Your Subcontractor Agreement Decides Whose Problem It Becomes

By Cole Rarrick
Founder, President | Mountain View Insurance Services

Most contractors treat the subcontractor agreement like the warranty booklet that comes with a new truck. You sign it, file it away, and never look at it again until something goes wrong. The GC makes you sign one to get on the job, or your insurance company asks to see them at audit, so you grab a signature when somebody reminds you and move on. Paperwork. A box to check.

I want to change how you see that piece of paper, because it's doing one of the most important jobs in your entire risk program, or it's doing nothing at all, and the difference only shows up on the worst day.

Here's the day. A guy who works for your concrete sub trips on your job site and shatters his wrist. Or your grading sub didn't compact the base right and two years later the slab cracks and the owner comes after everybody who touched the project. Or your hauling sub's truck clips a car on the way to your site. In every one of those, a question gets answered fast, and you don't get to answer it after the fact. Whose problem is this?
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Your subcontractor agreement is what answers it. A strong one pushes that loss back onto the sub and the sub's insurance, where it belongs. A weak one, or none at all, leaves it sitting on you.

​It's not paperwork. It's risk transfer.
Strip away the legal language and a subcontractor agreement does one simple thing. It moves the risk of your sub's work off of you and onto them.

You're hiring somebody to do work you're ultimately responsible for in the owner's eyes. The agreement is how you make sure that when their work causes a problem, their insurance pays for it instead of yours. That's the whole game. Every clause that matters is built around that one idea.

And it's exactly why your insurance company cares about these. They're not collecting paperwork for fun. They know a contractor with strong subcontractor agreements has shoved a pile of risk onto other people's policies, and a contractor without them is unknowingly absorbing all of it.

​What it actually costs you to skip it
Let me walk through what happens when the agreement isn't there or isn't strong enough, because the cost is bigger and stranger than most people expect.

Start with the injured worker. Your sub's employee gets hurt on your site. You'd assume that's the sub's workers' comp problem, and the injury itself usually is. But hurt workers and their attorneys don't stop at comp. They look around for somebody else to sue, and there you are, the contractor who hired them. That's called an action over claim, and it lands on your general liability policy. If your agreement named you as an additional insured on the sub's policy and required the right coverage, that claim flows back to the sub's insurance company. If it didn't, your policy eats it, your loss runs take the hit, and you feel it at your next renewal. And a serious injury claim doesn't stay small. One sub's hurt employee can turn into a seven figure problem with your name on it.

Now the work that fails later. This is the one contractors forget about completely. Your grading sub finishes, you pay them, the job closes, everybody moves on. Two years later the pad settles, the building cracks, and the owner sues. By then that sub might be out of business, might have dropped their coverage, might be impossible to track down. If your agreement required them to carry completed operations coverage and keep you as an additional insured for as long as you can still be sued, you've got something real to fall back on. If it didn't, you're defending a claim for somebody else's bad compaction on your own dime, years after you forgot the job existed.

Then there's the cost you never see coming, the one that shows up at audit. When you can't produce proof that a sub carried their own insurance, your insurance company treats what you paid that sub as your payroll. Not just their labor, the whole check. The same missing paperwork that exposes you in a lawsuit also shows up as a bigger bill at audit time. It's one hole, costing you twice.

​What a strong agreement actually has in it
You don't need to become an insurance lawyer to know whether your agreement is pulling its weight. A handful of things do most of the work, and you can check for them in about five minutes.

• Get it in writing, signed before they start. A handshake transfers nothing. The cleanest setup is a master agreement you sign once with each sub, then a short work order for each project, so you're not papering a brand new contract every time.
• A hold harmless and indemnification clause. This is the sub agreeing to stand behind their own work and cover the costs when their work causes a claim. You want it written as broadly as the law in your state allows, so it actually holds up when you lean on it.
• Additional insured status, ongoing and completed operations. This is the one that does the heavy lifting. The sub names you on their policy, both while the work is happening and after the job wraps, and it needs to be primary and non-contributory, which just means their policy pays first and yours doesn't get pulled in to share the bill. This is what actually moves a claim off your policy and onto theirs.
• Real insurance minimums, with proof. At a minimum, general liability at $1 million per occurrence and $2 million aggregate, carried with a financially solid insurance company, and a certificate of insurance in your hand before they set foot on your site. Then a fresh certificate every project, because a sub who's covered today can drop their policy before the next job.
• A waiver of subrogation. This keeps the sub's insurance company from paying a claim and then turning around to collect from you. Without it, you can win the fight and still get a bill.
• No employee-injury exclusion hiding in their policy. Some policies carve out injuries to the sub's own employees, and that carve-out is the exact gap that lets an action over claim back onto your plate. You don't have to read the policy language yourself. Just have your broker confirm that hole isn't there.
  
  

If you check nothing else, check three: a hold harmless clause, general liability limits of at least $1 million and $2 million, and a waiver of subrogation. Those are the ones we see missing most often, and they tend to be missing on exactly the jobs where they'd have mattered most.

​Something beats nothing, and better beats good enough
Here's where I want to keep you from going sideways. You might read all of that and decide your agreement has to be a fortress, twelve pages of airtight language, before it's worth anything. That's not true, and that belief is exactly what keeps contractors doing nothing.

A one page agreement that names indemnification, requires the sub to add you as an additional insured, and demands a certificate of insurance before they start is worth far more than the handshake you're running on now. It won't be perfect. It'll still catch most of what a perfect one catches. Get it signed and you've already moved most of the risk off your books.

Then make it better over time. Add the completed operations language. Tighten the insurance minimums. Move to a master agreement so it's easier to use. You don't have to get there in one jump. The contractors who win at this aren't the ones with the most elaborate contracts. They're the ones who actually have something signed, every sub, every job, and keep sharpening it. Don't let the perfect version stop you from putting the good version in place today.

Where to start
The move here is a working session, not a fire drill. Three things to do before your next job:

1. Get something signed with every sub before they start. If you don't have an agreement at all, grab a simple one and use it, because a basic agreement beats an empty folder every time.
2. Have your broker read your agreement against your actual policy and your real operation and point out the gaps. A good broker can look at the two side by side and tell you within a few minutes whether your risk is landing where it should.
3. Collect a current certificate of insurance from every sub on every job, and confirm you're named as an additional insured for completed operations, not just ongoing work.

That piece of paper you've been treating like a formality is one of the cheapest, most powerful parts of your whole insurance program. It doesn't cost you a premium. It just decides, ahead of time, whose problem the next accident becomes. Make sure it's deciding in your favor.