In the construction and contracting industries, Subcontractors play a vital role in completing projects efficiently. When it comes to insurance coverage, distinguishing between Labour-Only Subcontractors and Bona Fide Subcontractors is crucial for both contractors and insurers.
Labour-Only Subcontractors:
- Are individuals or companies that provide only labour services to the contractor.
- Don’t supply materials, equipment, or any other resources required for the project.
The hiring contractor assumes responsibility for providing tools, equipment, and insurance coverage for the Labour-Only Subcontractors. Since they are not responsible for supplying materials or equipment, their scope of liability is typically limited to their own work. This can result in reduced risks for insurers as the subcontractor’s involvement is primarily limited to the labour they provide. However, whilst the public liability risk is diminished in the eyes of the law, they are actually viewed as direct employees and their involvement needs to be included in any insurance programme where they are present.
Bona Fide Subcontractors:
- Are independent entities that are responsible for providing both labour and materials or equipment for a specific portion of the project. They operate as separate businesses and carry their insurance coverage.
- Have more significant involvement in the project, providing materials and equipment in addition to labour. As a result, they might carry a higher risk profile for insurers, as their actions can impact the quality and safety of the entire project.
- Do not need to be included in the Employers Liability cover, however, they should be declared under the public liability sections. Whilst they will carry their own cover, any organisation employing them should have contingent cover in place in case the subcontractors cover fails or is in adequate in some way.
Understanding the distinction between Labour-Only Subcontractors and Bona Fide Subcontractors is essential for contractors and insurers alike. Each type carries its implications in terms of risk and insurance coverage, and by acknowledging these differences, insurers can tailor their policies to adequately protect all parties involved in a construction project. Contractors, on the other hand, can make informed decisions when hiring subcontractors and mitigating potential risks throughout the project lifecycle.
If you would like further advice, please feel free to get in touch with our team on 01302 341 344 or 0114 243 9914.
By Emma Wake Cert CII – Commercial Account Handler