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July 13, 2017

Subcontractor Compliance: Why It Matters


There was a time when the word “compliance” was the concern of Wall Street traders and healthcare professionals, and other industries handling and processing large amounts of sensitive information. It felt a world away from the daily responsibilities of general contractors, whose clients were far more concerned with adhering to schedule than dealing with any compliance matters. Well, times have changed and now contractors have as much to think about as financial advisors and doctors as it relates to enforcing and maintaining compliance policies.

This is due to government regulators taking a fresh look at the construction industry and realizing there is just as much opportunity for risk issues to materialize that potentially put consumers in harm’s way. That’s why with government audits of construction companies on the rise, contractors need to think about the risks that exist in their subcontractor relationships – and how best to mitigate it.

Knowing Your Partners

It’s not surprising that the construction industry became a target for regulators. After all, information access is greater than ever before, making it possible to review a contractor’s subs against the state licensing board online to see if they are licensed and insured, while surety agents are scrutinizing everything that could affect a business’ performance, including the robustness of a contractor’s efforts to manage its subcontractor base.

This is why the prequalification process is so important for contractors. While many contractors already require subs to engage in this preliminary step, the heightened attention from regulatory bodies demands contractors take a fresh look at their processes to ensure this stage of the project delivers on its promises. For instance, while experience is a huge factor in selecting a sub, also consider its reputation for accountability, or its track record in managing the business effectively.  Is it facing any pending litigation? Is its safety record above average? What’s being said about the company and its performance in online reviews?

Having a thorough understanding of who your firm is partnering with requires a top-to-bottom evaluation of subcontractor partners, and how they run their business.

The Three Food Groups of Risk

If you’re looking to get a grasp on the risks posed by your subcontractor network, most experts agree there are three key areas to focus on: uninsured workers, lien waivers and certified payroll. Uninsured workers pose a huge liability for contractors, especially in states where the GC is held responsible for workers comp in the event of an injury to an uninsured worker. Lien waivers protect your company in the event of legal action, and it is a must to ensure subcontractors also provide the correct, signed lien waiver paperwork. Finally, certified payroll provides peace of mind that your business won’t be aggressively audited for noncompliance due to discrepancies in payroll reporting.

There are endless ways to be found in violation of adhering to sufficient subcontractor management policies. Avoid these pitfalls with a construction project management solution from Sage that can help manage all aspects of the subcontractor relationship with seamless integration into your company’s existing business processes. Contact United Solutions Group today for more information.

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