What do I need as a General Contractor?
Well, lets start off with Liability Insurance. You can usually bid work without liability insurance but most often you cannot perform the work without the liability insurance. The insurance costs vary based upon the amount of liability you go with, ie: one million, two million, three million or more (lately it seems that the minimum amount of insurance owners and/or general contractors are requiring is two million). It also varies based upon the type of work you will be doing, the gross receipts of your company and total payroll expenses.
Typically, you will pay a down payment on your insurance and then make 9 or 10 consecutive monthly payments. Your best bet here is to check out several different insurance companies through various agents, and talk to other contractors to find out which companies they are using and how that company is performing.
Also, these insurance companies have ratings just like the bond companies do: A++, A+, A, A-, B+, etc. Be sure that you find out what each company's rating is while you are obtaining quotes from various agents.
Admitted vs. Non-Admitted
Most contractors believe that it is preferable to use an insurance company which is 'admitted' in California (as opposed to non-admitted) but the truth is, it is not always necessarily better. Insurance companies which are California 'admitted' carriers are required to place a certain amount of funds in to a special account, governed by the California Insurance Guaranty Association (CIGA), to protect policy purchasers (you) if the carrier were to go out of business, and/or file bankruptcy, and/or just plain flake out.
Insurance companies which are not California 'admitted' carriers do not place funds in to this special account, therefore you are not protected by CIGA if the insurance company has problems however, sometimes new contractors with no business experience, and/or particular types of subcontractors, may find it difficult, if not impossible, to find an admitted carrier to write their general liability.
Surplus lines (or non-admitted) carriers fill this "need" for many contractors. It is the agent/broker's responsibility to offer coverage from well respected, financially stable insurance companies, whether they be admitted or non-admitted. It could be better to be insured by an A++, non-admitted company, than a B+, admitted company. If the B+, admitted company goes 'belly-up', CIGA would only pay up to $500,000 of a liability claim - with the subcontractor/ contractor left, uninsured, for any additional liability.
Certificates
For most every project you work on, you will be required to provide an original 'certificate of insurance' from your insurance agent. Some of these insurance agents excel in how quickly they supply the certificate to your customer, and other agents do not.
Many times you cannot step foot onto a project until the general contractor has that certificate of insurance from your agent. If your agent makes a mistake and does not supply the certificate soon enough, it could feasibly throw you into breach of contract with your general contractor because you are unable to man the job when you are supposed to because you have not provided the certificate of insurance. It is not unreasonable to expect that a certificate of insurance be processed on the same business day that you have made the request, provided you're not trying to "slip it in under the wire".
Some agents will automatically mail you a copy of the 'cert' (certificate of insurance) at the same time that they mail an original to your customer, but if you have a quick job you may need a copy quicker than the postal service can deliver one to you. A suggestion here is: when you request your agent to mail a 'cert' to your customer, also request that the agent fax a copy to you. The reason for this is two-fold: a) peace of mind that your request has been processed and b) in times of urgency, general contractors will usually accept a fax copy with your promise that an original is in the mail to him.
Chances are that the 'cert' is being mailed if you have received a fax copy (without the fax copy you really don't have any assurance whether or not the certificate is being processed in a reasonable amount of time, until and unless your general contractor and/or owner calls you and tells you that they have not received the certificate).
Surety Bonds
Contract surety bonds are an effective tool for shifting the risk of subcontractor failure to a surety company or companies. Surety bonding is a careful, rigorous, and professional process in which surety companies prequalify the subcontractor, providing the general contractor the assurance that the subcontractor will perform according to the terms and conditions of the contract. This essential assurance is provided by the performance and payment bond. The Performance Bond protects the general contractor (obligee) from financial risk should the subcontractor default or fail to perform the job according to the terms and conditions of the contract. The Payment Bond guarantees that the subcontractor will pay laborers and suppliers associated with the project.
Construction is a risky business. In spite of their prequalification efforts, surety companies paid out $514 million in losses last year alone and over $7 billion dollars since 1985! These losses would have otherwise been borne by general contractors- and in some cases, by owners if they led to default of the contractor.
Many sureties encourage, or may even require general contractors to bond subcontractors, especially on large, complex projects or one where a few subcontractors represent proportionally large or critical segments of the work.
Sureties favorably view general contractors who have an established policy of bonding subcontractors over a certain threshold. Of course, this is only one of many underwriting considerations, but it can be a very important one when the surety is asked to consider a stretch situation. Does the subcontract bond reduce the general contractor's bond exposure on a dollar-for-dollar basis? Keep in mind that each bond is specific to a contract. The general contractor's bond is specific to the subcontract. Therefore, in the eyes of the general contractor's surety, there is no such correlation. The general contractor and his or her surety are still obligated to the owner for the terms and conditions of the general contract. The owner is not a party to the subcontract and does not benefit directly from the subcontract bond.
