Before you begin working with a new subcontractor, there are several compliance documents you need to collect from them. These documents, like proof of insurance and copies of contractor’s licenses, help reduce risk on construction projects. The documents are often required by the contract with the owner, or the GC may be requesting them as per their own subcontractor agreement.
The goal of collecting these documents is to ensure that the subcontractor will complete the work in the manner specified in the contract documents, and to protect the general contractor and owner from potential costs or damages caused by the subcontractor. GCs want to ensure that the subcontractor will be around to finish the project, will provide quality work, and that they have the necessary insurance and bonds to cover any damages that might happen during the project.
We’re going to look at what compliance documents are and let you know which ones you need to be collecting and tracking for your subcontractors.
What are compliance documents?
Before we get into what documents you need to collect from your subcontractors, let’s take a moment to understand why these compliance documents are important. Compliance documents are documents you request from subcontractors to show that they meet the minimum requirements to work with your company. They help ensure that a subcontractor meets the legal requirements for being in business, as well as any additional requirements your company may have.
Every company has different documents that they require from their subcontractors. Usually, these requirements are contract-driven, so be sure to review their contract for specific requirements. There may also be project-specific documents that need to be gathered. If so they will be specified in the contract with the project owner.
We’re going to start with the essential documents that you should be collecting from all of your subcontractors, and then list some that are optional but may be required.
Essential subcontractor compliance documents
These documents should be collected from every subcontractor on every project.
There’s nothing more important than verifying that your subcontractor is licensed to work in the state and city the project is located in. Not all states require licensing for subcontractors, so be sure to check the regulations first. Licensing ensures that the sub has insurance coverage, usually a small bond to cover disputes and claims and that they are registered to work in that state. For trade contractors, licensing also ensures a level of knowledge and education. Once you’ve checked to see if a sub is licensed, make sure the license stays in good standing by regularly reviewing it. This ensures that the insurance policies and bonds remain current.
Insurance certificates or proof of insurance
There are two types of business insurance that all subcontractors should have: general liability and workers compensation. These policies protect the business in case of theft, damage, or if one of their employees gets injured. You may also request proof of automobile insurance if the sub has their own vehicles. Things to look for include ensuring that the policy has not expired and that it has the appropriate claim limits as per your contract. Your contract may also require that your company be added as an additional insured to the sub’s policy, so make sure that is noted as well.
All subcontractors should be providing you with an IRS W9 form. This form lets you know the type of company the sub is (corporation, LLC, sole proprietor, etc.), as well as their tax identification number or Social Security number if they are an individual. You’ll need this information for end of the year reporting and sending 1099 forms to those subs and suppliers that qualify.
Some projects, mostly government and public ones, may require performance and payment bonds. Not all GCs ask their subcontractors to bond back the project, but if you do, you’ll want to get a copy of these bonds for your files. You’ll need proof that the bonds were issued, as well as the specific bond information in case you or the project owner have to make a claim.
Optional subcontractor compliance documents
Your company may choose whether to collect and review these documents. If you do require them it should be included in your subcontractor agreement.
SDS / MSDS
Some general contractors require that all subcontractors turn in their SDS (safety data sheets) or MSDS (material safety data sheets) as part of their compliance package. MSDS are required to be on each job site when a contractor uses chemicals or hazardous substances. These are often job-specific as each project requires different products. Subscriptions to MSDS services that provide a website or telephone number to contact to get information can substitute for providing paper documents.
Every subcontractor should have a safety manual or set of safety policies that they institute on their projects. Some GCs require subs to send those policies in so they can be reviewed to verify that they comply with the general contractor’s requirements. Some of the key policies that need to be reviewed include fall protection, personal protective equipment (PPE), silica protection, and health policies. With the rise of the COVID-19 pandemic, ensuring that these policies meet CDC and OSHA requirements has become even more important. All subcontractors need to comply with these requirements when it comes to health checks, PPE availability, and record-keeping.
Keeping it all organized
It’s imperative that contractors track the receipt and expiration of these documents to ensure that their subcontractors are in compliance at all times. GCs should develop a system for verifying, recording, and following up on missing or expired information.
Accounting software packages, like Premier Construction Software, can help by tracking insurance and license expiration dates and providing automatic notification when they are expired. This makes compliance tracking easier by centralizing the data and providing notifications, allowing contractors to be proactive in tracking down information. This helps GCs ensure that their compliance information is up to date, reducing project risk.To learn more about how you can streamline your document management process, schedule a call with our team for a live demonstration.
Dawn Killough is a construction writer with over 20 years of experience with construction payments, from the perspectives of subcontractors and general contractors. Dawn has held roles such as a staff accountant, green building advisor, project assistant, and contract administrator. Her work for general contractors, design firms, and subcontractors has even led to the publication of blogs on several construction tech websites and her book, Green Building Design 101.