond, this will also help protect you against potential mechanic's liens, since any vendors or subcontractors who are not paid may file claims against the contractor's payment bond instead of filing mechanic's liens against your project.
Make sure contractors have a workplace safety policy
Another thing you should check is that all contractors you do business with have safety policies that they can provide to you upon request. If a contractor does not have a safety policy, he may not be a good candidate for your project.
Make sure the contractor knows that you will hold him accountable for ensuring that all of his employees are required to follow safe practices while performing the work. The contractor's employees must also be qualified to perform their work and follow procedures. If the contractor uses subcontractors, he must explain the qualifications of the subcontractors to you before hiring them. The contractor must also demonstrate that it has trained its employees in safe work practices in accordance with Occupational Safety and Health Administration (OSHA) safety guidelines. They must also provide safety equipment to all workers who will perform work on their 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 must also provide a manual that lists protocols and procedures to the contractor and his employees before they begin work.
Include performance benchmarks in your contract, including safety provisions, quality standards, design specifications, expectations for adherence to procedures, and your policies. When the contract is complete, review the contractor's work. This can help you develop a list of contractors you will return to work with in the future and help you make adjustments to your contracts and policies if anything less than desired happens.
Be sure to specify in your contract that all property damage and incidents must be reported at the time they occur and that the contractor is responsible for keeping your equipment, facility, or project site in good condition.
Supervise contractors
You must have a designated employee who can supervise the contractor's work and monitor its quality. The employee must perform spot checks of the contractor's tools and compliance with his site's policies and procedures. They must also inspect the work at different points as it progresses. The designated employee must meet regularly with the contractor and record any problems that occur.
Ask the contractor and all subcontractors to wear name tags so they can be identified when working on site. You can also include a login process to see where they are working each day, which can help with monitoring and oversight.
Make sure all contractors know your safety protocols and procedures
It is not enough to check whether a contractor has a safety policy. You must also ensure that all contractors, subcontractors and your employees are aware of your company's safety policy before they begin work. Make sure they understand the unique characteristics of the workplace, potential hazards, and any protective systems you have in place.
You must keep records of any safety training provided, including the date, the person who conducted it, and the dates of additional training that contractors complete when you have a long-term contract. Make sure they sign an acknowledgment of receipt of the training.
Your training may cover the following topics:
- How the website can be accessed
- Identification requirements
- How contractors will be supervised
- All workplace hazards
- Procedure for reporting property damage and incidents
- Emergency procedures
- Fire prevention
- Lockout/Tagout Procedures
- Workplace safety
- Environmental Protection
- Procedures for specific hazards, including hot work, waste disposal, electrical work, confined space work, and others
- Smoking policy
Make sure your contractors are insured
In addition to being bonded and licensed, you must also make sure the contractors you hire are insured. They should have workers' compensation, commercial auto insurance, and professional liability coverage with their current policies. Ask them to provide current certificates and renewal certificates when their policies expire.
If your company hires construction contractors, it's important to take steps to mitigate risks. If you follow the steps listed above, you will be protected if anything goes wrong during your contract.
