Insurance, risk assessment and type of contracts
On a daily basis, the State enters into a multitude of contracts. Protecting the state from damages, or liabilities that arise from these contracts is a constant challenge for everyone involved.
Agencies should always start with a process of evaluating the risks of the contracted service or activity. Next, contractually transfer risk through the use of appropriate contract language backed by insurance and bonds. Review each contract. Risk transfer language is generally contained within DAS Purchasing Contract Templates. However, it is important that you work with your Attorney General Counsel in analyzing the risks specific to your contract, and in considering appropriate contract clauses or wording.
Assists with risk identification, selection of type and amount of insurance, and other risk control measures.
Contract language clauses and language
Indemnity, contribution, alternative dispute resolution and sub-contractor indemnification/insurance requirements.
Contract clauses that assist in transferring the risks associated with the activity.
Recommendations for types of clauses that enhance your ability to make a successful claim against a contractor's insurance in the event of a loss.
- Insurance terminology
- IRS Publication 15-A. Contractor or Employee? Check out the IRS Employer's Supplemental Tax Publication.
- Consider these questions:
- Will you be controlling the means, manner, timing or methods of the contractor beyond those actions necessary to ensure compliance with the contract? If yes, your contractor could be interpreted as an employee.
- Will you be supplying a workstation, office space, telephones, computers, etc. for the contractor? If yes, have you outlined how the contractor will pay the state? If no, your contractor could be interpreted as an employee.
- Are you allowing the contractor to drive state vehicles, have a state credit card and have access to state e-mail or other computer systems that are for employee use? If so, your contractor could be interpreted as an employee.
- What are the risks?
- If you contractor is interpreted to be an employee, you could have to pay the employees medical insurance, pension and all other benefits afforded to an employee.
- If your contractor is interpreted to be an employee, and you have not paid withholding, etc., you could be liable for penalties.
- If your contractor is hurt while performing the contract, and asserts they are an employee, you may have to pay their workers' compensation claim.