Do you engage sub-contractors?

If you engage subcontractors, you must ensure your insurance policy is extended to cover their activities whilst working for you as well. In the case of bona fide subcontractors, you must also obtain written evidence they carry Public Liability insurance to cover the activities they are carrying out for you and also check the cover is to the same level as your own insurance before engaging their services.

Some firms will bring in subcontractors to work alongside them on their clients’ projects to provide additional work capacity and/or specialist capability.

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For example the firm might bring in an electrician, plasterer, joiner, or plumber to carry out a particular job, or they might bring in an extra pair of hands to assist their own employees get the job done.

But what would happen if the subcontractor caused injury or damage whilst carrying out work for your firm? The subcontractor could cause damage to the client’s property or may cause injury to another at the client’s premises. The employer who engaged your firm’s services is likely to sue you for injury or damage, possibly in addition to suing the subcontractor. Their view? You have been engaged to carry out the work and the injury or damage was caused by a subcontractor you engaged.

So, if you were sued for the actions of your subcontractor, would your existing insurance policy cover you, or would you be left to engage your own investigation and legal defence and pay any resulting costs?`

If you engage the services of a subcontractor, you should ensure your liability insurance policy protects you for his negligent actions as well and in many cases this will mean you need to extend your liability insurance policy to provide this cover. Your liability insurance policy will likely cover the actions of you and your employees only and not extend to cover the actions of subcontractors you engage as well unless this has been advised to your insurer when the policy commenced.

Initially you will need to consider the type of subcontractors you engage with, which will then determine the type of insurance cover you need.

Bona Fide Subcontractors (BFSC)

This type of subcontractor is also known as a ‘supply and fix’ subcontractor and is generally deemed to work without direction from the employer or main contractor; they will hold their own insurance and usually provide their own materials and tools.

Typical characteristics in helping you determine if your subcontractor is bona fide include:-

  • They have a contract of service rather than a contract of employment
  • They are not working under your direction
  • They hold Public Liability insurance in their own name
  • They quote for work often at a fixed price
  • They are not paid extra if the job overruns
  • They provide materials, tools and men to carry out the work
  • They may hire additional workers at their own expense

If you engage BFSC, you will not need to include them in the count as employees for Employers Liability insurance. However, you should consider disclosing the fact you engage BFSC to your insurer so they can consider widening your liability policy to include “contingency public liability insurance”. You can extend your policy to include cover for negligent actions of your subcontractors which would be in addition to the public liability insurance you carry which covers your legal liabilities of you and your employees. If you are then sued for actions of your BFSC, your insurance policy will respond.

A liability policy extended to include contingency cover will include a policy condition that you retain copies of the subcontractor’s public liability insurance which must provide the same limit of indemnity/cover level as your own.

If you engage bona fide subcontractors you should check this has been notified to us and your public liability insurance has been extended to include contingency cover.

Labour Only Subcontractors (LOSC)

This type of subcontractor will work directly under your supervision and usually use materials and tools provided by you.

Because they are working under your direction, they are treated in law as employees and this extends to short term/occasional workers you engage.

When you buy liability insurance for your firm, you must declare wages paid to LOSC alongside wages for your own employees to meet your legal requirements to provide cover for them under your Employers Liability insurance section of the policy.

Typical characteristics in helping you determine if your subcontractor is labour only include:-

  • They are under your direction, i.e. you tell them what to do and how to do it
  • They are paid by the hour, week, or month
  • They can work a set number of hours
  • You can move them from task to task
  • You may pay them overtime and bonus payments
  • They do not supply materials or tools (with the exception of own hand tools)
  • They carry out the work themselves

If you engage labour only subcontractors you should check this has been notified to us and your employers liability insurance includes payments to them within wages projections you provide for your own employees.

For further information or to request a quote, please contact Richard Gorst or Carrie Arnold.

Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales and authorised and regulated by the Financial Conduct Authority for investment business