By J. Eric Smentowski | Tuesday, February 16, 2021
Being a general contractor is challenging. They enter into contracts with project owners to deliver finished projects in accordance with the plans and specifications within the confines of a tight budget and schedule. Further complicating the matter, so much of a general contractors’ success is dependent upon the effective performance of their subcontractors. Thus, the success of any given project is largely determined by how well the subcontractors execute their respective scopes of work.
A symphony orchestra is a useful analogy. The conductor of the orchestra has immense responsibility to coordinate the efforts of dozens of individual musicians to create a beautiful, cohesive piece of music. Each of the individual musicians has a specific role to play within the larger musical work. While the conductor can signal particular directions from the podium, those signals don’t actually make any sound–that is the musician’s responsibility.
The same is true on the jobsite. The general contractor can provide direction and coordination, but it’s up to the subcontractors to actually build the project. So, the general contractor’s fortunes are inextricably, and sometimes precariously, tied to the subcontractors’ performance.
There are many risks associated with entrusting the physical construction of a project to a team of subcontractors. The most prevalent of these is the possibility of the subcontractors executing their work poorly, incorrectly or out of compliance with the plans and specifications resulting in what’s known as faulty workmanship. For example, the plumber’s errant use of 3” drainpipe instead of the required 4” drainpipe throughout a building would be mortifying, and costly to repair, for the general contractor once discovered.
BEST PRACTICES TO REDUCE THE RISK OF FAULTY WORKMANSHIP
There are a number of best practices general contractors can adopt to reduce the risk of faulty workmanship impacting their projects.
Naturally, preventing faulty workmanship from occurring is the most effective strategy and below are some steps a general contractor can take to achieve that goal:
- Prequalify subcontractors. Confirm that the subcontractors selected for the project are reputable, have extensive experience with the scope of work and have the financial health to deliver on their contractual obligations. Additionally, confirm the availability of the subcontractor’s “A-team” of skilled laborers and foreman.
- Don’t skimp. Obtain multiple bids from multiple subcontractors so as to verify the viability of an unusually low bid.
- Ensure that subcontractors understand the plans and specifications. Thoroughly vet the plans and specifications with the subcontractor before the work begins to:
- identify ambiguities in the specifications;
- seek clarification from the designer regarding interpretation of the specifications (especially performance specifications);
- confirm the right materials/products were procured before they are installed; and
- be thorough and methodical in handling the submittal process to ensure that shop drawings and selected materials comply with the designer’s specifications.
- Execute robust quality control procedures before and during the construction phase.
- conduct pre-construction mockups of critical building components (i.e. window assemblies); and
- require daily inspections of the work by an experienced individual familiar with the plans and specifications and document all findings.
- Foster an environment of frequent and ongoing communication with all of the subcontractors to facilitate collaborative, proactive problem solving.
Of course, the construction process is still highly human-driven and humans occasionally make mistakes. In the event faulty workmanship occurs on a jobsite, the general contractor’s best course of action is to immediately halt the work and take proactive measures to correct the work. Ask trade contractors to correct their work (at their expense) to achieve compliance with the construction documents as they have a contractual obligation to do so. Do not engage in any efforts to conceal the issue. Once discovered post-construction, latent defects may result in financial and reputational costs to the general contractor that could have been avoided by addressing the problem during the construction phase.
Finally, there are several risk transfer tools that protect general contractors against the financial impacts of faulty workmanship. General contractors should consider the benefits of implementing the following forms of financial risk transfer across their portfolio of work:
- require that subcontractors carry Faulty Workmanship Liability Insurance covering the cost to repair/replace their own faulty work;
- ensure that the general contractor’s primary and excess General Liability Insurance provides the “faulty workmanship giveback for subcontracted work” typically found within the ISO CGL policy;
- require subcontractors to furnish surety bonds guaranteeing the subcontractor’s performance of its contractual scope of work; and
- decide if Subcontract Default Insurance is an option to pay for losses arising out of a subcontractor’s failure to execute their contractual scope of work.
Whether taking proactive measures to prevent faulty workmanship from occurring, actively managing the incidence of faulty workmanship appropriately or safeguarding against the financial impacts of faulty workmanship through risk transfer, general contractors should plan for and make use of all appropriate strategies to deal with the risks associated with faulty workmanship as such risks are intrinsic to and present on every jobsite.
Eric has more than 15 years’ insurance industry experience within the construction business units of leading worldwide insurance carriers. Berkley Construction Professional is a Berkley Company.
Reposted from constructionexec.com, Feb. 16, 2021, a publication of Associated Builders and Contractors. ©Copyright 2021. All rights reserved.