How to protect yourself when working with subcontractors

Contributed by Jewelers Mutual Insurance Co.

Before Entering into an Agreement with a Subcontractor, Do Your Research

“Get recent references and look at the Better Business Bureau,” says John Ganga, senior claims examiner at Jewelers Mutual. Also ask colleagues for recommendations, consult with trade associations, and visit the subcontractor’s website. Additionally, find out if the service provider has insurance and ask for proof of insurance before entering into an agreement.

Once You Establish a Relationship, Create a Written Agreement or Contract

While it may have once been common to agree upon terms and conditions with a handshake, verbal agreements can sometimes cause problems down the road, says Jeff Mills, vice president of Commercial Lines Operations. He suggests that you spell out the responsibilities and liabilities of each party in writing. Sometimes the purchase order for a job may take care of this, or you may want a letter of agreement that both parties can sign. And depending on the scope of the work and the amount of risk involved, you may even want to have a legal contract drafted.

If you do decide you need a legal document, it’s very important that you read and understand what you’re signing—which is why you should consider having an attorney review any legal agreements before you sign them. “It’s worth spending some money for an attorney’s review,” says Mark Willson, general counsel at Jewelers Mutual. Some people may make the mistake of thinking they can save money by skipping the attorney review for important contracts. “Those saved dollars may be a pittance compared to what you lose on a deal gone bad or a contract that is unfairly one-sided,” advises Willson.

In addition to a legal agreement or contract, designers may also want to consider having the subcontractor sign a confidentiality, or non-disclosure, agreement. This helps ensure that subcontractors won’t discuss the piece or designs they receive.

Discuss the Financial Details

Before working with subcontractors, request them to outline their costs—e.g., if you’re having something cast, ask for the subcontractor’s metal price per gram, as well as the labor charge. Also, when reviewing the cost of a project, take into account any follow-up work you may need to do. For example, you could choose to work with the least expensive caster and save money upfront, but then lose those savings—and possibly more—when you have to spend more time at the bench afterward cleaning up the casting. (That’s especially true if the caster clips off the sprues and leaves extra metal protruding from where they attached to the cast piece—metal for which you’ll be charged.)

Maintain Organized and Comprehensive Paperwork

“Make sure there is a paper trail,” says Ganga. If a loss occurs, he says, paperwork is vital to proving where and when it happened.

Follow Secure Shipping Procedures

When you are shipping items, send an e-mail with specifics, says Ganga. Confirm the date the package will arrive, as well as the number of items you’re shipping, so the receiver knows exactly what is to be received. Include the same information in the package you send. Also, insure your package for the full value—no matter if you are sending a wax model or a platinum ring in need of setting—and make sure the package has a tracking number, in case it gets delivered to the wrong address. If you’re sending gemstones, make certain you not only have  insured them for the full value, but also have given proper instructions to the subcontractor for insuring them on the return shipment.

Learn more about Jewelers Mutual’s coverage options and get more tips about safety and security in your jewelry business at JewelersMutual.com. To find a Jewelers Mutual insurance agent in your area, contact Jewelers Mutual at 1-800-558-6411 or e-mail communications@jminsure.com.