After Building Collapse, What to Know About Hiring Contractors

It's not the contractor. It's how the contractor is managed.

A building collapses in Center City Philadelphia and six people are killed. It turns out that the demolition being done at an adjacent site was performed by a crane operator who tested positive for marijuana that day and had a lengthy police record. The crane operator was employed by a company that was contracted by the building’s owner. Neither the owner or the demolition company have been charged … yet. But it’s likely that they will be.

And they all share in the responsibility, especially the building owner. Because this is what happens when you don’t contract things out correctly. This is a lesson for any business person who employs subcontractors. And we all do. All the time.

Contractors are now a key part of our economy. That’s because business owners have too many incentives to avoid hiring. Keeping someone on a payroll means committing to a weekly paycheck. It means, in many cases, paying for health insurance or providing retirement funds. It means having policies and procedures. It means having to do extra paperwork, withholding taxes, and opening oneself up to government scrutiny. And it means a load of bureaucracy if it ever comes time to let that person go.

There are so many tools to help one contract out services. Try searching for “demolition” on Craigslist or Google, and you’ll be buried in people and companies who have connections to these types of services. If you’re not looking for someone in construction, but instead need to outsource the work of development, marketing, bookkeeping, sales, research, design, writing, editing, videoing, blogging or any other hundreds of tasks that need to be done in a typical business, then try Elance or oDesk or Guru. These are three of the leading sites to find contractors who will do this work for you. These sites have exploded in popularity over the past few years.

Why? Because other technologies have enabled businesses to hire contractors anywhere around the world and manage them effectively. They can connect into your company via Remote Desktop or GoToMyPC. You can share documents and files with them on Google Docs, Dropbox or Skydrive. You can video chat with them. You can monitor their activities and gauge their progress—all with technology that’s relatively inexpensive and easy to set up.

Which is great. As long as you make the right hire. And you manage your contractor the right way. Which is what did not happen in Philadelphia.

Contractors, like employees, need to be properly vetted. Too many business people think that just hiring another company to do the work is all the due diligence they need to do. It takes 10 minutes to set up a corporate entity, even if you’re just one person. You have to perform background checks using services like Dun & Bradstreet and LexisNexis. You must talk to references. Maybe you visit their offices to see if there’s a real company there. Or you interview by phone and in person to ensure you can trust the guy who will be doing the work for you. You ask to see their insurance riders and you question their certifications and experience. With unemployment as high as it has been and the cost to start one’s own business never being lower, you must treat your contracting company as if it’s no more than an individual person. Because in many cases that’s exactly what it is.

You can’t avoid managing just because you have a contractor on the job. It’s still your job and your liability. I’ve worked with too many contractors who claim to know what they’re doing, but don’t. And sometimes I’ve found that out too late. Thank God, those circumstances did not have tragic consequences like the one in Philadelphia. A contractor needs supervision. That means you, the business owner, stopping by to watch what they’re doing.

And finally, when you hire a contractor, you have to get the paperwork right. You have to be in compliance with the law. That’s not limited to insurance. It’s also taxes. The IRS has very specific rules about 1099 employees.

Let’s hope that you never, ever have to experience the kind of tragedy experienced by everyone involved in last week’s building collapse. And let’s also hope that, regardless of what’s determined in court, you understand that as a business owner, it really is your responsibility to make sure that these types of incidents never happen. And it all starts with the people you hire—be they employees or independent contractors.