How to Protect Yourself from Hiring Unlicensed and Uninsured Contractors

Click the titles to read more…

Hazards of hiring the unlicensed

• Unlicensed usually means uninsured. If you use a contractor who is uninsured, it means the contractor has no way of reimbursing you for any property damage he or she causes. This means you end up paying the price. Likewise, if contractor carelessness leads to injury or damage to someone else's property, the problem is likely to become yours.
• No coverage under homeowner's policy. Some homeowners believe it is safe to use an uninsured contractor, assuming that any damages incurred would be covered under their own insurance policies. However, this isn't the case. Most homeowner policies require that any work to the property be done by licensed contractors; coverage is often specifically excluded for damages caused by "bootleg" contractors.
• Noncompliance with building codes. Most building projects, even minor ones, usually require permits and inspections. Unlicensed contractors are often unfamiliar with the applicable building codes and are unable to obtain permits. If your project isn't permitted or doesn't comply with building and zoning codes, you may - and probably will - be ordered to remove or repair the job. Even if a building inspector doesn't "catch" your code violation right away, you will almost certainly have to correct it if and when you try to sell your house. Do not assume your contractor has pulled a permit.
• Poor quality work. Not all unlicensed contractors do poor quality work. And not all poor quality work is done by unlicensed contractors. However, as a rule, if there's shoddy work to be done, it's usually done by unlicensed contractors. Because unlicensed contractors aren't subject to meeting specific standards, they are often untrained, less experienced, and unqualified to do certain types of work.
• Con artists. Scams in the construction industry especially in the home improvement business have become almost legendary in the last few decades. Con artists posing as qualified contractors, and often targeting the elderly, have made national news any number of times. Even so unwary homeowners continue to be taken in by these pseudo contractors, who often promise unrealistically low prices or use scare tactics to close the deal. In these cases, the homeowner typically ends up with either an incomplete or a low quality improvement project - and several hundred, or even thousands of dollars less.
• Limited recourse for broken contracts. If you have a dispute with a licensed contractor, you can call California Contractors State License Bureau. The CSLB offers mediation services or maintain a guaranty fund to help consumers recover their losses. At the very least, the CSLB has the authority to suspend or revoke a dishonest contractor's license. While this doesn't necessarily ensure a contractor will play fair, it gives him or her considerably more incentive to do so.

Warning signs

Even when a license is required, there is no guarantee that every contractor you encounter will actually have a license. While there are certainly honest and competent contractors out there, the industry is unfortunately plagued with incompetence and con artists. It is essentially up to you to protect yourself. Therefore, when evaluating potential contractors, you should be diligent in your screening process. There are a number of "red flags" you should watch for:

• Unsolicited phone calls or visits. Although some reputable contractors market their services in this way, it is a tactic more often used by remodeling con artists. Be especially wary of a contractor who offers you a bargain price, claiming that he or she is doing a job in the neighborhood and has leftover materials.
• High-pressure sales pitches or scare tactics. Don't be pushed into hiring a contractor by forceful sales techniques, special "today-only" deals, or the threat that some defect in your house is a safety hazard. Dishonest and disreputable contractors often prey on their victims' fears by warning them that their furnace is about to blow up, their roof is about to collapse, or some similar catastrophe is about to occur.
• Large down payments. State law governs how much money contractors can ask for a deposit on a job. If a contractor asks for too much money up front - or insists you pay in cash - it can be a sign that he or she is going to take your money and run.
• No verifiable address and phone number. Be cautious of contractors who give you a post office box with no street address, or who seem to use only an answering service. Most home improvement con artists operate without a traceable phone number.
• Unwillingness to give you a price. A reputable contractor should be able to provide you with a bid before beginning work on your project. If the contractor says he or she can't do so, or skirts the issue of cost, you are at great risk of being taken advantage of.
• Unwillingness to sign a written contract. Always get the terms of the construction agreement in writing. A complete contract should include: a description of the work done, materials used, labor cost, timetable, payment schedule, completion date, names of subcontractors, warranty agreements, clean up, and financing arrangements. It should also include the contractor's license number, and should address the issues of project cancellation and how overruns on time and cost will be handled.
• Insurance or licensing information you cannot verify . A qualified contractor should be able to provide you with proof of both licensing and insurance coverage. If the contractor can't give you a copy of his or her license and insurance policy, have him or her at least give you the license and policy numbers. It is a good idea, also, to ask for some other proof of identification at this time, so you can be sure you are actually dealing with the person whose name appears on the license. Checking the validity of licensing and insurance information is covered below.
• What if your contractor says “he’s a sole proprietor and doesn’t need worker’s compensation insurance”? Then, has to do all the work by himself – no helpers or other employees. If someone else shows up, you’re not insured.

Don't rely on a handshake

• Familiarize yourself with the licensing requirements for contractors. If you have Internet access, you can find this information online at; http://www.cslb.ca.gov.
• When you're shopping for contractors, be sure to verify that both the license and insurance information you get is correct. Using the insurance policy number, call the contractor's carrier to make sure the policy is still in effect and that it covers projects such as yours.
• Also, verify the contractor's licensing information by going online to the CSLB. Their website can tell you the current licensing status of any contractor and can tell you if there have been any complaints registered against that contractor.

Get a real, written estimate and contract

• California Contractor’s Law is very specific about what your contractor must include in your written contract. This is to protect you. Even if you choose another contractor do to your work, use a compliant contract. We believe that our contract is compliant with State Contractor laws. Our sample is attached.

Mechanics Liens, Change Orders, Insurance and Contract Cancellation

• We have also attached our sample document called “Additional Contract Information”. This provides general information on: mechanics liens, change orders, insurance coverage and contract cancellation. This is not intended to scare you. It is for your protection, and the State requires us to tell you this.