Prequalify Subcontractors to Protect Yourself From a Default
The construction market is becoming more competitive than ever. In today’s environment, it is tough for subcontractors to land jobs. As a result, subcontractor default is a growing risk due in large part to the cash requirements of a growing company. Dealing with a defaulting subcontractor can be disastrous for general contractors. So, before you solicit bids, you should be prequalifying subcontractors to weed out those that are not qualified.
This short article will discuss some considerations for prequalifying subcontractors. Remember, an Asheville construction lawyer from Cotney Construction Law is available to help you steer clear of costly disputes.
Scrutinize Their Financial Data
Ask subcontractors for financial details such as annual contract volume, sales and net worth, or their full financial statements. This information can help you spot a variety of red flags like the excessive dividend taken by its owners or unaccounted for early billings on projects. Assure them that their private financial data will be reviewed confidentially and then destroyed.
Review Their Safety Records
It is crucial to review a subcontractors safety management history. For example, a subcontractor’s workers’ compensation experience modifier should be 1.0 or lower. Another record to review would be the subcontractor’s Occupational Safety and Health Administration (OSHA) illness and injury rates. Review their written safety plans, toolbox talks, and other pertinent safety records.
Assess Their Insurance Coverage and Surety Bond Capacity
One of the best ways to protect yourself from subcontractor default is to ensure that the subcontractor has sufficient insurance and bonds. Do a thorough review of the subcontractor’s limits of coverage and perform a contractual risk transfer. Request the proper additional insured forms and waivers of subrogation so you can file a claim in the event of a default.
As always, an Asheville construction attorney from our firm can help you resolve any legal issues that are negatively impacting your business.
If you would like to speak with an Asheville contractor attorney, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.