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Stop! Don’t Sign That Contract Yet!

Stop! Don’t Sign That Contract Yet!

As a benefit to current, new and prospective clients, Hayes Brokers offers risk management services that include contract review of the insurance terms of any contract.  As insurance professionals we feel it is our duty not only to protect your business, but also to save you money.

There are many parts to a contract and insurance is just one of them. It is important to review a contract prior to signing for many reasons, most of them fiduciary in nature.  Here are 5 things you should always check before signing.

  1. Prevailing Wages

Many government entities require that contractors on their projects pay prevailing union wages to all employees of a contractor or subcontractor, even if those employees are not union employees.  Failure to do so can result in larger payouts over time, as well as fines to the contractor for failure to comply.

In New Bedford, MA an electrical contractor tried to get around the prevailing wage law by incorrectly classifying his electricians as laborers. After an investigation the contractor was ordered to pay not only the $83,000 in restitution, but also $42,500 in fines and penalties.  That will cut into your profit margin!

A California heating & air conditioning company was recently required to pay $99,000 in back wages to plumbers and pipefitters who were incorrectly classified as unskilled laborers on a project in Hawaii.  The Department of Labor got involved in the case because these were federal contracts outfitting Army barracks on the island of Oahu.

  1.  Bonds

Does your contract require any type of bonding be done?  Some developers may require bid bonds, performance bonds, payment bonds, or some other type of fidelity bonds in order to perform work on their premises.  While bonds are not typically expensive, they can be time-consuming to acquire, especially if they require financial information in order to be rated and issued.  The bond payment is an additional expense that should be built into your bid so that you don’t have to pay fines for failure to provide the bonds on the back end.

  1.  Background Checks

Some employers may require background checks on all employees of the contractor that will be on premises for the job. The cost of these background checks is the responsibility of the contractor and may incur significant cost depending on the size of the job.  Employees who do not meet the background requirements may have to be replaced, also at cost to the contractor, and any problems, such as theft on the job, are also the responsibility of the contractor.  Having a crime insurance policy in place is always a good idea.

  1.  Contract Completion Date

It is always a good idea to review the completion dates prior to beginning a contract.  Some clients may have unrealistic expectations about how long something will take, particularly with new construction during certain weather periods, or a remodel on an older structure that may require more work than originally requested.  Failure to meet the completion date may result in daily fines, with amount dependent on the scope of the job.

CalTrans recently threatened to impose fines of up to $25,000 per day on a contractor doing work for them.  The work had repeatedly been extended well beyond the original contract date and these fines would reduce payment on the project.  A lengthy court battle is expected.

  1.  Insurance

Insurance is one of the most complex and often-overlooked portions of a contract.  The insurance requirements in the contract may be beyond the scope of what your company is insured for, so it is a good idea to have an insurance broker review these requirements with you.  Limits of insurance, policy types, and other requirements such as additional insured wording, primary and non-contributory and waiver of subrogation may result in additional premiums that would eat into any profits from the job.

While some of the instances outlined above may be out of the scope of your insurance broker, a well-connected insurance professional will be able to offer referrals to legal professionals who can help with contract review. Call Hayes Brokers.  We’re here to help.

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