CERTIFICATE OF INSURANCE: WHAT A MISSING ONE COSTS YOUR PAY APP.
Many general contractors want a subcontractor's certificate on file before the first pay application is paid, and some check it again before each later one. A certificate that is missing, expired or different from what the subcontract requires can hold the payment while the subcontractor still pays its crew and suppliers. The certificate is also only information. The standard ACORD 25 form says it does not amend, extend or alter the coverage in the policy, and additional insured status or a waiver of subrogation needs an endorsement on the policy itself. Contracts differ, so the subcontract is the rule that applies to you.
A certificate costs little to get and a lot to be without. This page explains what it does and does not prove, what to check before a job starts and before each pay application, how a renewal in the middle of a job creates a lapse, and what a held pay application costs in days and dollars. SPM treats the certificate as a finance task with an owner, a log and a due date.
WHAT IT MEANS.
A certificate of insurance, or COI, is a one page summary that an insurance agent or broker issues to show which policies a contractor has, their limits and their dates, so that a general contractor or owner can check that the insurance the contract asks for is in place.
A licensed insurance broker or agent issues the certificate and places the coverage, and this page does not say what coverage to buy. It is about cash and cost. Contract terms and state law differ, so read your own subcontract for what it requires and for what the general contractor can do when a certificate is not right.
WHAT A CERTIFICATE DOES AND DOES NOT PROVE.
A missing certificate can hold the first pay application
Many subcontracts and general contractor onboarding checklists ask for the certificate before work starts and tie payment to it. One general contractor's subcontractor checklist tells subs to send the certificate before they start at the site and warns that missing steps will delay payments. The first pay application is where this costs the most, because the sub has already paid for weeks of labor and material by then.
The certificate shows insurance and does not change the policy
The standard ACORD 25 says the certificate is issued for information only and gives the certificate holder no rights. It says it does not amend, extend or alter the coverage in the policies listed. A note typed into the description box does not change that, and a New York insurance department opinion on edited ACORD forms concluded that an insurer that took no part in the change would not be bound by it.
Additional insured, waiver of subrogation and primary wording need endorsements
The form itself says that if the certificate holder is an additional insured, the policy must have additional insured provisions or be endorsed, and that a waiver of subrogation may need an endorsement as well. Two common additional insured endorsements are one for ongoing operations and one for completed operations, and many contracts ask for both because a claim can come after the job is finished. Wording differs by edition, so check the edition date. Primary and noncontributory wording decides which policy pays first when more than one policy covers a claim, and the standard form applies only when the contract requires it in writing. A yes in a box on the certificate is the broker's statement, and the endorsement is the proof.
Notice of cancellation is no longer on the certificate
Before the 2009 revision, the ACORD 25 said the insurer would endeavor to mail notice of cancellation to the certificate holder. The 2009 revision removed that wording, and the form now says notice will be delivered in accordance with the policy provisions. So a general contractor learns of a cancelled policy only if the policy provides for notice or the subcontractor says so. If your subcontract asks for notice, ask the broker how it will be met.
Expiration dates against job dates
The certificate shows the policy period. A job that starts in March and finishes the next February crosses at least one renewal. One general contractor's checklist asks subs to confirm the certificate does not expire before the end of the period they are billing. Many contracts also ask for completed operations coverage for a set time after the job ends, and that time is in the contract.
Limits, holder and project description must match the contract
A certificate can be current and still be rejected. The limits on the certificate are compared to the subcontract. The certificate holder has to be the legal entity in the contract, written as the contract writes it, and many general contractors also want the project title or number in the description box. These are cheap to fix when the certificate is first issued and slow to fix once a pay application is waiting.
A renewal in the middle of a job creates a lapse
Most contractors renew their general liability and workers comp policies once a year, so every open job has certificates that expire on the same day. Some brokers send updated certificates at renewal and some wait to be asked, so the contractor should not assume. A policy that is cancelled or not renewed creates the same problem with no date on the calendar. A contractor with six open jobs and one renewal date has six certificates to replace at once.
WHAT IT LOOKS LIKE IN DOLLARS.
Take a first pay application of $180,000 with 10 percent retainage, so $162,000 is payable. Say the general contractor pays about 30 days after it approves the pay application, and a missing certificate means the pay application misses the cycle and the payment moves about 30 days. Financing $162,000 for 30 days on a line of credit at 9 percent costs about $1,200 in interest. The interest is the small number. The large one is $162,000 missing when payroll and supplier bills are due.
Say the job costs $140,000 a month, paid out as it goes. If the first payment would have come 45 days after work started, the sub has funded about $210,000 by then. With a 30 day hold, the sub has funded about $350,000 by day 75. The hold adds $140,000 to the most cash the sub has to find for this one job.
Say four open jobs each have an $80,000 net pay application waiting when the renewal certificates are late. That is $320,000 held. Thirty days of interest at 9 percent is about $2,400, and the cash that is missing is $320,000. One broker request before the renewal date would have replaced all four certificates.
WHAT WE CHANGE.
SPM sets it up as a finance process. One person owns it, usually the office manager or whoever puts together the pay applications. The log has one line per job and per policy: the general contractor, the legal entity of the holder, the policy periods, the limits, which endorsements were received, and the date the next certificate is due. The due date is set ahead of the expiration date, so mistakes can be fixed in time.
Before the job, SPM compares the certificate to the subcontract: the holder's legal entity, project description, limits, policy dates against the job schedule, and the copies of the endorsements for additional insured, waiver of subrogation and primary and noncontributory wording when the contract asks for them. Before each pay application goes out, the dates are checked again, on the same checklist as the lien waiver and the schedule of values.
About a month before a policy renews, the log is sent to the broker as a list of open jobs and the certificate holders for each. The broker, who places the coverage, can issue every renewal certificate in one batch. Carriers vary on whether an endorsement adds a charge, so ask the broker before agreeing to a contract requirement and put the answer into the insurance line of the bid. See the contractor insurance cost page.
When a certificate is within 30 days of expiring and not yet replaced, the pay application it could hold is flagged in the 13 week cash forecast. The owner sees the cash that depends on a certificate before the cutoff date, and not after the payment is late. Certificates from lower tier subs are covered on the lower tier page.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing. No payroll. The one-time onboarding fee is right here in the table.
| Last 12 months revenue | Monthly fee | One-time onboarding |
|---|---|---|
| Up to $1M | $1,900 to $2,900 | $1,000 |
| $1M to $3.5M | $2,600 to $3,900 | $1,500 |
| $3.5M to $6.5M | $3,800 to $5,700 | $3,000 |
| $6.5M to $9.5M | $5,100 to $7,100 | $4,500 |
| $9.5M to $12.5M | $6,100 to $8,500 | $6,000 |
| $12.5M to $15.5M | $7,400 to $11,000 | $7,500 |
| $15.5M to $18.5M | $9,400 to $13,500 | $9,000 |
| $18.5M+ | Quoted individually | Quoted individually |
The onboarding fee covers migrating your books back to the start of your last taxable year and getting you fully operational in 60 days. It's billed once, with your first invoice. It's the same for all three tiers. Your first month is prorated, and your monthly engagement starts on the first of the first full month.
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items. The onboarding fee is right here in the table.
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