Six Contractor Red Flags, Part One: Three Red Flags

Among the first steps in any successful home construction project is finding the right contractor.  Believe me: it’s a dirty industry that can be difficult to navigate for even the most seasoned homeowners and general contractors.  Here are the top six red flags I’ve identified to help thin the herd as you get started vetting contractors for your next project.  I also apply these to any subcontractors I may be considering, and that’s probably why my sub pool is so shallow…

Editor’s Note: Wow – when I started this article I thought I’d have five or six tidy paragraphs of helpful tips made for a quick read.  Things got out of hand quickly, and this is mostly all off of the top of my head. It has therefore been broken in two in the hopes of easier assimilation.  Enjoy the first three major red flags of this two-part article.

1. No Registered Business

The very first thing I do every time I consider a new specialty sub, and the first thing homeowners should do when considering a contractor, is to look for proof of a legitimate business.

Already I can hear Internet people going on about how, in Kansas, a single-member LLC is not required to register their business, and I don’t care. Use this as an initial disqualifier because it says something about the motivation and intent of the contractor. Someone who is passionate and professional should care about being 100% legitimate in practice and on paper.

It could also be a result of ignorance or bad advice from other Internet or neighborhood “experts.”

The good news is that if you hire an unregistered d.b.a., and they cause damages that they’re unwilling or unable to resolve, then their personal assets are on the line since they have no business entity to protect them.  Grab yourself an attorney and don’t forget to check if your state allows for you to recoup legal fees if you win!

Save yourself the headache, and take your first step by visiting Kansas Business Entity Search or Missouri Business Entity Search.

For other states, visit your Secretary of State website and search from there.  No registered business? Don’t give them your business.

2. No license.

Old contractors like to gripe about government conspiracy when it comes to licensing, claiming it’s just another way for local governments to take their money.  After all, they’ve been doing it longer than you’ve been alive so why should they need a license?

Substitute that rationale with driving, and octogenarians should be the best drivers on the road.

The reality is, there are armies of dirt bags out there claiming legitimate tradecraft only to take the money and run (if you’re lucky), or give it the ol’ college try and destroy your entire home along with your savings.  There’s no reason to take someone at their word when it comes to this kind of transaction.

Without a license, they can’t get permits. Without a permit, you’ll have no inspection. Without all of that, your massive new finished basement remodel might not even be considered by the appraiser because it wasn’t permitted work. Buh-bye return on investment!  Any homeowner can get their own construction permit, so you might consider this a moot point, but really? Do you really think it’s a snap to get a permit? Do you know who can’t help you do it? Your unlicensed contractor.

While not without hiccups, the Johnson County Contractor Management System can be used, even for non-registered users, to look up a contractor by name: Johnson County Kansas Contractor Licensing.

Even easier, just call the office in Olathe at 913-715-2233.

Even better: ask the contractor point-blank for his license number, then call above to verify!

Mine is 2021-0166 (next year it will be 2022-0166, et sic porro).

3. No Insurance

When you allow an uninsured worker in your home, you’ve opened yourself up to a lawsuit. There’s no more succinct way to state it. If they become injured, they can sue you. If the faucet they replaced springs a leak while everyone is gone, damaging two stories worth of floors, ceilings, and furniture, it’s your homeowners insurance that will have to cover it (or might not unless you file a false claim because your contractor was unlicensed and uninsured, completing unpermitted work; I don’t know, policies vary).

You could sue the uninsured contractor, but like we talked about earlier you might not have anything to go after, and the court battle will be a headache.  They’ll file for bankruptcy, maybe clear some unsecured credit card debt in the process, and go about their day.

Wouldn’t it have been easier to verify proof of insurance while you were vetting candidates?

The Johnson County, KS contracting office estimates that up to 20% of all registered contractors are under-insured. It’s safe to assume that nearly 100% of unlicensed contractors are completely uninsured.  It’s up to you, homeowners, to verify insurance not only for your contractor, but also all of the subcontractors they may use along the way.

Local requirements are relatively simple:

Before a license will be issued, the contractor shall furnish to Contractor Licensing, Johnson County, Kansas, a Certificate of Insurance verifying such coverage.

INSURANCE: The contractor shall be required to maintain and carry in force, for the duration of the license, insurance coverage and a Certificate of Insurance verifying such coverage as set forth below.

  1. General Liability

A minimum of one million dollars ($1,000,000.00) combined single limit per occurrence for bodily injury, personal injury and property damage and a minimum one million dollars ($1,000,000.00) completed operations provisions.

(Include all states endorsements) Before a license will be issued, the contractor shall furnish to Contractor Licensing, Johnson County, Kansas, a Certificate of Insurance verifying such coverage.

  1. Worker’s Compensation and Employer’s Liability
  2. Worker’s Compensation as required by Kansas Statutes. If the contractor is exempt from the Worker’s Compensation requirements, the contractor must submit a letter stating the exemption.
  3. Employer’s Liability $100,000 each occurrence. (Include all states endorsements)

– JOHNSON COUNTY, KS CONTRACTOR LICENSING INSURANCE REQUIREMENTS

The only subs I know that carry the minimum are tradespeople that deal in relatively lower risk, like drywall finishers and painters. For the most part we are over-insuring to the tune of $1M/$2M or $1M/$3M, depending on how large the company is, the volume of work, and the risk of those jobs.

A good construction contractor probably maintains copies of all their subs’ insurance certificates, and verifies before every job is awarded; just because they had proof of insurance at one point, doesn’t mean they maintained it.  It’s also important to understand that not every contractor needs every type of insurance. When in doubt, call your county contractor licensing office.

When Joe Bagadonuts the friendly, neighborhood handyman, who works on a handshake deal and has no business insurance, comes in to change a water heater or ceiling fan, he can rest easy knowing that if he slips/trips/falls and gets injured, your homeowners insurance will fully cover his medical bills.  He means no ill-will, and has a genuine interest in helping you, but when skulls hit floors, victims gotta get paid.

When you hire the lowest bidder from outside of town to do work, you have to understand that low-bidders often times carry no insurance, reducing overhead, allowing them to charge less.  They know that you just volunteered to insure your own project and the company’s employees while they’re on your property.

Ask for their general liability at a minimum, their workers comp (if they have employees or are not exempt as a sole member), and employment practices liability insurance, and in some cases vehicle insurance.

It’s so easy even a caveperson can do it.

Next week

In next week’s installment we’ll take a mid-depth look into cash payments, down payments, and the most overlooked of them all (bizarrely), contracts.

In the meantime, do you need a designer, consultant, project manager, or residential contractor? Scroll your clicky-finger to the bottom of the page, and take a no-cost hour of our time to deliberate!