Risk Management
Although not all-inclusive, much of the risk associated with homeowners engaging building contractors can be found in one of the following categories.
Even stellar past performance is no guarantee of good future results. But it is a good indicator. On the other hand poor past performance is your red flag.
No Business Entity
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. They must remain in good standing by filing annual reports and following all other requirements. Confirming their status is an important element of due diligence.
No Contractor License
Every day unlicensed contractors sign contracts with unwitting homeowners and prospective homeowners for new construction, additions, and repairs. Just as common are those who are “marginally licensed”, meaning that they are licensed in a trade that does not fully cover the work contemplated or required on the building plans.
No Insurance
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. Further, it is not uncommon to find that a contractor insurance policy has lapsed.
Lawsuits or 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. A lien can also be filed by material suppliers who have not been paid. There is often not much that you can do about it and the homeowner can be left hiring an attorney and paying the subcontractor or supplier to have the lien against their property removed by the court.