Construction Law

Licensed vs. Unlicensed Contractors featured image

Licensed vs. Unlicensed Contractors

There are several reasons why your construction company should choose to work with licensed contractors over unlicensed contractors for every job site and project. There are some jobs where an unlicensed contractor could be allowed and save you money; however, in most instances, you may not find that it is worth the risk to your construction company. In this brief editorial, a Charlotte contractor attorney discusses the reasons why you should choose a licensed contractor.

Related: Renting Your Contractor’s License

Potential Scams

Not all unlicensed contractors will scam you or misrepresent their background to get you to pay or hire them to do work that they can’t do, but a licensed contractor is less likely to do this, as they could lose their license for bad behavior. Plus, the contractor had to undergo some sort of testing, training, or certification to receive their license in the first place. This can provide some kind of reassurance that the contractor has the background you need for the job.

There are actually a number of common potential scams that occur with unlicensed contractors. This includes: 

  • Asking for full payment upfront and then disappearing with the money, even when some states set the maximum that you can prepay for a job at 10%.
  • Not writing the entire scope of work into the contract agreement and failing to fulfill the aspects of the project he or she verbally agreed to. This can leave you in a weird place legally, as you may not be able to force them to do work that’s outside of the signed agreement.
  • Failing to pull permits or schedule building inspections, potentially putting your company on the hook for not complying with regulations. 
  • Claiming to incur expenses related to unforeseen circumstances that you need to pay in order for them to continue to work the job and finish it, only they have already made it part of the way through the project. These are added expenses. You may have even chosen to work with a different contractor if you knew about the total cost for the project upfront. 

These are just some of the potential scams that other companies have run into with unlicensed contractors. However, other types of scams are possible.

Workers’ Compensation Insurance

Licensed contractors are often required to maintain a workers’ compensation insurance policy that can cover any injuries sustained by their workers. If one of their employees is seriously injured on the job and you do not have a licensed contractor with workers’ compensation covering those employees, it could put your company and your jobsite at risk. You may need to stop construction until the issue is resolved.

Voiding Warranties

In some cases, you can accidentally void warranties by hiring an unlicensed contractor to complete the job. This is especially true for new construction in residential communities. Be sure to carefully review the terms of the warranty and whether you need to use only licensed contractors to keep the terms intact. If you have any questions about the language in the warranty and what kinds of contractors you can utilize based on the contract terms, a Charlotte contractor lawyer can review your contracts and warranties to give you a better idea of what is allowed under the contract, so that you can avoid any potential issues.

Related: Is it Dangerous to Contract Without a License? 

Surety Bonds

Furthermore, many states and municipalities require licensed contractors to have a surety bond that protects you against potential losses in the event that the contractor fails to perform or fulfill its obligations. This is common with licensed contractors, and it can protect you from losses up to the set amount. It could be a good idea to learn more about your contractor’s surety bond before you enter into a formal working agreement with them. 

Threat of Losing License

Should a licensed contractor fail to finish the job, do a bad job without being able to fix it, or take your money and run, you can go to the licensing board to disclose what happened to you to see if there is any action that you or the board can take. There is the possibility that they can lose their license. This can make a big difference in the actions that a licensed contractor will take or avoid to maintain their license. 

Ultimately, the decision of what kind of contractor to hire is up to your construction company’s management and hiring team. You may decide that it is allowable to hire unlicensed contractors to perform certain types of jobs, but only licensed contractors to do other kinds of jobs. You may create a blanket policy that all contractors must be licensed to work on your company’s construction projects or the state you live in may require it. If you have questions about hiring licensed and unlicensed contractors in the construction industry, contact a Charlotte contractor attorney from Cotney Attorneys & Consultants to get the answers you need.

If you would like to speak with a Charlotte contractor attorney, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.