Scott Clifford
by Scott Clifford
Driving around Boston, one can’t help but think that Boston is poised for a post-recession construction boom. New buildings in various levels of completion rise into the cityscape every day, and in an October 9 article appearing in the Boston Globe, Casey Ross reports that Boston Mayor Martin J. Walsh is calling for $21 billion in private and public construction — and 53,000 more housing units — over the next 20 years to keep pace with the city’s population demands. As construction firms around the region react to and plan for better times in the industry, undoubtedly more subcontractors will be hired to contribute to these projects. Those firms that weathered the recession should continue to demonstrate the prudence and efficiency that got them to this point by ensuring they remain compliant with all applicable legal requirements, especially those that relate to hiring subcontractors.
Hiring subcontractors makes a lot of sense for construction firms, and is not, surprisingly, a common practice. By hiring subcontractors to perform specialty work like plumbing or cabinetry, a company can save not only the costs associated with training an employee in those kinds of skills or purchasing specialized but infrequently used equipment, but also the overhead costs (benefits, etc.) associated with having an employee in the first place. (That said, it’s important for a construction firm to check with the state(s) they operate in to confirm the definition of “subcontractor,” as there is no one determination.)
Once subcontractor status is confirmed, the company should ensure that the subcontractor is properly licensed, insured, and bonded. No matter how far a construction project is behind schedule, making up for lost time by fast-tracking a subcontractor without performing due diligence — even if that individual has worked for the company on previous projects — is never a good idea. This is not to say that nothing will go wrong as long as a firm employs a subcontractor with an up-to-date license, but if it does, the firm will face a great deal less legal liability.
Workers’ compensation insurance should also be considered when hiring subcontractors. While not required, in most situations it makes sense for a construction firm to buy coverage for its subcontractors. Generally speaking (again, different states have their own laws with regard to this issue), a firm could purchase workers’ compensation insurance for a subcontractor who is not insured, as the company would be held liable should the subcontractor not have his/her own insurance and be injured on the job. This makes even more fiscal sense for the firm as the cost of the workers’ compensation insurance can be passed on to the subcontractor by deducting it from the initial agreed-upon payment amount. If the firm does not want to be responsible for holding the policy, language should be included in the subcontractor agreement that workers’ compensation insurance coverage must be maintained at all times during the project for the subcontractor and the subcontractor’s employees.
While construction bonds, or surety bonds, are almost always a requirement for construction companies, they could be overlooked if the firm was just getting off the ground. In addition to being a legal necessity, though, one of their functions offers protection to firms that hire subcontractors. Should the unexpected occur, and the actions of a subcontractor prevent the project from being completed as originally agreed upon, a surety bond ensures that the client is compensated.
As new constructions continue to rise, firms should poise themselves to take advantage of this influx of opportunity while ensuring that they are aware of and understand the legal considerations required of them, and their subcontractors.
Scott Clifford is a partner at Epstein, Lipsey & Clifford, P.C., a full-service law firm with offices in Hanover, Plymouth, Quincy, Mansfield, and Boston.
