The Right Way to Withhold Payment from Non-Compliant Vendors

All contractors experience non-compliance, but figuring out how to deal with it can be difficult. A lot of the time contractors feel their hands are tied with project deadlines and think the only option is to let non-compliant vendors and subcontractors keep working.

If the proper steps are taken, contractors can implement consequences for vendors and sub-contractors who go non-compliant. Consequences are helpful when it comes to deterring non-compliance, but contractors also need to have a process in place to get vendors back to work as soon as possible.

Why do vendors go non-compliant?

Insurance is one of the first things to get dropped when businesses are trying to save money. Most of the time, this decrease in coverage causes vendors to go non-compliant.

Regularly checking the accuracy of Certificates of Insurance (COIs) is important. Sometimes, even after a COI is collected and confirmed as meeting all requirements, vendors will drop coverage making them non-compliant.

What to do when Vendors go Non-Compliant

If there isn’t a penalty for vendors who are not compliant, there’s no incentive for them to assure they have the proper coverage. Sometimes vendors who go non-compliant don’t want to buy the correct coverage because it costs them more.

The solution to keeping vendors from going non-compliant is for contractors to write into the contract the ability to withhold payment for the vendor’s non-compliance. The ability to withhold payment needs to be written out in the contract because in most states, verbal agreements for commercial work are not binding and will not hold up in court.

With a written contract that both parties agree to, it’s safe for a contractor to withhold payment if a vendor becomes non-compliant.

Next Steps

When a vendor goes non-compliant and payment is withheld the vendor needs to stop work on the project. To keep projects on track, contractors need to have a streamlined process for tracking COIs so vendors can get back to work.

Checking COIs by hand is time-consuming. The SmartCompliance software allows vendors to upload COIs with the click of a button.

With SmartCompliance, contractors can assure all their vendors and subcontractors are compliant and fix any issues of non-compliance without disturbing project timelines.