A group of three workers at a construction site wearing hard hats, safety glasses and reflective clothing, smiling and conversing
Operational Excellence

A Guide to Contractor Compliance

Written By: Joe Demski
October 26, 2022
8 min read

Having the correct amount and type of materials is vital to a successful construction project. Equally as important is having the right team of contractors to get the job done.

In order to ensure that everything gets done on time and to the right quality standards, you’ll need those tasked with putting the pieces of the puzzle together to be trustworthy, skilled, and determined to produce an excellent outcome. Being in charge of so many contractors can be a bit overwhelming, and that’s where contractor compliance comes in.

What is Contractor Compliance?

Contractor compliance is a piece of contractor management that concerns the extent to which a contractor operates in accordance with the terms of their contract as well as specific requirements of your organization. This may also refer to the extent to which a contracted firm is taking steps to complete an agreed-upon service, task, or duty.

The degree to which an employer has the right to monitor contractor compliance, either through assessing potential liabilities or by prequalifying contractors, may be written into their contract as a specific duty or right of the contracting party.

The contractor compliance criteria must be thorough and complete. It should only be finalized once relevant internal stakeholders have been consulted, you’ve received expert advice from industry leaders, and you’ve accounted for the appropriate industry and regulatory best practices.

Why is Contractor Compliance Important?

While contractors are not employed directly by a builder. A project executive is responsible for any party completing work on a job site. So if contractors are non-compliant, that risk ultimately falls on you. Contractors should be aware of the employee requirements, such as being licensed, responsible, and having the correct insurance. They should also pay subcontractors legitimately.

Contractor compliance is an invaluable tool that will protect you from undue responsibility. Monitoring contractor compliance puts you in a safer place as far as your risk of encountering several kinds of workplace risks and liabilities is concerned. These risks can impact both the business and its officers and may include:

Unsafe working conditions

Inadequate contractor management and monitoring put you at risk of hiring contract workers who don’t maintain a safe work site. They may also not be up-to-date on current safety regulations, aren’t skilled in the work they’re performing, don't have adequate liability insurance, don't follow the corporate occupational health rules, or don’t produce work that’s up to code.

Legal liability

Failing to hire a licensed contractor comes with legal liabilities that will ultimately fall on you. If contract workers don’t maintain a safe work site, aren't in compliance during particularly risky projects, or fail to pay subcontractors, you’ll be the one who’s held liable.

You’re obligated to make sure the work location is safe for all employees, customers, subcontractors, and guests on the premise. If not meeting contractor compliance expectations results in legal action being taken, you must take responsibility.

Financial liability

Contractors should be familiar with the health and safety requirements they need to follow to ensure that both their work and the work site are up to code. A proper contractor safety program training will help prevent lawsuits, poor workmanship, and additional expenses.

Contractors who don’t comply also put the project at risk. If a contractor isn’t fit to perform the work, you may be liable for any issues that arise. Not meeting independent contractor compliance criteria can also lead to low quality of work, resulting in a higher cost to complete work safely.

You may also be left holding the bag if your contract workers do not have workers’ compensation in place for their sub contractors. Not having this legal safeguard in place means that you’ll be responsible for covering payment for any sub contractors who get injured on the job.

How Do You Ensure Compliance?

To produce an effective contractor compliance process, you need to set up an organized framework to prequalify contractors, monitor their activities, and stay on top of the required documentation. It may be beneficial to seek help from an external provider. There are a few ways to set up and monitor contractor compliance, including contractor compliance software to onboard, verify, manage and pay contractors. Some other ways to ensure contractor compliance include:

Progress reports

Requiring contractors to submit progress or status reports will allow you to keep track of staffing progress, licenses obtained, materials acquired, technical progress, problems encountered, upcoming challenges, plans to address these challenges, and sub contractor progress.

Review committees should determine what information is needed and add the reporting requirements as well as frequency to the statement of work. They should also document their review of the progress and status report through a memo or an email to the contracting officer as well as retain it in the contract file.

Site visits and inspections

This is often considered the best way to ensure that contractors are meeting contractor compliance requirements. Representatives who are authorized by the U.S. Government have the right to inspect and test the product or service being generated under the contract at all stages and wherever the work is being conducted.

These inspections can be performed periodically. However, inspections and tests must not be performed in a way that excessively delays the work.

Milestone reviews

Some projects may be broken up into performance milestones. These milestones should be met on time to provide enough information to determine if contractors are meeting compliance requirements and if contractor performance is adequate. Not reaching these milestones on time or not completing them at all may be an indication of issues with the contractors.

Contractor outputs

Another way to monitor contractor compliance is by keeping track of contractor outputs. If the contractor will be providing outputs (number of vehicles repaired, students trained, etc.) both the amount and quality of output should be monitored.

Financial status reports allow you to monitor the contractor's expenditures and compare technical progress with costs incurred. Significant differences between the expenditure of resources and technical progress are often an indication that there’s a problem with contractor performance.

End user feedback

If the contract is supporting end users, try using surveys or other methods to obtain end user feedback on contractor performance. This is especially true for a customer centric company and will help you determine if contractor compliance is being met by showing whether customers are satisfied with the results and experience as well as if they find contractor performance to be timely and high quality.

Validating Contractor Systems

Contractors are required to have systems in place for monitoring performance and quality. You can obtain information on these systems as a way of determining if they will produce an adequate result and if contractor compliance is being met.

Creative monitoring

Another method of ensuring compliance is through creative monitoring methods, which may utilize technology like:

  • Global positioning systems (GPS) to track the travel and location of contractors
  • Radio frequency identification (RFID) to track deliveries, property, and locations
  • Cameras on vehicles
  • Satellite imagery
  • Badge readers

Reviewing invoices

Contractors are required to periodically submit invoices to the billing office designated in the contract to request payment. These invoices are a good way to determine contractor compliance as well as the validity of the costs claimed. You may request backup information as needed to verify the invoice. Some common invoice errors include:

  • Vendor name doesn’t match the name on the contract
  • The invoice is outside of the scope of the contract
  • Errors with the part number, quantity, or price
  • Period of performance or date of invoice
  • Incorrect contract or order number


What does contract compliance mean?

Contractor compliance refers to a contract management strategy focusing on being in compliance with regulations and keeping up with the performance of obligations within an agreement. Keeping track of compliance business activities business activities ensures that construction goes smoothly and often involves monitoring through:

  • Validating contractor systems
  • Site visits and inspections
  • Creative monitoring
  • Contractor outputs
  • Reviewing invoices
  • Milestone reviews
  • End user feedback
  • Periodic reviews
  • Progress reports

What is contract compliance monitoring?

This is the process of verifying contractor compliance through examination, observation, and documentation. This enables organizations to ensure that the quality of services is adequate and the contractors and complying with both state and federal laws as well as contract language.

What is the legal definition of a contractor?

This refers to an entity or business that agrees to perform work under the terms of a contract. Contractors differ from employees since they are usually self employed and in charge of how their work is performed. They are also obligated to provide specified results for the employer.

How do I protect myself as a contractor?

Independent contractor compliance is important for both the customer and the contractors, but contractors also need to protect themselves physically and legally. Contract workers can safeguard themselves against things like lawsuits, mishaps, and third-party property damage as long as they have the right coverage. A few of the main things you’ll need coverage for include:

  • Bodily injury and property damage
  • Completed operations/product
  • Product and liquor liabilities
  • Errors and omissions (E&O)
  • Advertising personal injury
  • Medical and disability
  • Contract liability
  • General liability
Joe Demski
Written By: Joe Demski

Joe Demski is an Associate Content Marketing Manager at Quickbase.