order, except that the sum named is an amount to be deducted from the subcontractor's contract price. Copies of these change orders and deduction orders are sent to the subcontractor, to the job, and to all members of the contractor's organization whose work or records are affected thereby. Applications for Payments Contracts with subcontractors generally provide for payments being made at least once a month on account of work performed. The general contractor receives monthly payments from the owner. The value of the work done by the subcontractor and the sum to be paid him are incorporated in the general contractor's applications to the owner for payment. In order, therefore, that the general contractor may make proper provision in his own application for the work performed by subcontractors, it is advisable to send a formal reminder to each subcontractor a few days before the end of the month, requesting him to forward to the general contractor his application for payment for work done during that calendar month. The applications from the subcontractors should give totals showing the financial status of their work. They should state, first, the total amount of contract and extras; second, the total value of work done to the date of application; third, the amount to be retained as a reserve by the general contractor; fourth, the total of all payments received by the subcontractor; and fifth, the balance due and payable to the subcontractor for work performed to the date of the application. Payment of Applications After the subcontractor's valuation of his work has been verified by the general contractor and the balance payable determined, checks are sent to the subcontractor at times specified in the contract. When a subcontractor is working on a building being constructed under a cost-plus contract with the owner, receipts for sums paid him should be obtained and submitted to the owner as evidence of disbursements made by the contractor. Work Done for Subcontractors A bill is sent to a subcontractor whenever any labor or materials are furnished to him. The bill is prepared by the timekeeper or the material clerk, and shows the number of hours of labor or quantities of material given the subcontractor. The office places the unit prices on the bill and forwards a completed invoice to the subcontractor. Surety Bond The subcontractor is often required to furnish a surety bond as a condition of his being given the contract and before the contract with him is signed. The surety bond guarantees the performance of the contract in the form and according to the terms contained therein. Any act of the contractor's organization which modifies the terms or conditions of the contract will serve to release the surety to the extent of the modification, unless the prior consent of the surety is obtained. This is of such importance that the reader is asked to study the comments under surety bonds in Chapter VI. Insurance The workmen's compensation laws of the different states are becoming more and more severe. The statutes of some states having workmen's compensation laws provide that the general contractor must pay compensation to subcontractor's men if the subcontractor's workmen fail to receive it, although the subcontractor may have carried insurance in a company which was not authorized to insure in that state. It is of utmost importance that every subcontractor be required to furnish satisfactory evidence that he is carrying Workmen's Compensation insurance with a responsible carrier. The evidence should consist of a certificate from the insurance carrier, giving the details as to the date, terms, and expiration of the policy, together with an agreement by the carrier not to cancel the policy without sufficient notice to the general contractor. The subcontractor should further be required to submit similar evidence of his carrying insurance against his liability for damages arising from accidental injury to persons other than his employees. In considering the amount of this class of insurance to be carried, the measure of the hazard should be carefully studied. What would be reasonably safe limits in a residential section would be too low in the financial or business section. The reader is again referred to Chapter VI, for comments on insurance. The subcontractor should also be required to furnish insurance against any hazard arising out of, or existing in connection with, his work, which may result in heavy financial loss either to himself, the general contractor, or the owner. CHAPTER VI INSURANCE AND BONDS Necessity of Insurance INSURANCE Every contractor should carry such insurance as will adequately protect him against loss from any and all hazards existing in the conduct of an operation. He signs a contract agreeing to erect a building or other structure or work for a specified sum to be paid him by the owner. His obligation is to give the owner a completed job. He must replace any work damaged or destroyed by fire, tornado, earthquake, or other causes. If the cost of replacement cannot be recovered from an insurance carrier (an insurance company), the expenditures necessary to restore the work damaged or destroyed may be greater than his capital and resources. Before purchasing any insurance, however, a contractor should carefully analyze the hazards existing and compare the cost of obtaining insurance with the loss that may be sustained. Classes of Insurance The classes of insurance which a contractor must take out at one time or another are fire, workmen's compensation, employer's liability, public liability, and contingent liability. He may be called upon at any time to purchase other insurance, such as vehicle, automobile, tornado, earthquake, flood, plate glass, hold-up and burglary, forgery, property damages, boiler, fly-wheel, elevator, use and occupancy, weather, etc. In fact, insurance is obtainable to cover every risk that may cause. financial loss. Fire Insurance Insurance should be taken out to cover loss from damage by fire to work under construction. While the amount of insurance to be carried for this purpose is partly dependent upon the possibility of damage by fire, the arrangements which the owner made to finance the work may result in a requirement by the mortgagee that the operation be insured for its full insurable value. Whether fire insurance is to be purchased by the owner or the contractor is usually definitely stated in the contract or the specifications. When a policy is written with an 80% coinsurance clause, the contractor must carry insurance equal to 80% of the value of the property. He has fulfilled his obligation to the insurance carrier when this has been done, and he can collect any loss up to the amount of the policy. Purchasing a smaller amount of insurance will prevent his recovering the full amount of any loss sustained. Coinsurance is also written at other percentages than 80. The rate charged is lowered as the percentage of insurance carried approximates more closely the value of the property. By paying a much higher rate, insurance can be purchased in some localities without a coinsurance clause. It is sometimes cheaper to buy a smaller amount of insurance at the higher rate than it is to buy a larger amount, with coinsurance clauses, at the lower rate. The term "full insurable value" does not always include the full cost of the work done. The meaning of this term applicable to any particular job is governed by the insurance rulings effective in the district in which work is in progress. Where coinsurance is required, it is usual to omit value represented by excavations and foundations below the lowest subbasement line. |