Common Provisions for Municipalities to Include in Independent Contractor Agreements
As the world continues to open up as it gets warmer out, municipalities are faced with their spring cleaning to-do lists, which may require the assistance of independent contractors. The concern local leaders have in calling on independent contractors is the potential exposure in the event something goes wrong. North Carolina case law draws the line for exposure for the acts of an independent contractor when “the employer retains the right to control the manner in which the contractor performs his work.” Woodson v. Rowland, 329 N.C. 330, 350, 407 S.E.2d 222, 234 (1991). This case law reflects a unique challenge for municipalities when analyzing the need for each independent contractor and in determining what contractual provisions are necessary to protect the municipality from potential liability.
We collated a checklist of common provisions for municipalities and municipal attorneys to use as a guide in drafting an agreement with an independent contractor. This list is by no means exhaustive, but is a great starting point in drafting an agreement and mitigating liability.
Contractual Provisions for Municipalities with Independent Contractors:
- Provision defining the relationship: A detailed provision explaining how the parties will interact with one another can be the determining factor in a court’s decision of whether the municipality will be liable for the independent contractor’s actions;
- Provision defining the consideration for the task and the tax implications of same;
- Provision discussing the tools, equipment, and other materials necessary to complete the task;
- Provision discussing the authority of the independent contractor to act on the behalf of the municipality;
- Provision regarding indemnity/duty to defend:
- Reminder: A municipality typically cannot agree to indemnify/defend another pursuant to the North Carolina Constitution;
- Provision discussing governmental immunity;
- Provision on insurance:
- Policy limits.
- What type of coverage should you include?
- Claims made vs. occurrence based coverage;
- “Occurrence based” coverage tends to provide more protection on claims when compared to “claims made” based coverage, and the premiums reflect this additional benefit;
- Auto policy;
- Property policy;
- Commercial general liability;
- Errors and omissions;
- Crime/theft;
- Cyber liability; and
- Comprehensive general liability;
- Claims made vs. occurrence based coverage;
- Policy term limits and the steps to take to change/cancel the policy;
- Who are the named insureds/additional insureds;
- When can the municipality demand proof of coverage; and
- Don’t forget the Preaudit Certificate!
While the best practice for municipalities would be to include all of the considerations in this checklist, the reality is that it may not make financial sense for an independent contractor to carry a $2,000,000.00 policy for a $400.00 task. Each situation will depend on the facts presented to determine which considerations and policies will work best for your municipality.