Blog - Month: February 2024
Deal with Unbonded Subcontractors at Your Own Risk
You should never hire an unbonded subcontractor on a construction project, unless you want to put your organization at significant financial risk.
If the contractor you hired fails to perform their work as specified in the contract, without a performance bond you have no means of recovery from the company. Also, if the subcontractor fails to pay its subcontractors or suppliers, without a payment bond, you could be left holding the bag for the errant unbonded subcontractor.
Despite these risks, many contractors don’t require subcontractors to be bonded because they think bonding raises the cost of a project.
But any costs related to bonding are negligible compared to the problems you may encounter if you deal with unbonded subs.
The two most commonly used contract bonds for general contractors are payment and performance bonds.
- Performance bonds are meant to ensure that a contractor will perform and fulfill its contractual obligations in relation to the project owner or obligee.
- Payment bonds guarantee that the general contractor will pay subcontractors and materials suppliers whatever is owed them. This bond is also meant to protect the client from claims arising against them due to contractor negligence. Payment bonds also cover all first-tier subcontractors and materials suppliers, as well as second-tier subcontractors and materials suppliers to first-tier subcontractors on public construction projects.
In other words, all parties are well covered when a contractor has obtained payment and performance bonds.
General contractors are at risk if a subcontractor defaults on its obligations, or fails to pay its lower-tier subcontractors and suppliers. Even if you have a long-standing relationship with a subcontractor, you are still putting your organization at risk if you do business with them and they are unbonded.
Other benefits
Higher standards — The chances of a subcontractor failing to finish its work, or failing to pay its own subs and supplier, are greatly reduced if they are carrying a bond.
That’s because a surety company must prequalify a company before they can secure a bond. To qualify, they have to go through a stringent process, including an examination and assessment of a company’s financial health and its ability to perform on projects.
The latter process is done by looking at prior projects the company has worked on and its experience in the industry.
The surety firm also assesses the subcontractor’s documentation and how the business operates.
In other words, the prequalification process weeds out subcontractors that are either not fit for a project, or may not have the intention to perform well on it. Sureties have no interest in underwriting bonds to unstable businesses, so they make sure to pick the most reliable subcontractors.
Reliability — Bonded companies are also more likely to work responsibly on your project due to their obligations to the principles of the project under the bond contract’s indemnification agreement.
A subcontractor bond will typically require that the business entity and its owners provide indemnity in the form of personal assets. Thus, subcontractors that are willing to put their personal assets at risk are more likely to see the job through and do it properly.
Good relationships — Most companies that are bonded and have been bonded on other projects will typically have a good relationship with their surety company.
Such partnerships are priceless in the inherently risky construction sector. Companies that operate prudently and which foster and maintain good relationships with their surety companies, suppliers and other contractors are preferred business partners for all involved.
Managing Your Internal Supply Chain Risk: Equipment Failure
Many companies have contingency plans to account for external supply chain risks, like a supplier suffering a fire that prevents it from keeping production running and getting you product that you need.
However, you also have internal supply chain risks, which you are better able to control. These risks can affect a variety of businesses from manufacturers to retailers and restaurants — and any business that has some type of revolving stock.
It could be vital to the survival of your business that you are aware of and prepare for internal risks such as machinery and equipment breakdowns.
Knowing the right steps to take ahead of time can save you from making a bad situation worse or significantly delaying the resumption of operations. All of that, of course, amounts to extra costs for your business, including the potential for lost revenues.
If you prepare for a failure of a key piece of equipment or machinery, you also won’t be scrambling trying to figure out your next step in times of internal disruption or crisis. Making decisions at such times can often lead to more problems and costs.
Your risk management plan to deal with such failures should include:
1. A list of key equipment
- Production machinery, including gear sets, motors, compressors, belts and fans.
- Boilers and pressure vessels.
- IT and communications systems, including wiring and cables.
- Electrical equipment or system, including transformers, switch boxes, cables, wiring and motors.
2. An inventory of spare parts
Optimally, you should keep all the key spare and replacement parts for your main systems on-site. You can ask the manufacturers or service companies of those systems to assist you in having an emergency inventory on hand.
Still, it may not be feasible to have all items on-site. In that case, you should compile a list of the other parts that could break and need replacement, and how to quickly order them from the correct supplier. You should include on this list the cost of those items and delivery times — and update the list at least every year.
3. Plan for renting replacement equipment
As part of your planning, you should obtain quotes from companies that rent out the same type of equipment or machinery that you use, and update the quotes every year.
The quotes should include all pricing like transportation and set-up fees, as well as estimated time from ordering to delivery and start-up.
Don’t forget to include alternative suppliers.
4. Repair firms
You should also have at the ready information on the various contractors that are able to repair any equipment that’s broken down. The information should be listed by equipment item and should include contractor capabilities, contact information and availability.
Again, you should update this information every year.
5. Inventory
The dilemma for many businesses is how much inventory to carry. You don’t want to get caught short when it’s time for deliveries, and you don’t want too much of your money tied up unnecessarily in inventory that will go unused for some time.
That said, a certain reserve of inventory to help you continue to supply your customers is a smart move if you want to minimize the disruption of an equipment failure.
You need to analyze your order and delivery schedules and identify an optimum amount of spare inventory to keep on hand to fulfill orders in case of an equipment failure.
