Screening Subcontractors: The Risks of Negligent Sub Selection

As a construction underwriter, my job is to carefully evaluate your business using insurance applications and a loss control report. The considerations extend beyond the paperwork—beyond the checkboxes and forms. Underwriters dig into the details of your operations, assessing risk factors, project types, safety programs and execution. That’s as dirty as our hands get. No PPE required.??

One area has emerged as a critical focal point: Subcontractor management. How effectively do you screen the subcontractors you hire? And how effective are your subcontractor agreements in transferring risk back to them?

Below are a few important considerations primarily focused on subcontractor selection. As an underwriter, I’ve seen first-hand how a poorly screened subcontractor greatly increases the odds of a significant property damage or liability claim. If you’ve been in the construction business for a while, you’ve probably heard of the “5 'C’s” of evaluation and the importance of contractual risk transfer, but like the football fundamentals of blocking and tackling, success is in the execution.?

Building a strong foundation through diligent sub selection and contractual risk transfer improves your odds of project success and protects your business.?

First, choosing the wrong subcontractor can have serious consequences. Here a few of the risks associated with a negligent selection:?

1.?????? Safety Hazards: Unqualified subcontractors jeopardize your worker safety. Accidents due to poor work habits can result in injuries or worse. When a worker is injured on a jobsite one area of interest to the underwriter is around how carefully the subcontractor was screened. Were there any indications the subcontractor had no business being on the jobsite? A history of past accidents, OSHA violations or a high workers’ comp experience mod may have been clues.

2.?????? Project Delays: Incompetent subcontractors can cause delays, disrupting project schedules and affecting overall timelines. Again, look at their past performance on prior jobs with your team or with other contractors. Does the subcontractor have a solid track record of working safely and delivering work on time?

3.?????? Cost Overruns: Subpar workmanship leads to rework, repairs, and too often, allegations of a construction defects which can cost millions to repair and earn you years of litigation. Cutting corners with a quick sub hiring decision can cost you in the long run.

4.?????? Reputation Damage: Dissatisfied clients and public complaints tarnish your reputation. Word spreads faster than a nail gun misfire, right? This is a major reason why selecting a qualified subcontractor is so important. Choosing the right subcontractor for the job is your responsibility. When reviewing your loss history, underwriters will evaluate the root cause of the claim and if we discover it was related to an unqualified subcontractor, it reflects on the contractor's management decisions. Better to take on fewer projects with qualified workers and subcontractors than risk your reputation and insurability.

?

The 5 'C’s of Subcontractor Evaluation

Here’s the blocking and tackling review. There may be additional legal/regulatory considerations for your evaluation, but as an underwriter, these are the fundamentals:

1.?????? Character: Evaluate integrity, reliability, and ethical behavior. Consistency matters—look for a track record of dependable performance. Is the subcontractor involved in any past or current litigation? Have they ever filed for bankruptcy? Ask for references and check with other contractors who have worked with the sub in the past. Would they use them on a future project?

2.?????? Capacity: Assess their ability to handle the project scope. Consider financial stability, resources, and past project experience. Can they provide you with a current “Work In Progress” report? Are they working on other projects that could impact their ability to complete your work with quality and on time?

3.?????? Competency: Verify technical skills, certifications, and relevant experience. Do they have an experienced workforce, quality control, and safety programs in place? Have they experienced any past OSHA violations? Can they deliver work that meets your client’s expectations?

4.?????? Communication: Effective communication is key. Subcontractors should provide timely updates on their progress and collaborate frequently with your team.

5.?????? Consistency: Look for reliability in meeting deadlines and maintaining work standards. Again, it can be helpful to check in with other contractors who have worked with the subcontractor.

Risk Transfer: Protecting Your Business

After you’ve decided the subcontractor is a go, remember, solid contractual agreements are essential. As an underwriter, I focus in on the indemnification and insurance requirements. At a minimum, I look to see if requirements in your subcontractor agreement meet or exceed the requirements in the contracts you’re signing with a project owner or GC. No gaps please! We’re not attorneys, but we’ll review your subcontractor agreement to ensure it meets the insurance carrier’s minimum requirements for insurability. There may be other requirements you may need to protect your business which is why we’ll always recommend reviewing your contract with an attorney with expertise in construction.

Reminder: A subcontractor’s additional insured coverage in their CGL policy will not respond unless there’s an executed contract in place. Review all contracts with your attorney to ensure you’ve got the contractual protection you need. Setting clear expectations up front can save a lot of midnight heartburn.

?

Choose Wisely

Subcontractor screening isn’t just a formality—it’s a strategic decision with legal implications. Like a championship team, your business success depends on having the right players. Prioritize quality, mitigate risks, and build a reputation for excellence. And understood, bad things can happen even when the greatest care has been used in your selection process. This is why it’s important to work with the right agent or broker who understands your business and insurance needs.

At the end of the day, as underwriters, we want to feel confident there are no obvious missteps that will result in a needless loss to your business, or worse, injure a work family member. Choosing your subcontractors with care is one of the most critical steps you can take to give you the best shot at a successful project. ?

I sometimes jest, those who can’t do, underwrite. I have the utmost respect for the value provided and challenges faced by contractors every day, every project, such as working in the heat, rain, and snow, dealing with demanding project owners and municipalities, unpredictable supply chains, inflation, and hiring your own workers, to name but a few! Oh, then there’s dealing with your underwriter and loss control consultant. But with regards to the latter, we’re rooting for your success and we’re looking for partnership.

Here's a possible tag line for your office wall:

?“Crafting Success: Handpick Subcontractors for Excellence.”

?

?

Disclaimer: Opinions are the author’s own. The information provided in this article is for educational purposes only and does not constitute professional advice. Always consult with experts and tailor risk management practices to your specific project needs.