Hiring Licensed Contractors in California
Most of us have never hired someone to do construction work of any sort, so when the need arises to hire a contractor to make repairs or improvements on our residential or commercial property, we don’t know where to start. Beware: these are dangerous waters! Even when everything goes smoothly, such projects can be inconvenient, stressful and expensive. But when things go wrong, which happens with some frequency, the problems can quickly reach nightmare levels. For any kind of large residential or commercial project, you might consider hiring a trusted commercial lawyer to help oversee the process, at least to review any contracts before you sign and perhaps to oversee payments. This article contains other important factors to consider when hiring licensed contractors in California.
Always use Licensed Contractors!
In California, anyone who holds themselves out to perform construction work or repair at a cost of more than $500 (combined labor and materials) must have a license from the Contractors State License Board, “CSLB”. If they do not, they are violating the law and may be subject to criminal charges. More importantly, from the property owner’s perspective, you lose the protections licensing affords by hiring unlicensed contractors, including but not limited to bonds and assurances that the contractor carries workers compensation insurance. The CSLB licenses contractors in 44 different classifications, depending principally on the type of work they are qualified to perform. Hiring a contractor with a specific license from the CSLB for the work you want them to do is additional assurance of their skill and competence.
In addition, before signing a contract with any contractor, ask for their CSLB license number and check with the CSLB to confirm that their license is valid. (You can also check to see if they have a history of customer complaints.)
Consider Hiring a General Contractor
A “general contractor” is licensed to hire and supervise multiple “specialty contractors”, e.g. roofing, concrete, drywall, plumbing, electrical, etc., as may be needed for a project; the specialty contractors are then referred to as “subcontractors. Hiring a general contractor typically involves entering into a written contract with the owner/tenant of commercial or residential property to handle the entire project. The general contractor is then responsible for locating and hiring the necessary specialty “subcontractors”, who do not have a direct contract with the owner/tenant.
In most commercial projects involving multiple “specialty contractors”, oversight by a general contractor is a legal requirement. Private homeowners, however, are entitled to act as their own “general contractor”, to hire and manage the specialty contractors directly. In this instance, the specialty contractors would not be considered “subcontractors”, because they would have direct contracts with the homeowner.
But while the law does not require a homeowner to hire a general contractor for projects requiring multiple specialty contractors, homeowners are well advised to hire a general contractor. Locating, hiring, and managing multiple specialty contractors is a complicated and demanding endeavor that requires significant construction knowledge, which most homeowners do not possess. While the general contractor will charge a “markup” to pay for their management and supervision of the project, it is generally a worthwhile expense to the homeowner. A good general contractor is smart expense to a homeowner.
However, a bad general contractor can be a disaster. Any owner or tenant contemplating significant repairs or remodeling on their residential or commercial property should be very careful in selecting a general contractor. The owner/tenant should, of course, check the general contractor’s license with the CSLB, and check their record for customer complaints. They might also check them on Yelp, or Angies list or the like, and ask the contractor for references from previous customers. It is also highly advisable to interview several general contractors for a project, and ask each of them to bid for your business.
Understand and Negotiate a Written Contract
Once you have selected a general contractor and agreed on a price for the project, a written contract is absolutely essential. Most general contractors will provide their own form, but all terms are negotiable. (This is a good time, before signing any contract, to consult an experienced commercial law attorney if you have any uncertainties.)
After the contract is signed, the general contractor will hire specialty contractors to do the required specialized work. Since the contract is between you, the owner or tenant, and the general contractor is typically for a “fixed price”, it is in the general contractor’s interest to hire subcontractors as cheaply as reasonably possible. As long as the owner/tenant is happy with the agreed contract price, and the subcontractors are appropriately licensed, there is no reason to begrudge the general contractor his profit. It is earned by negotiating, monitoring and supervising the subcontractors on the entire project, which involves significant time and expertise, even on relatively small projects.
Pay Only for Work Done, i.e “Progress Payments”
One of the most common nightmare scenarios in remodel or repair projects is for work to stop before the project is completed, but after the property owner has paid all or most of the agreed project price. To avoid this situation, it is critical that the written contract specify that payments be made in installments as the project proceeds. There will usually be a required down payment, before work commences, but by law this payment cannot exceed $1,000, or 10% of the contract price, whichever is less. See CSLB website for more information.
Understand “Mechanic’s Liens” and Demand “Conditional Releases”
Every owner or tenant should understand that anyone who works on their property, or supplies materials to the project, is entitled to file and record “mechanic’s liens” with the country recorder’s office against the title of the property in order to secure payment for their work or materials. Subcontractors who are hired and paid by the general contractor, and who have no contract with the property owner or tenant, are nevertheless entitled to record mechanics liens against the improved or repaired property if they are not paid for their services. It happens, unfortunately with great frequency, that general contractors receive payment from the owner, but then fail to pay the subcontractors. If they have properly filed and recorded their mechanics liens against the property, a subcontractor may look to the property owner/tenant for payment, even if the owner/tenant has already paid the general contractor for the subcontractors’ work! In such a circumstance, the general contractor would be legally liable also. However, if the general contractor went bankrupt, the owner/tenant would have no good remedy, and could thus end up paying twice for the same work.
The statutory set of procedures for filing and enforcing mechanics liens is beyond the scope of this article, but it is critical that the property owner, or tenant, either 1) hire an attorney or other advisor to oversee payments on the contract, or 2) take the time to educate him or herself before signing a construction contract. See the applicable Calif. Civil Code here for more information. In substance, the procedure for protecting oneself is to make sure that, with every progress payment made to the general contractor, the owner/tenant receive acknowledgement from the subcontractors that they have received the moneys owed them for the work done to date. Here, again, is an area where you are well advised to consider the services of a competent business lawyer.
This is just an overview of some of the most important considerations in hiring contractors to work on your property. There is a wealth of detailed information on the internet, and every owner/tenant should take the time to educate themselves further before committing to hiring contractors for any substantial improvement project on their property. If you have questions about hiring a contractor or are engaged in a dispute with a contractor, the commercial and litigation attorneys at Gehres Law Library are willing and able to provide such assistance. Contact us today for a free evaluation.