[ Focus: Insurance ]
Where the buck stops
In today’s economic climate, there can be a thin line between success and failure for many businesses in the construction sector. ROGER BROWN of ECIC looks at the problems that can occur if either contractors or sub-contractors do not have appropriate insurance cover
T
he recession is forcing many companies in the construction industry to cut costs as far as practicable. With the need to reduce overheads by cutting down on direct labour forces, major construction
groups – even those with their own mechanical and electrical divisions – are moving away from using their own in-house resources for installation work. A practice that is becoming increasingly apparent among larger contractors is to adopt a management role, coordinating the recruitment and management of sub-contractors who then take on the responsibility for supply of goods and installation. In trying to reduce initial bid prices, some are looking at involving smaller, lower-cost sub-contractors – and in many instances are using multiple small contractors willing to put in low bids – in an effort to bring costs down as low as possible. The use of sub-contractors on major projects is a
well-established practice, but in the recent economic climate it is being used as a cost-cutting – and cost- certainty – tool of choice. The increasing financial pressures being cascaded down the supply chain are forcing electrical contractors to reduce their margins significantly, and this is effectively changing the face of employment in the electrical trade.
Chain reaction Apart from reduced direct labour costs, one perceived benefit of using sub-contractors is that it secures risk by passing on liability. Theoretically, it does – but this is not always the case. Some contractors may decide to ‘buy in’ labour, retaining the materials-
60 ECA Today September 2013
The contractor could unwittingly become liable for any claim relating to negligence by the sub- contractor
purchasing role themselves. This, however, spreads, rather than secures risk. Unlike bona fide sub- contractors, labour-only sub-contractors (LOSCs) work under the supervision of the contractor; they are considered to be employees and, as such, need to be included in the employer’s liability cover. If LOSCs are not included within the main contractor’s employer’s liability cover, that contractor may have to fund a claim themselves for any accident or injury the LOSC may suffer, or any claim resulting from failure or negligence on the part of the LOSC In terms of liability, the relationship is structured so
that responsibility flows up and down the contractual chain from one party to another – it cannot leapfrog from client to sub-contractor. There is only ever a one-to-one contractual relationship, regardless of what the communications channels might be. Failure down the line of sub-contractors will be deemed to be the responsibility of the main contractor, who has the direct contractual relationship with the client. For the main contractor, therefore, it is essential to ensure that any sub-contractors employed carry adequate cover for the various liabilities they may face.
What is adequate cover? If a sub-contractor has inferior cover, this could make the contractor liable for any claims arising from negligence by the sub-contractor. It is also in the sub-contractor’s own interest to ensure that they carry trade-specific cover. Simply buying cover for public and employer liability won’t necessarily cover all of the risks that may arise. Contractors’ all risk cover, for instance, covers hiring plant and items such as materials on site. For sub-contractors, the latter can be an essential piece of protection. Any materials or equipment on site – whether in store or installed – remain the responsibility of the contractor or sub-contractor that supplied them until the system is tested, commissioned and officially handed over. If, for example, an electrical sub-contractor has bought in quantities of cabling for a project and it is stolen, it carries the loss. Obviously, if this is an uninsured loss, there are financial consequences for the sub-contractor, but it can also
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68