Risk Transfer for Contractors: Protecting Your Business Through Contracts and Certificates

In construction, risk is part of the job. But one of the smartest ways contractors can protect themselves isn’t just with their own insurance, it’s by using contracts and certificates of insurance to transfer risk to subcontractors.

Why Contracts Matter in Risk Transfer

When you bring subcontractors onto a project, you’re opening the door to risks created by their work. A well-written subcontracting agreement makes it clear who is responsible if something goes wrong. By spelling out insurance requirements in the contract, you ensure that your subcontractors, not your business, are financially responsible for accidents they cause.

Key Insurance Requirements for Subcontractors

To make risk transfer effective, every subcontracting agreement should include specific insurance requirements, such as:

• Adequate Liability Limits

  Require subcontractors to carry general liability insurance with limits that match the size and scope of your projects. Small jobs may need $1 million, while larger commercial projects may require $5 million or more (often with an umbrella policy).

• Additional Insured Status

  Make sure your subcontractor adds your company as an additional insured on their policy. This gives your business direct protection under their insurance if a claim arises from their work.

• Hold Harmless and Indemnification Clauses

  Contracts should state that the subcontractor will defend and indemnify you for claims resulting from their work. This helps ensure you’re not paying for their mistakes.

Certificates of Insurance: Proof of Protection

A certificate of insurance (COI) is the document that proves your subcontractor actually has the required coverage. But don’t just collect the paper—verify that:

• The coverage limits match what your contract requires.

• Your company is listed as an additional insured.

• Policies are current and not expiring mid-project.

The Payoff

Without these safeguards, you could end up paying for claims caused by your subcontractor’s work, something that can quickly erode your profit or put your business at risk. By requiring proper contracts and certificates of insurance, you shift responsibility where it belongs and strengthen the financial protection of your company.

Contracts and certificates aren’t just paperwork. They’re essential tools for transferring risk, protecting your balance sheet, and keeping your projects running smoothly.