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.

Studies show that for every major workplace injury or fatality, there are nearly 10 minor injuries — and more than 30 accidents that lead to property damage.

While minor injuries may not seem consequential, they can be indicators of structural problems in an employer’s safety standards. Capturing data even on minor incidents that may seem trivial can be critical in informing efforts to prevent much greater dangers in the future.

This documentation isn’t done in a vacuum and it’s important that managers and supervisors at all levels are trained to be focused on the numbers game of workplace safety. Here is where management’s main efforts should be concentrated:

Don’t ignore minor incidents. Document all of them. Even if you have avoided injuries and severe property damage so far, keeping careful records may provide critical risk management insights — and enable managers to take action to prevent accidents before they occur.

Identify patterns. Do minor incidents seem to happen in the same area? Involve the same or similar machinery? Are they in the same department or under the same manager? Careful record-keeping is a valuable tool for identifying patterns.

Discourage presenteeism. Workers who come to work sick may be taking medications that increase the risk of incidents. Sick or distracted workers may make serious or deadly mistakes. To prevent this, have a sustainable sick leave policy and encourage workers to take time off when needed.

Encourage reporting. Studies have shown that employers either improperly report or fail to report the majority of minor incidents.

One study found that 85% of workers had experienced work-related symptoms, 50% had experienced persistent work-related medical symptoms and 30% had lost time from an incident or from a repetitive motion injury — yet only some 91% of those workers told researchers they had formally reported any of these incidents.

When asked why they didn’t report safety incidents, workers cited a number of reasons:

• Fear of reprisal.
• Poor management response to prior reports.
• Fear of losing their job or being transferred to a less desirable position.
• Belief that pain or another medical symptom was a normal consequence of work activity or ageing.

Maintain OSHA-required injury logs. By federal law, most employers must maintain the following safety documents:

• OSHA Form 300 — Log of Work-Related Injuries and Illnesses
• OSHA Form 300A —Summary of Work-Related Injuries and Illnesses
• OSHA Form 301 — Injury and Illness Incident Report

Employers with 10 or fewer employees at all times during the preceding calendar year are exempt from the federal requirement, though many states may impose more stringent requirements.

Record near misses. Often, near misses — in which property damage, injury or fatality were narrowly avoided — can provide data that’s just as valuable as for incidents resulting in actual damages or injuries. This information can prove vital to informing prevention efforts.

Perhaps most importantly, carefully documenting all safety incidents and near misses, however minor, may help establish a culture of safety throughout the organization.

The takeaway

Companies that maintain robust documentation of all incidents, including minor ones — and even near misses — can use that information to identify patterns and take corrective action.

By taking steps to address the hazards your data gathering uncovers you can reduce the likelihood of workplace incidents.