Licensed and Bonded Contractors: What It Means and Why Hire

If you or your business are hiring a contractor to perform work on your home or property, it is essential to hire a licensed and bonded contractor. When you hire an unlicensed contractor, you are taking significant risks, including that you will be subject to a lawsuit, as well as the potential that any implied warranties afforded by state law will be void.

In the event of some contractor-caused damage, liability insurance can help you. The last thing you want to arise with someone unlicensed are issues regarding the time and project costs.

Read on to find out what does licensed and bonded mean for a contractor and how to check license and bonding. If you require legal assistance, just enter your ZIP code below.

Who is considered a licensed contractor?

While the laws for a contractor’s license differs by state, in most cases, a license is required to do any type of skilled labor on another person’s home or property. For instance, an electrician, a plumber, or a drywaller may be required to have a license.

Someone performing a variety of tasks may need to obtain a general contractor’s license. The state may impose specific requirements such as minimum education or work experience to obtain a license. The state may also require that the contractor take an examination with different levels of licensing for the right to do different size jobs.

In addition, the state may require that the contractor has an active worker’s compensation insurance policy for a license to be issued. In many states, being bonded is also a prerequisite to obtaining a license.

What is a bonded contractor?

Being bonded is different from being licensed professionals, although the two are sometimes related. So, how do you know if a contractor is bonded and why does a contractor have to be bonded?

When a contractor is bonded, this means he has purchased a surety bond. This is a type of insurance policy that protects a property owner. The bond provides a certain amount of liability protection, and if the contractor fails to complete a job as required or contracted, the bond can provide compensation to a property owner.

Typically, for a bond to pay out to a homeowner, the property owner must first win a claim with the state contractor’s board by proving that the contractor failed to perform the required work and uphold contractual agreements. The homeowner may also face legal requirements to attempt to collect money from the contractor before making a claim against the bond.

Whether the bond will be sufficient to pay the claim depends on the size of the bond that the contractor had, and on whether there are other claims against it. The Oregon Construction Contractors Board (CCB) warns customers that the bonds required in Oregon may only provide a limited amount of financial security to property owners because the bonds required are often small compared to the volume of work performed by contractors.

However, this may differ in your state and your contractor may sometimes buy a larger bond than is required by law. To determine the amount of protection or coverage levels available to you by hiring a bonded contractor, it is best to speak with a lawyer prior to entering into a construction agreement.

Why should I hire a bonded and licensed contractor?

There are important reasons to hire a bonded and licensed contractor. First, since the unlicensed contractor is usually breaking the law by working without professional licenses, there’s a good chance he is also not complying with other laws including permit requirements and inspection requirements. This can result in your project not being up to code, and necessitating repairs or removals if your home is inspected or before your property is sold. Second, it can be much harder to determine if an unlicensed contractor will provide you with quality workmanship since the worker has not submitted to any examination or review of his knowledge by a licensing board.

Aside from the increased possibility of receiving poor workmanship or even property damage when you hire an unlicensed contractor, you may also be giving up your right to make warranty claims.

While most states impose implied warranties on contractors for bad workmanship, these implied warranty laws often require that the contractor be licensed in order to apply. Furthermore, your state contractor board will not typically help you to make a warranty claim against an unlicensed contractor.

So if you are trying to recover at all, you will need to go to civil court. Even if you win in civil court, without a bond, there’s a good chance the unlicensed contractor will not be able to pay your damages.

Another important consideration when hiring an unlicensed contractor is that you could be subject to liability. While the licensed contractor is usually required to have worker’s compensation insurance, someone unlicensed may have no protection from injury at all. If the unlicensed contractor harms himself on your property, you could be subject to a lawsuit and responsible for payments of his damages.

To avoid potential hazards from hiring an unlicensed contractor, you should contact your state licensing board to determine if your worker is licensed and if in good standing.

Can I get in trouble for hiring an unlicensed contractor?

Hiring a contractor that is not licensed and bonded means that you take all of the financial risks in the contract. If that worker walks away from the job, get sick, go bankrupt, etc., you would lose a lot of money. Of course, you can get a lawyer to handle such a case, but all you could get is a bill from your lawyer and stress. So, after all, it might be a better idea to hire a licensed and bonded contractor, by all means. You’ll pay significantly less and prevent yourself from significant risks too.

Moreover, just because a contractor is licensed and bonded does not mean they are good. For this reason, you should ask for references and to see their work on completed projects. You can also check their BBB rating to ensure that you are guaranteed a good service.

Case Studies: Hiring Unlicensed Contractors, Insufficient Bond Coverage, and Liability Risks

Case Study 1: Hiring an Unlicensed Contractor (John’s Story)

John hires an unlicensed contractor for kitchen renovations. Without proper permits and inspections, the project fails to meet building codes, leaving John with unsafe conditions. He faces costly corrections and limited warranty claims due to hiring an unlicensed contractor.

Case Study 2: Insufficient Bond Coverage (Sarah’s Story)

Sarah hires a bonded contractor for a home addition, but the bond coverage proves inadequate. When the contractor abandons the project, Sarah incurs financial losses and struggles to receive full compensation due to the limited bond coverage.

Case Study 3: Liability Risks of Hiring an Unlicensed Contractor (Mark’s Story)

Mark hires an unlicensed contractor without worker’s compensation insurance. The contractor’s injury on Mark’s property leads to a lawsuit, making Mark potentially liable for significant damages. Hiring an unlicensed contractor ex