What must insurance for main contractors cover?

UK construction companies are facing a severe and growing shortage of skilled workers, such as joiners, bricklayers, electricians, plasterers and other tradespeople as Brexit and COVID-19 continue to hit home.

The exodus of EU nationals has accelerated the skills drain, raising the risk of major delays to construction projects.

To exacerbate the problem, a significant proportion of the UK's construction labour pool is approaching retirement age. According to the Construction Products Association, 223,000 workers have left the industry since 2019, with almost half being skilled workers aged 45–55 – the primary age demographic in the workforce. The rise in employer National Insurance (NI) payments could also have a negative impact on construction firms already struggling with labour and materials shortages.

The consequence of this skills and workforce attrition is likely delays to projects and increasing construction costs. However, the use of subcontractors is mitigating this to some extent, as main contractors turn to this flexible labour pool to boost their resources on large projects.

Additionally, the main contractor must ensure that it has cover in place for any such work by the subcontractor. It is a misconception for a main contractor to believe that the work is correctly insured if it has not taken out cover itself for the types of activity conducted by the subcontractor. Both parties' policies must provide adequate cover for any work carried out in all respects.

On the face of it, this may seem a duplication of costs and effort: but it makes sense. Should a relevant event occur in relation to the subcontracted works, the claim is likely to be brought against the main contractor in the first instance, since it is the party that has a legal agreement with the client to carry out the work.

If the main contractor has failed to take out cover in respect of the subcontracted activities, there is, effectively, no insurance cover at all for these. Without cover, there can be no provision for legal defence costs, or for the costs of passing on – subrogating – the claim to the subcontractor and its insurer. For this reason, the main contractor's and the subcontractor's insurance policies must be checked to ensure parity of cover before any work begins.

When they are contracted to do a job, bona-fide subcontractors usually supply their own labour and tools, and either their own materials or method statement or both. They are also responsible for conducting their own risk assessments and, crucially, for arranging their own insurance cover.

In contrast, labour-only subcontractors and temporary labourers work under the direction and control of the contractor, which is responsible for conducting risk assessments and ensuring that safe working practices are observed on site.

In other words, the main contractor acts as their labour master. Furthermore, labour-only subcontractors aren't responsible for arranging their own insurance cover, although some may have their own policies.

For the sake of clarity, all references to subcontractors in this article are solely to bona-fide subcontractors.

This may be the case; but in the event of a claim it is likely that it will be the main contractor's policy that will be the one to pay the claim.

Instead, it is the main contractor's responsibility to ensure that it has the appropriate employer's liability insurance to cover temporary workers. By law, an employer must hold employer's liability insurance if it employs people in the UK, or for any persons for whom it acts as labour master.

Consequently, anyone working under its direction and control must be regarded as an employee. The only exception is bona-fide subcontractors, which as discussed occupy a different category.

The contractor should also ensure that its public liability policy covers temporary workers, to protect against potential claims from third parties for personal injury and property damage.

In light of the ongoing shortage of workers and skills in the construction sector, if a contractor finds that it is depending on labour from recruitment agencies or guilds to fulfil contractual requirements it should make sure that its disclosures under its liability insurance accurately reflect the source of labour. It should also ensure that such persons are neither permanent employees nor bona-fide subcontractors.