[Note: This blog post has been edited.]
You have decided to build or remodel your home or business. This is a big step, both financially and emotionally. Choosing the right contractor to complete this project is also a big decision.
Hiring the wrong contractor can lead to cost overruns, delays, substandard work and sometimes even litigation over disputes regarding the timing, quality or cost of the project. While it’s tempting to choose a contractor based solely on an online portfolio of completed work or customer testimonials, don’t overlook the importance of making sure your contractor is properly licensed to perform the project as well as adequately bonded and insured.
Certain types of contractors may be required to hold a state or local license demonstrating that they meet minimum training or experience requirements. These types of contractors generally include electrical, HVAC, and plumbing and refrigeration contractors, but this may vary by state.
General contractors taking on jobs involving licensed trades are often licensed themselves. Don’t be afraid to ask a contractor for their license number.
You can use a contractor’s license number to check with the state or municipality about any complaints filed against that contractor. Some states provide a website to check licensing for some trades. You also can check with your local Better Business Bureau for its rating of a particular contractor. Steer clear of contractors who lack licensing required in your state or locality.
Hiring a licensed contractor does not guarantee all will go smoothly with your project. Even licensed contractors can run into problems, therefore it is important to check that your contractor is bonded and insured.
In order to become licensed, many jurisdictions require a contractor to post a “license bond.” If a contractor is licensed in a particular jurisdiction, that generally means that it has posted a license bond with that jurisdiction to ensure that it will comply with all applicable building codes and regulations.
Another type of bond you may want to inquire about is a “performance bond.” A contractor with a performance bond has secured financial backing from a bonding company or insurer that will provide funds to pay the consumer if the contractor doesn’t perform as required. For example, if the contractor goes bankrupt, dies or just walks away mid-project, a performance bond may provide funds to complete the project. This is important if you need to hire another contractor to finish the work. Performance bonds are more likely to be used with commercial projects or extremely large residential projects. Homeowners should be aware that the contractor’s cost of obtaining a performance bond will likely be added to the cost of the project.
Different from bonds, insurance protects you from liability claims you or third parties may have against the contractor. Make sure any contractor you hire carries both commercial general liability and workers’ compensation insurance. Ask for the contractor’s certificates of both their liability and workers’ compensation insurance if they are not supplied to you along with the bid. A certificate of insurance is a summary provided by the contractor’s insurance company showing the policy numbers and listing the coverages that are in place and the time period covered.
Asking questions before you hire a contractor can protect you from the financial consequences of a poorly run project. It’s also a good idea to consult with your attorney before signing contracts and to ask your local independent insurance agent to review your insurance coverage and the certificates provided by the contractor to make sure you are adequately protected.