YOUR SUBS' CERTIFICATES: WHAT A LAPSE COSTS YOU.
The general contractor requires you to hold coverage and to require the same of every sub under you. Their certificates move risk off your company. When one is missing or expired, you are the next company in the chain, and the cost comes back to you in two places. At your premium audit, carriers say the sub's payroll or cost can be added to your premium base when a certificate is not available. And after an injury on your job, many states can hold you responsible for an uninsured sub's employees. It is the same logic as a general contractor holding your payment when your own certificate is missing: whoever pays an uninsured company takes on its risk.
A certificate takes minutes to collect before a sub starts and can take months to fix after an audit or an injury. This page explains what the flow-down clause asks of you, who holds payment from whom, what a lapse can add to your premium, and what SPM puts in place so the file is complete.
WHAT IT MEANS.
A lower-tier subcontractor certificate of insurance is the certificate you collect from the subcontractors working under you, and from the subs under them, showing the workers compensation, general liability and other coverage each one holds for the dates it works on your job.
Tiers are counted from the general contractor's contract. If you contract directly with the general contractor, your own subs are second tier and their subs are third tier. Each tier is a company with its own policies, and each tier's lapse can reach the companies above it.
Carriers, states and contracts all differ. This page describes how the money works. The terms of your own contract and the law of the state where the work is done decide your rights, and a licensed broker places the coverage. SPM does not give legal advice or choose coverage.
HOW A MISSING CERTIFICATE COSTS YOU.
The flow-down clause makes it your job
Most prime subcontracts require you to hold certain coverage, and to require the same limits and the same additional insured wording from every sub under you. Contract terms differ, so read yours. If the clause is there and a lower-tier sub has no certificate, your company may be out of compliance with its own contract even if nothing ever goes wrong on the job. That is why a missing certificate also becomes your problem.
Whoever pays an uninsured company takes on its risk
A general contractor that pays you without a current certificate has taken on your risk, so many general contractors will not approve a pay application until the certificate is in the file. The same rule works one level down. If you keep paying a sub with an expired certificate, you have taken on its risk. Withholding is the way the payer gets out of that position, and it is why a lapse can turn into a cash problem. Whether and when a payer may hold payment depends on the contract and on state law, so check both before holding anything.
The premium audit adds the sub to your base
After the policy year the carrier audits your payroll and your subcontract costs. Several carriers say it the same way: when a sub's certificate is not available at the audit, the sub's payroll, or its cost, can be added to your premium base. Nationwide's audit page asks for each sub's certificate and wants the labor split out from the material and equipment, and the coverage dates have to span the period the sub worked. Great American's audit FAQ says that a sub without a liability certificate showing limits at least equal to yours can be treated as your employee. Carriers vary on the details, and the bill is for a policy year that is already over.
An injury on your job can become your claim
Carriers describe the workers compensation side plainly: under many state laws, the company that hires an uninsured sub can be responsible for that sub's injured employees. In legal terms the hiring company is treated as a statutory employer. How far that reaches, whether it reaches up or down the tiers, and what you can recover from the sub differ by state, and some state decisions let an injured worker of an uninsured third tier sub look up the chain to the companies above. A sub with no certificate is a sub whose injuries may be paid by your policy and your premium.
A certificate shows one policy on one date
A certificate shows that a policy existed on the day it was issued. Nationwide's own risk transfer guidance says certificates do not show policy exclusions and do not guarantee that the policy will be in effect when a loss happens, and that certificates should come from the insurer or agent and not from the sub. A law firm article from Miller Nash makes a second point: a certificate does not itself add anyone as an additional insured. The policy needs the endorsement. A file with only certificates can look complete and still leave you without the protection the contract promised.
Lower tiers are the ones nobody checks
Collecting from your own subs is the easy part. Their subs are hired by your sub, and unless your subcontract requires your sub to collect certificates and give them to you on request, you may never see them. When a third tier sub has no coverage, your sub's premium rises and your sub may owe more than its balance sheet can pay, and that can leave a job of yours without a crew. Your subcontract should require the flow-down and give you the right to see the certificates.
WHAT IT LOOKS LIKE IN DOLLARS.
Take a second tier sub that worked on your job with $250,000 of labor payroll and no certificate to show at the audit. At an example rate of $8 per $100 of payroll, the carrier adds $250,000 divided by 100, times $8, which is $20,000 of premium. This is example math. Your own rates come from your policy.
Say that sub's work was $400,000 of your contract and the job was bid at a 6 percent net margin, which is $24,000 of profit. The $20,000 audit charge comes after the job is closed and takes most of that profit. Cost added at audit was never in the bid or the job cost report. See the contractor insurance cost page.
Say your own certificate lapses and the general contractor holds a $100,000 pay application for 30 days. If payroll is paid from a line of credit at an example 9 percent, the interest is $100,000 times 9 percent divided by 12, about $750. The interest is the small number. The large one is the payroll that comes due before the check does.
WHAT WE CHANGE.
SPM builds a certificate checklist into the subcontract package, and no sub is mobilized or paid until it is complete. It asks for the workers compensation certificate, the general liability certificate, the auto certificate if the sub brings vehicles to the site, the additional insured endorsement and any waiver the contract requires, plus the license and the W-9. The company on the certificate should be the same company on the subcontract and the invoices. The policy dates must cover the sub's start date through its scheduled finish, and SPM records the expiration date so the next certificate is requested before the old one ends.
SPM keeps one list per job: the sub, which company hired it, its tier, its work dates, the expiration date of each policy, whether the endorsement is in the file, and what has been paid. The list is also what the premium audit asks for. Carriers such as Nationwide want the total paid to each sub, with labor split from material and equipment, and they do not accept percentage estimates. With cost coded by job and the certificate list beside it, that request is a short job.
Certificate status becomes one line on the pay application review. If a sub's certificate has expired, the payment is held until a current one is received, and the sub is told so in writing at the start of the job. SPM reads the subcontract and the state prompt payment rules first, because the right to hold payment is set by them and a hold that is not allowed is its own problem.
SPM sends the sub list, the certificates and the labor and material split to the broker when the audit comes, and again at renewal so the next policy year starts with a clean file. Certificates are kept at least through the audit for the policy year, and the broker confirms how long the carrier can come back. See the working with brokers page and the premium audit 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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You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions and never in a report.
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Every job shows its margin while it is still open.
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