Many general contractors, especially larger companies managing numerous projects with several different subcontractors, have an established subcontractor bonding policy. The most common thresholds are $50,000 to $100,000 with exceptions to meet the realities of the marketplace. On hard-bid public work projects with listed subcontractors, the low bidder often must list subcontractors that may be unable or have limited capacity to provide subcontract bonds. Other considerations, such as type of work, duration of the subcontract, bid spread, size, financial strength, and reputation may provide reasons to waive the requirement for subcontract bonds.
But size alone is not a reason to waive subcontract bonds. Many large, well known contractors have failed. A little research may uncover important information about the financial condition of the subcontractor. Your professional surety agent is an excellent source of information about subcontractors and their ability to provide bonds.
Workers Compensation
Worker’s compensation for California contractors can be quite complicated. Often times we find that the classifications are incorrect for employees who conduct work beyond the most basic classification.
There are several different classifications that most contractors don’t realize they can use to receive a better rate on their insurance. This can be a problem for demolition contractors, sheet metal contractors, plumbers, grading and other construction employees who work in more than one trade.
With our extensive experience and thorough understanding of the construction industry and worker’s compensation rating systems, we can often reduce insurance premiums for our clients by hundreds and even thousands of dollars. We have been very successful in lowering overall worker’s compensation insurance costs by ferreting out the most competitive classifications that apply to individual contractors. At the same time, we have served our clients by going back to prior insurance policies and getting substantial refunds by correctly presenting the exposure for worker’s compensation to the insurance carrier.
Commercial Auto
Smart businesses understand the importance of commercial auto insurance for their work vehicles, and Business Competitive Edge Insurance Services, Inc. understands those needs. We've insured commercial vehicles for 7 years, and we have multiple carriers to choose from. On top of that, we have markets with an A+ rating from A.M. Best. Trucks, fleets or dealerships, we can find you the best rates. We work hard for hardworking businesses, and we'll work hard for you.
Umbrella/Excess Policies
Some contractors may find the need of additional coverage for their business. The Commercial Umbrella policy provides additional layers or limits of coverage and extends the occurrence and aggregate limits of the Primary insurance policies. Typically, Commercial Umbrella policies provide additional limits over Commercial General Liability policies, Commercial Auto policies, and Garage policies. Commercial Umbrella policy limits range from $1 Million up to $100 Million with Self-Insured Retentions typically set at $10,000. Commercial Umbrella policies are offered by many admitted and non-admitted insurers. It is recommended that the Commercial Umbrella policy period be written on a concurrent basis with the underlying policies.
Similarly, the Commercial Excess policy provides additional layers or limits of coverage and extends the occurrence and aggregate limits of the Primary insurance policy. Typically, Commercial Excess policies provide additional limits over Commercial General Liability policies, Commercial Auto policies, and Garage policies, but only on an individual basis. Commercial Excess policy limits range from $1 Million up to $100 Million with Self-Insured Retentions of $10,000. Commercial Excess policies are offered by admitted and non-admitted insurers. It is recommended that the Commercial Excess policy period be written on a concurrent basis with the corresponding underlying policy.
Commercial Property/Inland Marine
Commercial Property Insurance is a first-party insurance that protects the insured against loss of property already accumulated or loss of property to be earned. Property insurance coverages may include physical damage or loss, loss of income and extra expenses, inland marine, boiler and machinery, and crime coverage.
COC or Builder’s Risk Hard Costs coverage is provided on structures under construction including: foundations, temporary on-site structures, materials, supplies, and equipment intended to become part of the permanent structure or building. COC Soft Costs coverage may be available and would include such items as: loss of interest, permits, engineering fees, and any other re-occurring costs or fees. Typical covered causes of loss include: vandalism, malicious mischief, windstorm, aircraft, fire, and theft.
Equipment Floater Property Insurance covers equipment that is often moved from place to place while being in the care, custody and control of the insured. This coverage would include mobile equipment, tools, construction machinery-steamrollers, blacktopping machinery, etc.
Electronic Data Processing Floater is a special form of policy written to cover external risks of direct physical loss to computers, word processors hardware, and software. This may also include: extra expense and business interruption coverage for the insured to continue normal operation of his or her business, following damage to or destruction of the data processing system, component parts, and/or data processing media.
A Boiler and Machinery policy is used to cover almost every kind of equipment for containing pressure, heating or cooling, or generating or transmitting power. Boiler and Machinery insurance covers accidental breakdown that could destroy or damage the machine, as well as an explosion of the steam equipment and the subsequent damage caused to other property as a result of the accident.
A Difference In Conditions policy is a special policy typically purchased to cover the gaps not covered in a standard property policy. DIC policy coverages can include: collapse, flood, and earthquake.
An Installation Floater is a true floater where coverage starts when the items to be installed are transported to the customers premises and remains in place until the interest of the contractors ceases or the owner accepts whichever comes first. Contractors who regularly install items off premises should consider this coverage.
If you are in need of any information not listed here, please visit our Frequently Asked Questions page, or Contact Us and we will be happy to assist you with any information you need.
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