The Risks of Hiring a Contractor
Without Vetting
While licensing deficiencies are often reported as a major risk factor for homeowners, this is just the tip of the iceberg. When things go wrong during a construction project it can be the result of intended fraud, or the project may have been beyond their capability. Unfortunately, the negative effect on the homeowner is usually the same. Let's take a closer look.
**ALERT - Construction companies are not licensed as contractors. Why? Companies cannot study, apply critical thinking skills, take examinations, or prove their understanding of and ability to execute complex construction projects. Only people can do this.
Only people (humans) are licensed as contractors. In the State of Florida, the relevant Statutes and DBPR provide a method for individuals (humans) to become licensed contractors. The licensed individual is then allowed to "qualify" a construction company. This final step is critical. If a licensed contractor (an individual) has not "qualified" a construction company, that company is not licensed.
Licensing
As it pertains to your due diligence, validating that a company is licensed requires two (2) steps. There are several ways that this can be done, depending upon the information that is available.
- Determine who the licensee is, and that the license is valid.
- Determine that the licensee has “qualified” the company that you want to hire.
Every day unlicensed contractors sign contracts with unwitting homeowners and prospective homeowners for new construction, additions, and repairs. Unless you have determined that each of the above is true, you are not working with a licensed contractor.
Another common pitfall involves those who are “marginally licensed”, meaning that they are licensed in a trade that does not fully cover the work contemplated. An example would be that a licensed contractor (CGC, CBC or CRC) wants to replace your roof. Unless that “general contractor” is also a licensed roofing contractor (CCC) they are not permitted to replace your roof. They either need both licenses, or they will need to subcontract the labor to a licensed roofing contractor (CCC).
Credentials and Past Performance
It is understandable and quite fair for contractors to represent themselves or the company in the light most favorable to them. The concern is when they cross the line representing the type of work, volume of work, or customer satisfaction associated with their past projects.
It is not uncommon for a contractor to stretch the truth in claiming to have performed a particular type of job that they have not. Sometimes this is well intentioned, as they may have hopes of engaging a competent third-party for assistance.
Contractors may also claim a larger volume of business than they have actually performed. Again, stretching the truth here may seem innocuous. But the pattern of stretching the truth often results in a fundamental misrepresentation of the company or licensee.
Finally, claiming a portfolio of 100% satisfied customers over a long period of time is always worth considering. They support most of these claims with sketchy social media reviews. Occasionally, they will mask the true identity of a company and use valid reviews from another company.
Insurance Considerations
The State of Florida requires all licensed General Contractors to carry a minimum of $300,000 in Bodily Injury and $50,000 in Property Damage or a Combined Single Limit of $300,000 (which is the most common policy form). While this minimum policy can be adequate in some cases, it is woefully inadequate in others. Most good contractors carry policies substantially higher than that. Workers Compensation insurance is also a requirement if the contractors have employees.
The 3 questions are:
- Is their policy valid. (objective)
- Is the policy up to date and in good standing. (objective)
- Is the policy adequate for the proposed job. (subjective)
Business Standing
General Contractors and most specialty contractors are required to be registered with the Florida Secretary of State as either a Sole Proprietorship, Partnership, LLC, or a Corporation. It is important that they remain in good standing by filing annual reports and following all other requirements. Confirming their status is an important element of due diligence.
Liens
In most states, if a contractor fails to pay their subcontractor, a lien can be attached to your property if the unpaid subcontractor files a lawsuit. There is not much that you can do about it and the homeowner is often left paying the subcontractor to have the lien against their property removed by the court. This lien activity can also extend to material suppliers who have not been paid by the contractor.
If they have been sued or had liens filed by their subcontractors or suppliers, they sure are not going to tell you about it voluntarily.