How to Avoid the 4 Biggest Contract Risk Mistakes

In construction, what you sign can be just as risky as what you build. Poor contract language is one of the most overlooked drivers of liability and insurance issues, which can lead to significant losses and project disruptions down the line. From excluding indemnity clauses that shift responsibility for a subcontractor’s mistake away from the contractor to missing key insurance terms, even small oversights can lead to big losses.

To protect your financial and legal interests, review the four most common contract risk mistakes contractors make and practical steps to help avoid them.

Common Contract Mistakes: What They Are and How to Mitigate Them

1. Overly Broad Indemnity Language

Many contracts include indemnity clauses that shift liability to the contractor, even for losses they did not cause. Phrases like “to the fullest extent permitted by law” often expose your company to claims tied to other parties' negligence. As a result, your business could face an arduous claim resolution process and significant legal expenses, negatively impacting your bottom line.

How to Address This Critical Contract Mistake: Always review indemnity clauses with your trusted insurance broker or legal advisor. Push back on language that assigns responsibility beyond your scope of work. This will protect your business from financial and legal harm in the event that another party, such as a subcontractor, makes an error in their work and fails to meet contractual obligations.

2. Weak Additional Insured Requirements

It is not enough to collect a certificate of insurance. If your contract does not require specific policy endorsements for ongoing and completed operations, you may not be covered when a claim arises.

How to Address This Critical Contract Mistake: Make sure your subcontractor agreements require proper additional insured endorsements and proof of coverage that reflects the actual risk of the job.

3. Gaps in Subcontractor Documentation

Missing or outdated certificates of insurance, endorsements or waivers of subrogation can leave you responsible for a subcontractor's mistake. These gaps often go unnoticed until after a loss occurs.

How to Address this Critical Contract Mistake: Use a tracking system and audit key subcontractors each year to ensure documentation is complete and up to date. Regularly auditing subcontractors will also help confirm that the parties you work with are maintaining quality standards and adhering to all regulatory requirements. 

4. Insurance Terms That Conflict With Your Policy

Contracts sometimes call for coverage or limits your carrier will not support. Signing those contracts can create compliance issues or leave you exposed during a claim.

How to Address This Critical Contract Mistake: Compare contract requirements to your current policies. Flag anything that does not align before you sign.

Alliant Construction: Your Trusted Insurance Advisor in Mitigating Contract Risks

A strong review process protects your business, improves claim outcomes and builds credibility with carriers and clients. However, it can be challenging to identify contract risk mistakes all while operating a business full-time. This is where a trusted insurance advisor can help.

At Alliant Construction, our team of insurance and risk management specialists understands the unique risks your construction business faces at all stages of a project. We ensure you have the appropriate insurance coverage in place and right contractual provisions to protect against liability when entering into an agreement.

Contact Alliant Construction to protect your business’s next project and minimize losses.