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
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
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
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.