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Managing Risk With Your Subcontractors

The local construction industry has come a long way since the economic challenges of 2008, but still leaves much to be desired in Southwestern Indiana. As builders continue to focus on their bottom lines for each project, price is usually what gets primary attention. However, one area likely to make the black ink turn red is subcontractor workmanship issues.

Builders can manage their risk by continuing to assess their subcontractors from project to project. The risk of non-performing subcontractors is great because when a problem occurs and the subcontractor doesn’t have the financial wherewithal to remedy the issue, the builder is ultimately responsible and must pay out-of-pocket for necessary repairs. There are many steps a builder can take to evaluate their subcontractors; however, making a few simple inquiries may provide enough information to prompt a builder to start looking elsewhere:

  1. Does the subcontractor have an ever-changing workforce or do you see many of the same faces from job to job?
  2. When you speak to the subcontractor’s employees, are they knowledgeable about their overall trade or can they only discuss the specific items they are working on?
  3. What do other builders (honestly) say about the subcontractor?
  4. Does the subcontractor diligently pursue the work and complete it on time?
  5. Do you ask for evidence of insurance and licensing more than one time a year?
  6. Does the subcontractor demand payment immediately after completing each phase of their work?
  7. Is the subcontractor one of the cheapest in town?
  8. Do you check to make sure the materials the subcontractor uses are of average or better quality?
  9. Does the subcontractor disagree with you when you question his workmanship?
  10. Does the subcontractor support the construction industry through membership in the local home builders association or other similar trade organization?

There isn’t one right question (or one wrong answer) to determine that a subcontractor might not be in a position to timely and fully perform his duties or take care of project issues that arise in the future. All of these questions need to be asked periodically, and additional inquiry made, as unsatisfactory responses or information could result in red flags waving and alarm bells ringing. Missing the signs of trouble can result in high dollar expense to a builder when construction issues arise and the subcontractor won’t or isn’t able to stand behind his work and make necessary repairs.

Builders should stay on top of their subcontractors and pay attention to all available resources to determine if their subcontractors will always be in a position to perform for them. Being attentive to subcontractor issues manages risk and helps preserve the bottom line.

For more information about managing risk or any construction-related legal matter, please contact attorney Shannon Frank at sfrank@KDDK.com or (812) 423-3183, or contact any member of the KDDK Construction Law Practice Team.

About the Author

Shannon S. Frank

Shannon S. Frank, a Partner at Kahn, Dees, Donovan & Kahn, LLP (KDDK), in Evansville, Indiana, has more than 20 years’ experience in the practice of business law, construction law, estate planning and probate administration, health care law, and real estate law. Shannon takes prides in giving exceptional service to her clients, recognizing that relationships with clients play a significant and essential role in providing tailored and comprehensive legal advice.