Most agencies have terms and conditions, or contracts with their end customers, yet not all of them have written terms of engagement for subcontractors. Some will rely on a contractor providing their own terms, whereas others will work without consideration.
If you take on contractors, we strongly recommend that they’re engaged under written terms of engagement, including specific reference to the insurance required. But what insurance should they hold? How high should the limits be? And does it need to mirror your agency’s original contract? You’ll find answers to these questions below.
Type of policy
The type of insurance stated within a terms of engagement varies, and is dictated by the activities an agency undertakes. Common policies relate to:
Any contractor offering services for a fee should have Professional Indemnity cover, and if they’re delivering a physical product, they’ll need Public Liability too. It’s also wise for them to have this cover if they attend in-person meetings with your agency, in case they accidentally damage something or hurt someone whilst meeting.
As for Cyber & Data liability, it’s increasingly common for this to be at the forefront of contracts. Any freelancer who delivers a product that’s digitally driven, or involves the use of personal data, should have this in place.
Your own policy obligations
If there’s a clause in your policy stipulating that all engaged contractors should hold a certain level of insurance, it must be reflected in the terms of engagement. This would normally be a stated minimum limit of indemnity, but these terms could need amending if your own limit increases.
We suggest our clients avoid accepting these clauses within their insurance policies when possible, due to the difficulty in policing all subcontractors thoroughly, and the difficulties in communicating changing requirements to subcontractors.
Affordability and activities undertaken
Just because the end customer requires your agency to hold £5,000,000 Professional Indemnity, doesn’t mean freelancers should have the same limit, especially if they’re focusing on small-value elements such as refining artwork or editing content.
Not only is it unfair to impose such heavy insurance requirements, it can be expensive, and may cause a contractor to rethink their decision to work for you. As a general rule, we advise starting at £1,000,000 Professional Indemnity for basic, low-risk deliverables – and only asking for higher when justified.
Sometimes, the insurance a contractor needs to hold is dictated by an original contract with the end customer. If the customer explicitly states that any subcontractor or freelancer engaged needs to hold the same limit of indemnity, it would be a breach of contract to allow them to deliver services while holding lower insurance cover.
These requirements can be negotiated with the end customer when the original contract is being drawn up, but you may have other priorities. We suggest trying to bear in mind the potential contractor insurance implications, as well as your own, when arranging contracts. Failure to do so could leave you exposed, or unable to use the best contractors for the job.
No two contracts are the same, and some will have specific requirements that need mirroring in subcontractor engagement terms.
Key and unusual specifications should always be pointed out to contractors, such as if they’re required to keep the insurance in place for a period of time following the end of the contract (typically six years).
Got a question?
When engaging subcontractors, the key is to understand what services they’ll deliver to your agency, then building the terms of engagement around that. We recommend having specific terms of engagement written that are reasonable and compliant with your own insurance policies, as well as any contracts you’re signed up to.
If you want to check you’ve got the right insurance in place for your agency, or you’re looking to take out a new policy, RiskBox can help. Speak to a member of our team today on 0161 533 0411, or fill in our online contact form.
Photo by Amy Hirschi on Unsplash
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