How to Avoid Common Compliance Oversights in Construction Contracts

Construction contracts can contain pages and pages of requirements, with issues ranging from labor and safety practices to minimum liability coverages and more.

A contract is primarily designed to protect the property owners that hire your company. Because contracts can be so complex and vary with each project, knowing whether you’re in breach of those contracts is a major challenge.

Almost all agreements require that contractors have adequate commercial general liability (CGL) insurance to mitigate against accidents on the construction site and other risks, but it’s important to read the fine print. Whether a subcontractor or general contractor, use these tips to help manage it all and remain in compliance.

Endorsements

On top of any CGL insurance policies, multiple endorsements or add-on coverages are often required as part of a contract. An example of an endorsement might include a waiver of subrogation. A subrogation clause allows an insurance company that has paid for a claim to pursue third parties to recoup the money they paid out.

However, when a property owner waives this clause in their contract, it means the insurance company can’t pursue the property owner in the event of a claim, even if the owner was responsible for the loss. In this instance, you’ll need to make sure such clauses are allowed by your insurance company. Other endorsements may include primary and noncontributory requirements, a 30-day notice of cancellation, and additional insured.                                                           

Additional Insured — Ongoing and Completed Operations

Property owners typically require that you extend coverage to “additional insured” parties, and it’s important to make sure you understand who should be included. For example, additional insured coverage may be required for parties who don’t sign the contract, such as another contractor, architect or engineer. Some policies don’t automatically extend to these non-direct parties.

Additionally, project owners don’t just care about what happens while you’re onsite performing the work during “ongoing operations,” they may also demand additional insured coverage for “completed operations” long after you’ve left the jobsite.

During ongoing operations, if a construction worker accidentally drops a load of lumber and damages vehicles belonging to another party and that party sues the property owner, the property owner would be covered under “additional insured” as part of the contractor’s general liability policy.

If damage occurs after operations were completed as a result of poor workmanship or other negligence, the additional insured coverage may apply, but only if “completed operations” coverage was specified. Sometimes contracts will state that additional insured protection be provided through the “statute of repose,” which may be 10 years or more. Make sure you identify exactly which coverage you need and include any ongoing costs in your bid price.

Insurance Coverage Exclusions