Closing Your Doors After 50 Years (Contract Compliance Part 2)
Posted by Robert Phelan on Fri, Dec 11, 2009 @ 08:33 AM
Continued from Yesterday...
Your back is against the wall. As The GC, you are clearly responsible for this school being shut down and now there is $6 to $10 million of damage and expense that you've got to pay. But wait. It was the sub who installed the windows who really caused the problem. You're off the hook after all. You get your contract administration people to bring you the sub's contract along with their Certificate of Insurance (COI). Relief is in sight.
You review the documents and you see that the COI shows that the sub carried pollution coverage. Whew! They also agreed to hold you harmless. There's light at the end of the tunnel. You pump up your chest and feel good that you're so smart to have the right procedures in place to transfer liability to others.
You ask your attorney to send a letter to the sub asking them to report the claim to their carrier and telling them you expect full indemnification just as they agreed to in the contract. You sub sends a letter back that provides these distressing facts:
• The COI being referenced reflected the sub's coverage at the time they completed their work. That was two years ago.
• They didn't know they had to maintain the pollution coverage. No other job required it so they non-renewed and saved $22,000 per year.
• This tough economy has hit them hard. The 40 man crew they carried on the school project is down to 5 and if they don't get a job soon, they'll be shutting down. They have no money and can't indemnify you the GC.
Certificates of Insurance can be your friend when managed properly. When managed sloppily, your company can sink as quickly as the Titanic.
If you had notified the sub at the end of the job that they had to maintain the pollution coverage for three years and then monitored them by getting a new COI each year, you might have had a chance at survival. Since they have no coverage, you have no coverage and you would come up a little short paying $6 to $10 million form your checkbook, you're out of business. Fifty years of hard work gone because you lacked a simple administrative procedure. A good Risk Advisor would have helped you fix this blind side before your company was forced out of business.