Subcontractors Clause

Purpose

Where a main contractor engages subcontractors to perform part of the works, it is liable to its client under section 278 BGB for their fault as if it were its own. The subcontractors clause sets out the conditions, and the share of total turnover, up to which such damage caused by engaged subcontractors is covered under the main contractor’s own general liability policy, since insurers wish to avoid an uncontrolled transfer of risk through long subcontracting chains.

Effect and limits

Typical conditions include a percentage cap on the volume of work awarded to subcontractors, beyond which a separate agreement with the insurer becomes necessary, and a requirement that engaged subcontractors themselves hold adequate general liability cover. In such arrangements, the main contractor’s cover often applies only on a subsidiary basis to the subcontractor’s own policy. Failure to meet these conditions can put cover for damage caused by the subcontractor in question at risk.

Negotiation and practice

Main contractors with extensive subcontracting chains, for example in construction, logistics or plant engineering, should check whether their policy’s description of activities expressly includes third-party trades, and should establish a process for regularly obtaining up-to-date insurance confirmations from their subcontractors. Where the proportion of subcontracted work varies by project, a higher cap should be negotiated in advance to avoid short-term coverage gaps.