As construction employment reached 8.3 million by July 2024, talent shortages persist. In construction and/or contracting industries, subcontractors play a key role in filling these shortages, providing specialized talent and ensuring project success. Their competence, efficiency, and reliability directly influence project timelines, budgets, and overall quality of the job. Given their importance, it is critical for contractors to regularly vet and reevaluate their subcontractors.

Establishing a formal review process performed at initial engagement and on a regular basis going forward helps mitigate risks and fosters a culture of accountability. These reviews should include evaluations of their insurance coverage, quality standards, and safety protocols.

The question of when and how often contractors should reevaluate their subcontractors hinges on several factors, including project complexity, duration, and the subcontractor’s history. Contractors should conduct initial vetting before engaging a subcontractor and then implement ongoing evaluations at regular intervals. It’s important to have a formal subcontractor prequalification process that you have developed to meet your business’s established procedures/goals. A common best practice is to review subcontractors yearly, with more frequent assessments during high-risk phases or when dealing with new or unproven subcontractors.

It should also be noted that some subcontractors will have their own subcontractors. It’s important that their subcontractors be required to maintain the same standards as the contractor as well. 

Insurance is a key element in risk management. It protects both the contractor and the subcontractor from all types of risks and financial losses that can arise during a project. Before engaging any new subcontractor, a certificate of insurance (COI) should be provided to verify their coverage meets the minimum requirements of not only the contractor but also the project owners and any regulatory authorities.

Since insurance policies can lapse, be canceled, or altered, regular verification is critical. Contractors should recheck proof of insurance at least yearly or before critical project milestones. This ensures that coverage remains active, adequate, and compliant with contractual requirements. Additionally, reevaluation helps identify any gaps in coverage that could expose the project to significant liabilities.

In addition, it is important to evaluate the actual contract between the contractor and subcontractor and not just their certificates of insurance. The contract should establish risk transfer requirements (hold harmless, indemnification, ISO benchmark forms, etc.) that your subcontractors are required to meet or exceed.