JOB INSURANCE REQUIREMENTS THAT CAN COST YOU YOUR PROFITS PLUS A LOT MORE
The below article is by an alarm company owner. His advice regarding insurance requirements in a contract are accurate, but what I find more interesting is that he commits one of the most obvious errors from the get go, he started his job before he had the contract. The contract is going to contain a lot more than just insurance provisions. You can't start a job without a signed contract. If you're not getting your Standard Form Agreement signed then you better check the insurance requirements. If you are in any doubt about what those requirements are or if you have the required insurance then you should send the contract, or at least the insurance provision, to your insurance broker. Have the broker get the insurance or confirm that you have it, and get that assurance in writing.
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Congratulations, you just were awarded that big job that you have been pursuing in the last few months with a large real estate firm. It is a profitable six figures plus job with a good monthly reoccurring revenue income stream. Your agreement has been executed by them and accepted by you. The payment terms as stated by the customer are based upon work being performed before any payments are rendered. All sounds good and acceptable to both parties right? You now ascertained the costly materials, started the job installation and have applied for the first payment as per the terms of the agreement. The customer states that the payment has been authorized but before it can be rendered you must provide and meet their specified insurance requirements. After all requirements have been total meet with no exceptions, including all the set limit levels and you have signed their required insurance agreement (hold harmless and no subrogation) you will get you first payment, but only after that.
Upon receipt and review of their requirements you find that they are requiring special insurance coverage that is “Primary and non-contributory” naming them as the insured. This can coverage can cost over ten thousand dollars. So what are the problems here?
First, you may not have the dollar limits that they are requiring and now have to buy additional coverage that is costly and not figured in the price of the job to your loss on the profits. An example of this would be a blanket coverage of five million dollars that can cost you five thousand dollars. Second, you may not be able to meet some of the requirements to even purchase coverage limits stated based upon the size of you firm and annual dollar income plus other factors. Third, by signing their hold harmless and non-subrogation agreement you are exposing your firm to a liability if there is a loss without the protective wording intended to prevent such and may have to pay the cost to defend your customer is they are sued in certain cases. Forth, they want you to name a laundry list of persons, firms, engineers and architects as well as any future others after the fact as additionally insured.
So the big problem now is that you stared the job, purchased the materials, are out of pocket money for the materials, time and labor plus have a set time stated in the agreement to complete the job or be subject to damages for every day it is not regardless of your payments, have not meet all the terms of the insurance requirements and have not signed their hold harmless and non-subrogation agreement. You are now in a pickle and this attractive job is now very unattractive.
Good solutions here? None, but based upon what can happen with the best of intentions, the lesson to be learned here is that the first question before accepting any job regardless of the size is to first to request and receive in writing the job insurance requirements. You must do diligence in advance and not assume anything. After that if you really want the job is then to see if you can meet them or speak with their insurance agent and try to negotiate those terms and limits that are a problem or just pass on the job. What is better, either to take a job that you will not get paid on and lose money and possibly be sued for not performing or not taking the job from the get go?
THE MORAL OF THE STORY IS THAT YOU MUST ALWAYS REGARDLESS OF THE SIZE OF THE JOB REQUEST THE INSURANCE AND ANY OTHER REQUIREMENTS IN ADVANCE BEFORE ACCEPTING IT.
Better Safe Than Sorry