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Need Subcontractors? How to Hire Like a Boss

Introduction

Subcontracting is a great way to save money and increase output for IT businesses. But more cooks in the kitchen means more room for mistakes and oversights. To prevent the costly problems that can crop up when your hire subcontractors, it’s essential to do two things:

  1. Use written contracts to define your relationship.
  2. Require proof of Errors and Omissions Insurance.

Why worry about subcontractor insurance? If your subcontractors don’t have insurance, liability for anything that goes wrong with a project falls squarely on you. Ensuring your contractors have coverage is a way to protect your business from financial risk.

Subcontractors Are Common – And Risky

Each year, TechInsurance works with tens of thousands of IT professionals. That gives us a unique opportunity to gather data from small tech businesses and track trends in IT business liability.

This year we looked at data from more than 10,000 technology professionals who applied for insurance and found that many IT professionals who use subcontractors are often not taking basic steps to protect their businesses. Specifically:

    • Only 46 percent use a formal contract or subcontracting agreement.
    • Just over half (57 percent) require evidence of E&O Insurance from all subcontractors.
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Why worry about subcontractor insurance? If your subcontractors don’t have insurance, liability for anything that goes wrong with a project falls squarely on you. Ensuring your contractors have coverage is a way to protect your business from financial risk.

It's not that hiring subcontractors is inherently risky. Subcontractors can deliver high-quality work and boost your productivity. But if you hire a subcontractor and you don't ensure that they have insurance coverage, you leave a gaping hole in your lawsuit protection. Their mistakes could trigger client lawsuits that name you. And if your subcontractors don’t have their own insurance, you could be the one who ends up paying.

Brandyn Morelli (@BrandynMorelli), partner at Onyx (@onyxlosangeles), a design and development firm in Los Angeles, puts it this way: “Hiring subcontractors can be a valuable asset to a small business, or a straight nightmare.” The payoffs are great, but you need to be prepared for the risks, too.

How to Use This Guide

In the following pages, IT project managers can learn how to understand their relationship to subcontractors in terms of business risk and liability. We’ll cover a wide range of topics, including…

  • The benefits of subcontracting for IT businesses.
  • Tips for creating strong written contracts and agreements.
  • Steps for requesting proof of E&O Insurance.
  • Sample subcontractor agreement templates.

Next: 5 Benefits of Subcontracting for IT Businesses

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TechInsurance, an Insureon brand, is America's top technology insurance company. Through TechInsurance, IT businesses and contractors apply for insurance coverage and receive multiple quotes from leading insurance carriers including CNA, Zurich, The Hartford, Philadelphia, Travelers, ACE, USLI, and Hiscox. We offer technology companies a variety of insurance protection, including: General Liability Insurance, Professional Liability, Errors & Omissions, Excess Liability, Commercial Umbrella Insurance, Workers' Compensation, Fidelity Bonding, and more. (CA License #0G11129)