Is Your Subconsultant a Liability?

Posted on: 05/08/17

Written by: PSMJ Resources, Inc.

Topics: Project Management

In general, you should require that your subcontractors adhere to the same rules you establish with your client. Your subcontracts should “flow down” the appropriate risks and requirements outlined in the prime contract—the ones that should be assumed by the subconsultant.

These should include, but not be limited to: indemnification, insurance, affirmative action goals, standard of care, billing substantiation requirements, special client rights, privileges, etc.

Be sure you negotiate your subcontract to provide that the subcontractor gets paid only when the client pays you, unless law or the client forbids this. In addition, if you are processing the bills of subconsultants as part of your firm’s invoice, make sure you add a markup to their costs as compensation for the effort and risk.

One way to avoid this common problem (and to save your firm’s working capital) is to have all subcontractors bill (and receive payment from the client directly.

Depending on the type of project, it is not unreasonable to work toward having all subconsultants contract directly with the client in lieu of assuming their risks as part of your firm’s responsibility.

One dire scenario, which places your firm in extreme jeopardy, is to have an agreement with the owner/client that contains normal provisions regarding risk, indemnification, and payment and then to enter into a subcontract with another design consultant that substantially limits their liability to you.

If you promise more to the client than the subcontractor promises to you, the difference will always come out of your pocket.

Regardless of which design consultant you subcontract to, you should always make it very clear that you are entitled to rely on the subconsultant’s conclusions and recommendations without independent verification. The subconsultant should be required to provide documentation that Quality Control (QC) has been conducted on all subcontracted work.

A convenient way to work with subconsultants on larger projects is to assign tasks (incremental work assignments) through the use of work orders issued to subcontracts pursuant to a negotiated standard agreement.

No matter how you establish the subcontracts, don’t forget to obtain the certificate of insurance from each subcontractor, and make sure to keep these certificates up to date for the duration of the project. In addition, make sure you keep the subcontract up to date with changes, etc. This is just as important as keeping the prime contract with the client current with all approved changes.

PSMJ has developed our library of interactive, expert-led sessions in response to the specific needs of A/E/C industry firms. Together with on-site training such as PSMJ’s A/E/C Project Management Bootcamp, firms now have the ability to train PMs matching a professional’s need to a platform. PSMJ's newest online learning courses are delivered in an interactive and engaging format to ensure PM's get action-oriented strategies and tactics that they can really use.