Contractor Risk Control Considerations

This “Otter Gram” is directed to managers and supervisors who may be involved in developing contracts with contractors working for your organization.

This is an extremely important topic to help ensure that your organization is protected by minimizing your organization’s liability in the event of actions on the part of the contractor while performing the job. Yes, a lot can go wrong, and the consequences can be significant.

Many organizations do not fully understand the potential for loss associated with the use of non-employees performing work or services on their premises. This can result in significant financial burdens especially should a non-employee be seriously injured or killed on your premises.

For example, one water agency had a well-known contracting firm construct a 20 million gallon buried reservoir. When the reservoir was filled to perform a leak test, one side of the structure separated, opening like a giant garage door releasing millions of gallons of water creating damage downstream. The legal issues associated with this were significant as you can image.

So, it’s clear that it’s important to minimize your liability that associated with the use of contractors or other non-employees working on your premises or performing services for your organization.

Some Questions to Consider

Does your organization use temporary labor forces or outside contractors to perform maintenance, construction or other work or services? It’s important to understand that you be held liable if they are injured.

For example, a manufacturing company was handed a $10 million judgment against them for a subcontractor injured on their site.

An employee of a roofing contractor they’d used for many years fell through a dirt covered skylight to his death.

The manufacturer assumed that the contractor’s insurance remained in effect year after year was not the case. It was determined that the contractor had no means to compensate the survivors of the deceased, so the manufacturer was held partially responsible and held financially responsible.

By taking action before signing a contract you can minimize exposure to this type of loss and protect your organization.

Thinking about the following questions help to determine whether your organization is at risk.

One answer of “yes” means you should consider steps to implement full protection. Of course, a higher degree of risk will mean a need for an increased level of controls and insurance and agreements.

• Does your organization subcontract any work to outside contractors?
• Does your organization use temporary agencies to supply workers?
• Does your organization use non-employees to perform maintenance or repairs to your facility? Many companies do not fully understand the potential for loss associated with the use of non-employees performing work on their premises.
• Are you building a new facility or adding on to an existing facility and using a contractor to do the work?
• Do vendors, clients, inspectors or other non-employees visit your facilities or sites?

The following are some basic guidelines and best practices to consider when working with non-employees:

Be Sure To

• Consider the prospective vendors workers’ compensation experience modifiers, drug free workplace programs and safety programs when choosing subcontractors, contractors and temporary agencies.
• Be sure to have a written agreement signed prior to the start of any work involving non-employees such as subcontractors, contractors, etc.
• Include a harmless and indemnification agreement in your favor in this agreement.
• Specify insurance requirements in the agreement.
• Require proof of compliance with all insurance requirements.
• Request to be named as an additional insured.
• Request waivers of subrogation for workers’ compensation and general liability.
• Specify safety requirements in the agreement.
• Monitor work areas to verify the adherence of specified safety rules and document your monitoring efforts.
• Include subcontractors in your safety training efforts to everyone who is on the same page.
• Conduct and document safety orientations with all non-employees who may enter production areas or job sites.

Never

• Permit work to start without an agreement being signed.
• Let any work begin without a verified proof of insurance.
• Sign a contract, agreement or proposal before it has been reviewed and approved by management.
• Allow any of the work to be re-subbed or reassigned without your written permission.
• Never Ignore safety violations or OSHA issues.
• Avoid hiring solely on price. Most responsible organizations choose contractors as the Lowest Responsible Price.

Remember

Hold harmless and indemnification agreements are critical to the risk transfer process. Again, consult legal counsel to ensure the contract is valid and properly crafted so it is crucial to consult a qualified person to review agreements.

The additionally insured status can act as a backdrop for the indemnification agreement.

Consider reassignment clauses which enable you to approve any second and third tier subs to ensure they meet the same contract requirements as first tier subcontractors.

If you do not specify the exact safety requirements at the start, it will be difficult to enforce them later.

Never sign temporary labor company contracts or agreements without completely reading and understanding the terms and conditions.

Be careful, in many cases, a company’s standard agreement would have your organization assume risks you do not want which would hold them harmless and indemnify them from all claims, leaving you “holding the bag”.

Construction Contractors and Subcontractors

Remember you get what you pay for, so the lowest bid is not always the best or most cost effective. When going out for bid, set contractor standards, including a drug free workplace program, workers compensation experience modification limits, a written site-specific safety program and verifiable experience with the size and scope of the project. It’s always a good idea to not rely on the low bid as opposed to the lowest responsible bid.

It’s a good idea to also check the contractor’s OSHA citation history by going to www.osha.gov, or your state’s OSHA program and doing the necessary research. Inspect contractor work areas frequently and document those efforts to ensure safety requirements are met.