POLICY: Subcontractor Risk Mitigation

PURPOSE: To ensure selection of subcontractors who are financially capable of performing the specified scope of work are contracted.


PROCEDURE: When analyzing subcontractors who do not qualify for Subcontractor Default Insurance (SDI), the following processes will be utilized by Carter & Carter to evaluate and mitigate financial risks related to subcontractor selection:

  • Past Performance – Past performance plays a significant role in whether Carter & Carter elects to use a subcontractor.

For subcontractors who have worked on a previous Carter & Carter project, their performance on that project is considered. The project team evaluates the subcontractor’s work in relation to the contract documents (scope, schedule, etc.), payment issues with vendors, timeliness in providing requested documents (pay applications, conditional lien waivers, unconditional lien waivers, and second-tier vendors’ lien waivers).

For subcontractors who have not worked on a previous Carter & Carter project, the project team investigates the past performance of the subcontractor through conversations with references, project site visits, and visits to subcontractors’ facilities, among any other available means of investigation, such as the research resources discussed below.

  • Contract Value – Depending on the amount of the contract and how it relates to our deductible, Carter & Carter may elect to use a subcontractor who is not eligible for SDI. For instance, with the current SDI plan in place, the deductible is $1M. If Carter & Carter elects to use an unqualified subcontractor whose contract value is less than $1M, no additional risk is being taken on. If it is feasible to reduce a subcontractor’s contract value to reduce risk, this option is explored as well. This may be done through the removal of material from a subcontractor’s scope of work. Carter & Carter would purchase the material directly to reduce the risk of a particular subcontractor defaulting.
  • Surety – Carter & Carter explores whether other surety options exist for an unqualified subcontractor. Options include payment and performance bonds or letters of credit to ensure that subcontractors complete the scope of work defined in the subcontract. Additionally, this may provide assurance that the subcontractor pays its labor and/or material suppliers.
  • Joint Checking – Carter & Carter strives to get lien waivers from second-tier vendors, such as labor and/or material suppliers. In the past, Carter & Carter has made it a practice to issue joint checks to subcontractors and vendors to avoid lien and legal issues.
  • Research – Carter & Carter may utilize resources such as Levelset and Procore Construction Network, to view past statistics, such as number of jobs, past contract values, locations of previous jobs, slow-pay complaints, and any liens that may be associated with that subcontractor.


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