You’ve made your selection. There’s no doubt which contractor you want to turn those dreams into reality; well, at least you’re pretty sure. Before you sign anything, let’s make sure that everything that was said or presented is real and can be backed up.
If you haven’t done it already, confirm their license status by following the steps we outlined earlier. At the same time, you’ll be able to verify their bond status on the Contractor’s Board website. Hopefully, you’ll never have the need for the bond; but for now, simply verify it exists and is in good standing. I also suggest making a note for your job file that reflects the name of the surety company that holds the bond and its expiration date. We’ll explain why that could be important in our ‘Problem Resolution’ series. A bond, whose maximum value is $12,500, is very different than liability insurance.
Insurance is next and there are two types that you need to be concerned about – liability and workers compensation. Surprisingly, the state of California does not require contractors to carry liability insurance:
Commercial general liability insurance is not required; however, it covers damage to your property. If the contractor does not carry general liability insurance, they should be able to explain how they would cover losses that would ordinarily be covered by insurance. If your contractor damages your property and doesn’t carry commercial general liability insurance, you or your insurance policy could end up paying for damages (Source: CSLB website)
In California – a rather litigious state – liability insurance is pretty expensive. You may find that the low bidder is low because they’re not carrying insurance. The question is; do you feel lucky? Again, my opinion only; but you can probably get better odds in Vegas.
If the contractor does have liability insurance, make sure it is in what we’ll call a sufficient amount. How much is sufficient? Depends on the job – usually $1 million or $2 million is more than adequate for residential jobs. Should a problem come up and the contractor is clearly liable, a good insurance company will immediately stand up and resolve the issue. If there is a disagreement about who is liable for the damages, your property insurance company will take care of the damage and then they’d go after the contractor and his/her insurance company to recover their loss. I require my subcontractors to maintain liability insurance; giving the property owner three layers of protection – their own property insurance, the general contractor’s coverage and then the individual subcontractors’ coverage. This makes for another strong argument for using a General Contractor whenever the opportunity presents itself.
The contractor should provide you with proof of insurance by giving you a Certificate or Binder from the insurance company. Review it to make sure the name on it is the same as the name of the licensed contractor (it is not uncommon for names to be different so get an explanation if they don’t match). Also, check the expiration date. Policies are good for one year in most cases. If the policy is scheduled to expire in the middle of your project, you’ll want to confirm with the insurance company that the contractor is eligible to renew.
Workers compensation is up next.