RealManage Insight

Contractors using Subcontractors and Your Community Liability

by Joseph Hansen on Jul 28, 2020 8:00:00 AM

It's inevitable: at some point, a community association needs to hire a contractor. Some need their contractors for standard maintenance, others hire help for repair after an emergency or national disaster; but no matter why your HOA is looking into hiring a contractor, you should know that they don't always work alone. Contractors oftentimes hire out subcontractors. These individuals help contractors complete their work when they've got more of it than they can handle. Sometimes this is due to job volume, sometimes a job falls out of a contractor's traditional scope, and sometimes it's little more than a baseline business decision.

Subcontractors can add some liability to a community association. We feel it's important to highlight what it means to hire a subcontractor-- and what possible indemnities a community can face as a result. Subcontractors are not inherently problematic, but they're a factor for HOAs to consider as they plan out hiring and work. 

The Risks of Subcontractors

Hiring contractors can be a complex process. If you work with an unlicensed contractor, it could open up a world of risk and problems for your community. Even HOA contractors and subcontractors with good intentions may unwittingly fail to follow the law or put your community at risk. That's why it's important to work with contractors you trust.

Subcontractors are just another ingredient in an already risky equation. Anytime an HOA begins a project, there's some basic risk that things can go wrong. This risk goes down considerably if an HOA selects a licensed and professional contractor. If that contractor adds a subcontractor into the mix, though, he or she could immediately raise risk again.

You know the saying about "too many cooks in the kitchen?" It's best to work with as few cooks in the kitchen as possible. If your contractor needs subcontractors to get a job done, you should be sure that they're screened as meticulously as your contractor was. It's your responsibility to ensure that the individuals who work in your community aren't putting people or property at risk.

Why are Subcontractors Such a Risk?

To put it simply:

  • Your HOA represents (and is made up of) the owners in your community
  • They are the ones who will be left to face liability if something goes wrong with a subcontractor 
  • HOAs may be forced to issue special payments if subcontractors are hurt
  • You have no protection from deficient workmanship that could harm contractors/subcontractors and even residents

When it's Time to Sign a Contract With a Third-Party Vendor

When you determine the time is right to partner with a third-party vendor, it's important to select a business or individual that's trustworthy. We promote some basic due diligence before hiring any contractor:

  • Make sure that the contractor has a state license number
    • Verify that the license number is valid with state officials
  • Request proof of insurance
    • Contractors should have BOTH workers' compensation AND contractors' liability insurance
  • If you're beginning a large project, ask your contractor about a completion bond
    • Completion bonds are also known as surety bonds
    • These bonds allow your association to receive payment if the contractor cannot or will not finish the project according to contract
  • Put all contracts in writing
  • Make sure the contractor obtains all the required permits for the job
    • These permits should be shown to the board representative
    • Associations can get permits on their own, but they won't be granted without insurance
    • This step helps screen out unlicensed contractors 

At RealManage, we've worked for more than three decades to establish ourselves as experts in the HOA management industry. Our proprietary software helps HOA professionals maintain and improve their communities with the click of a mouse.

Our team works diligently to ensure that clients have access to extensive tools and capabilities. If you're interested in learning more about which steps could benefit your HOA, contact us today to speak to a customer service representative. 

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