Construction Law: Finding a Reputable Contractor

Construction Law Blog

Contracting for Flood Damage Repairs

With the recent floods having devastated South Carolina, there will be another flood soon coming. That flood is the rush of contractors seeking to cash in on the repair work created by such a disaster. Most of these contractors are honest hard working people who will provide a service for people in need. But among them will be people and companies of questionable ability and ethics. Some quick research and common sense can go a long way to help you avoid a problem later on. So what are some of the things you should look for in a contractor?

What does licensed contractor mean?

The first thing you will need to know is whether or not your potential contractor is properly licensed. South Carolina law imposes licensing requirements for both general and mechanical contractors. For any repairs you should never contract with any person who is not licensed with the South Carolina Department of Labor, Licensing and Regulation (LLR). Just because a contractor is licensed in another state that does not mean they can perform those services in South Carolina. They must be registered with the LLR.

There are various types of licenses for contractors ranging from commercial general contractors to residential home builders to specialty licensures such as electrical and plumbing. If the repairs of your home exceed $5000.00 they should be undertaken by a licensed residential builder or commercial general contractor. Specialty contractors may individually contract for work in their specialty area for up to $5,000, but if the work exceeds $5,000 they are required to post a surety bond with the Residential Builder’s Commission. Specialty contractors should only be doing repairs in their specialty area.

The LLR has a free search engine on their website at http://www.llr.state.sc.us/ which will allow you to search each contractor by various categories including name and company. It will tell you what type of license they hold, it will tell you if there have been any actions by the commission against the contractor. It will also tell you that the contractor has a bond on file.

What does Bonded Mean?

In technical terms a bond is a surety. It is an agreement in which some third party agrees to promise that a project will get completed in the event the contractor does not complete the work. Theoretically they are supposed to step in to protect the owner in the event that the contractor stops working. Bonds are fairly complicated contracts the discussion of which is probably beyond this article. However, in order to receive a South Carolina residential building license a contractor must provide the Commission a $15,000.00 surety bond. Most flood repair work will exceed this amount. For commercial general contractors they must provide proof of financial responsibility depending upon the limits of their license.

What does my contractor mean that he is “insured”?

Insurance for a contractor can mean many things. Your contractor should always carry worker’s compensation, auto and commercial general liability (“CGL”) policies. Your contractor should be able to provide to you a “declaration page” to his policy which lists the types of coverage he has and the limits of the policy. Be sure to call the insurance company on the declaration page to ensure that the policy is still in place and valid. Many times people confuse insurance with a surety bond, but they are completely different things. The CGL policy is designed to defend and indemnify the contractor for various causes of action that might be brought against him such as negligence claims and personal injury claims. It is not a surety bond. The CGL policy will not step in if the contractor fails to complete the work. Coverage for contractors under CGL polices is complex. In South Carolina what is covered by a CGL policy is an ever changing landscape. But what you need to know now is that the policy is not designed to assist you if the contractor should fail to complete the work. It will not protect you from an unscrupulous contractor.

There is one final insurance policy that you might consider and that is a builder’s risk policy. A builder’s risk policy is a project by project policy that protects the contractor and the owner in the case of a loss due to fire or other types of losses while the work is being done. It is not always used in a job but it often makes good sense.

Finding a Contractor

When looking for a contractor so much of it is common sense. Here are some tips:

  • Reach out to friends and colleagues for referrals
  • Avoid anyone just showing up at your door or making cold calls to your home.
  • Check out all their credentials including licenses, insurance, bonds, google their name and address.
  • Ask for multiple references and CALL THEM and speak with them.
  • Avoid anyone who gives you a high pressure sale or tells you that you can get a discount for reason like “we are doing so much work in the neighborhood” or “they have materials from their last job’.
  • Avoid anyone who requires cash or a large payment up front.

As with any major endeavor you should seek multiple bids. You should have a written contract with all necessary terms filled in and executed by all parties.

Executing a contract.

There are so many factors that go into a good construction contract. A proper contract should outline the terms of the agreement in a way that protects both the owner and the contractor. As an owner your concerns are usually that you will get the work completed on-time, in a workman like manner and for the price you agreed upon. The contractor wants to be assured that he will get paid for the work he has done and not get stuck chasing the owner for money or doing extra work that he did not agree to do.

In my career I have represented both owners and contractors. I have also acted as a construction manager for residential home renovation projects throughout South Carolina. I have seen from both sides the problems that occur if a proper contract is not drafted and executed. My first advice to both parties is to seek the assistance of a qualified attorney before you enter into the agreement. It can save you thousands if things go badly. Here are a few things to look for in a contract.

  • Is the scope of repairs listed in detail? You need to make sure that everyone is on board as to what work is included in the contract. If it is not on the paper then it may be an issue later. It is easier to write in a provision on the side and initial it than to fight over it later. Also a detailed scope of work can help both parties later to deal with arguments over extras and add-ons.
  • Is there a provision dealing with extras and add-ons. The contract should have a provision that requires that all additional work be agreed upon in writing by a change order signed by both parties BEFORE THE WORK IS DONE. Other than dealing with punch lists, this issue creates more disputes than any other contractual issue. Creating change orders can be cumbersome and time consuming. But if done correctly can save both parties thousands of dollars in attorney fees later.
  • Payment terms should be spelled out and maintained. You should not have to advance payment because the contractor needs to pay his workers or other reasons. When the work is completed you pay and not before. In the same vein contractors should expect payment under the same terms.
  • You should receive lien waivers from subcontractors and material suppliers.
  • There should be a retainage that remains until the certificate of occupancy is issued as well as until the punch list is completed. Many times there is not enough money left in the job to entice a contractor to come back and complete the punch list. As a result it never gets completed and the homeowner finds out that completing that list of “small items” adds up to a lot of money if someone else has to finish it.

As with many big projects you need to do your homework in order to protect yourself from a bad contractor/owner relationship. Even doing all things right many times problems arise. If you need to speak with a construction law attorney about potential problems you are having do not hesitate to contact the Finkel Law Firm.

Categories: Construction Law

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