Make sure to keep in mind perishability of inventory, if applicable.
Keeping Your Workers Safe around Electricity
While all businesses need electricity to get the job done, it can also pose a significant safety issue if your workers are careless.
To reduce the chances of a workplace injury or death, it’s imperative that you train your workers in electrical safety. While we’ve all gotten an electrical shock at some point, it should not be taken lightly as even a small amount of electrical current can be fatal if one of your employees is in its path.
Here are some of the main topics you should focus training on:
Metal and water
The danger of electrocution is greatest around metal objects and in damp conditions.
- Train your workers to make sure that all electric equipment, switch enclosures and conduit systems are properly grounded and that all external or damp operations are wired for wet conditions prior to operations.
- They should wear the correct gear, such as rubber gloves and boots, while working in damp environments.
- You should provide rubber mats, insulated tools and rubber sheets to protect them from exposed metal.
Defective equipment
Defective equipment can result in shock or electrocution.
- Workers and supervisors should inspect electrical equipment, outlets, plugs and cords before each use.
- If a worker finds faulty or damaged equipment, they should point it out to a supervisor who should remove, tag and have the item repaired.
Cord management
- Make sure outlets and cords are of adequate size and length to prevent an electrical overload.
- Keep cords out of the way to avoid tripping hazards, as well as damage from being stepped on.
- If cords must cross a traffic area, protect them with planks or other means.
Lockout/blockout
- Follow lockout/blockout procedures. Treat every electric wire as if it were a live one.
- Workers should stop using a tool and appliance if they feel even the slightest shock or tingling.
- They should turn off the power if they smell a hot or burning substance, or if they notice smoke, sparks or flickering lights.
Watch for power supply lines
Contact with overhead power supply lines is one of the most common causes of electrocution. This usually happens when workers are using portable elevators, cranes, pipes or hoisting machinery that puts them in close proximity to power lines.
- Workers using high-clearance devices should continually scan and monitor for danger and take sensible precautions to avoid contact with overhead lines.
- If an overhead line breaks, they should keep away from the wire and everything it touches, and then call the power company to shut off the electricity.
- Only qualified electricians should repair electrical equipment or work on energized lines.
One last thing…
Besides training your workers in all facets of electrical safety, don’t forget to train them in emergency response procedures and CPR, too.
New OSHA Electronic Reporting Rule Takes Effect
A new rule by the Department of Labor requires firms with 100 or more employees in certain industries to electronically submit their OSHA Form 300 and 301 logs, starting in 2024. These are in addition to submission of Form 300A-Summary of Work-Related Injuries and Illnesses.
The new rule applies to businesses in 104 high-hazard industries that include the agricultural, food production, manufacturing, retail, wholesale, transportation and medical sectors.
All employers that are subject to OSHA regulations are required to annually submit to OSHA Form 300 (Log of Work-Related Injuries and Illnesses) and Form 301 (Injury and Illness Incident Report), and their Form 300A.
Additionally, employers are required to post their Form 300A in a conspicuous area in the workplace from Feb. 1 through April 30 every year.
The new rule leaves in place existing regulations requiring:
- Businesses with 20 to 249 workers in certain high-hazard industries to electronically submit information from their Forms 300A once per year.
- All employers with 250 or more workers to electronically submit information from their Forms 300A once per year.
The final day to submit the above electronic files is March 2, 2024.
You can find a full list of the affected 104 industries here.
The following are some of the industries that are affected by the new rule:
- NAICS 3118: Bakeries
- NAICS 3119: Other Food Manufacturing
- NAICS 3121: Beverage Manufacturing
- NAICS 3261: Plastics Product Manufacturing
- NAICS 3262: Rubber Product Manufacturing
- NAICS 3272: Glass and Glass Product Manufacturing
- NAICS 3273: Cement and Concrete Product Manufacturing
- NAICS 3361: Motor Vehicle Manufacturing
- NAICS 4244: Grocery and Related Product Merchant Wholesalers
- NAICS 4248: Beer, Wine and Distilled Alcoholic Beverage Merchant Wholesalers
- NAICS 4413: Automotive Parts, Accessories and Tire Stores
- NAICS 4422: Home Furnishings Stores
- NAICS 4441: Building Material and Supplies Dealers
- NAICS 4442: Lawn and Garden Equipment and Supplies Stores
- NAICS 4451: Grocery Stores
- NAICS 4522: Department Stores
- NAICS 4931: Warehousing and Storage
- NAICS 5621: Waste Collection
- NAICS 5622: Waste Treatment and Disposal
- NAICS 6219: Other Ambulatory Health Care Services
- NAICS 6221: General Medical and Surgical Hospitals
- NAICS 6222: Psychiatric and Substance Abuse Hospitals
- NAICS 6223: Specialty (except Psychiatric and Substance Abuse) Hospitals
- NAICS 6231: Nursing Care Facilities (Skilled Nursing Facilities)
- NAICS 6232: Residential Intellectual and Developmental Disability, Mental Health and Substance Abuse Facilities
OSHA’s reasoning
OSHA has said that it plans to use the information from the files to identify high-hazard employers and injury trends. It also said that it plans to publish some of the data it collects on its website, which has employers concerned that it may be used by attorneys to target them for lawsuits.
The federal agency says it’s for the sake of transparency and to provide information to employees, potential employees, customers and the general public about a company’s workplace safety history.