What are the insurance requirements for subcontractors?
Our question relates to the safety responsibility and liability our business has for subcontractors of a nominated contractor. The scenario is:
- Our business – Controller of premises
- Contractor A – Principal contractor (mechanical services company)
- Contractor B – Subcontractors (electrical company or sole trader)
Our business engages Contractor A to undertake repairs and maintenance to the air conditioning system on our premises. Contractor A requires Contractor B to do some electrical work on the air conditioning system. Our business collects insurances from Contractor A, but does not collect insurances from Contractor B.
Our questions are as follows:
1. Does our business need to conduct due diligence for all subcontractors engaged by the principal contractor to perform work on our site?
2. Is our business required to check that Contractor B has relevant insurances and qualifications, or is a written agreement necessary between our business and Contractor A outlining Contractor A’s responsibility to ensure Contractor B is covered by insurances and is suitably qualified?
3. Does a written agreement need to be in place to ratify the responsibility for the principal contractor to be conducting their own due diligence in relation to the subcontractors engaged by them?
There are a number of levels of exposure to your business in the scenario and questions you pose.
- exposure to liability for breaches of the Work Health and Safety (WHS) Act; and
- exposure to liability for breaches of personal injury law (workers’ compensation/ public liability).
To a large extent, these risks can be managed by drafting clauses in your service agreements with contractors, although residual duties will remain under the WHS Act.
For example, your business does not need to undertake due diligence on each and every subcontractor, so long as it is satisfied that the principal contractor:
- has engaged proper subcontractors; and
- is taking active steps to supervise and monitor the contractors.
Your business needs to check that the principal contractor is taking these active steps, which can be done through report back or consultation meetings. Your business can also specify in its contracts that all insurances must be obtained from any subcontractor and that these are provided to your business on request.