The Pros and Pitfalls of Hiring a Licensed Versus an Unlicensed Contractor
One of the most important questions property managers ask contractors is, “Are you a licensed contractor?” Why is it so important to know if a contractor is licensed and how do you discern a licensed contractor from an unlicensed contractor?
Let’s break this down. In Florida, contractors are required to have a license issued by the Construction Industry Board of the Florida Department of Business and Professional Regulation (DBPR) to legally operate their business throughout the state. Additionally, local building departments require an occupational license for businesses to legally perform construction services within their jurisdiction.
Contractors must have special qualifications to acquire a license. Their processes and workmanship must meet specific industry standards. Licensure ensures that contractors know, and will follow, local laws and building codes.
How do you know if a contractor is licensed in the State of Florida?
Florida Statute 489 defines the requirements for all Florida-licensed contractors to legally perform contracting services in Florida. The Construction Industry Licensing Board of the DBPR is tasked with overseeing licensing. The Board regulates Florida’s construction industry, creating and enforcing rules for licensed contractors and processing licensing applications. The Board also addresses complaints against licensed contractors.
License numbers are assigned to contractors for different services they provide. For example, Beachfront’s general contractor license number is #CGC1531681. Our roofing license number is #CCC1333373. If ever in doubt, you can contact the DBPR at www.myfloridalicense.com for questions about your contractor and its licensing status. In fact, you can verify a license online given a company’s name, city or county, license number or license type. Additionally, you can contact the Florida Division of Financial Services (DFS) at www.myfloridacfo.com to confirm a contractor has all of its workers compensation insurance current.
Need another way to gauge a contractor’s licensing status? Observe its sales, marketing, and operations processes. Licensed contractors submit a legally binding estimate and contract for projects with their state license numbers attached. They have all of their sales and marketing pieces properly adorned with their company name and license information including, but not limited to, proposals, advertising, vehicle signage, and company uniforms. A licensed contractor’s staff typically work as W-2 employees and not as 1099 employees. Licensed contractors will submit for permits per Florida law for all work performed over $2,500.
What are the pros of hiring a licensed contractor?
First, a licensed contractor is vetted by the DBPR Construction Industry Board and is required to have all its workers’ compensation and general liability insurance to legally perform contracting services. Additionally, a licensed contractor must provide the DBPR with a bond, Federal Employment Identification Number (F-EIN) and credit reports for both personal and business financials to prove it is financially responsible.
Second, licensed contractors stand behind their work and issue a workmanship warranty, not only a limited material warranty. They are professional, executing projects to meet schedules on or under budget. Licensed contractors provide valuable references for customers, vendors and material suppliers. There are many pros to working with a licensed contractor, but one of the most important reasons is they can be held liable in a court of law for negligence, breach of contract or any other matter requiring a court's authority to assist.
How can you spot unlicensed contractors?
It’s easy! Look at their bid estimates or contracts. If a contractor’s business name doesn’t match the exact business name as licensed by the DBPR, that’s a red flag that the contractor is unlicensed. If it can’t produce the correct state license information, occupational license information, workers compensation documents or associated employee names and employment information, so a customer can verify with the DBPR and DFS, the contractor is most likely unlicensed.
Here's an example of how some unlicensed contractors operate:
XYZ Waterproofing & Painting, Inc. is a licensed general contractor with a main office in Tampa, Florida. XYZ Waterproofing & Painting, Inc. is also a licensed roofing contractor with an office in Ocala, Florida. Both services and offices are registered with the DBPR.
A new contractor, XYZ Painting & Waterproofing, LLC (notice the twist on the company name) opens an office in West Palm Beach, Florida and performs general contracting and roofing services. However, the LLC is not legally licensed by the DBPR Construction Industry Board. Because its name is so similar to the Inc., the LLC operates as if it “shares” the general contractor and roofing licenses across the general name of “XYZ.” In fact, it does not.
Unfortunately, contractors like XYZ Painting & Waterproofing, LLC operate without recourse until a savvy customer, attorney, permit office or consultant does some background work with the DBPR to unveil the illegal, fraudulent and unscrupulous business practices. Do not depend on your material vendors or suppliers to vet contractors because they are in the business of selling products not ensuring your contractor is actually licensed or not.
What are the pitfalls of using an unlicensed contractor?
First, contractors who do not meet the standards for licensure may not follow municipal building codes or may cut corners and deliver subpar work. In some instances, failure to follow building codes can result in issues with structural safety. At other times, a less-skilled contractor may perform tasks on the job site that void product warranties. In addition to decreasing the value of a property, bad workmanship often results in rework, wasting time and money.
In addition to rework, there are other financial consequences to hiring an unlicensed and/or uninsured contractor. If a contractor doesn't have general liability insurance, its customer can be held responsible for any damages incurred during the course of a project on that customer’s or a neighbor’s property. For example, if you hire an unlicensed painting contractor and a painter accidentally sprays paint on a neighbor’s structure, then you are liable for damages to your neighbor’s structure. If an unlicensed contractor destroys power, sewer or water lines during the course of a project, that contractor’s customer is responsible to fix the power, sewer or water lines.
Similarly, if an unlicensed contractor doesn’t have workers’ compensation to cover its employees, a customer can be held responsible for any damages resulting from a workplace injury. If a roofer that works for an unlicensed contractor falls from the roof, the customer can be held responsible for all of the roofer’s medical bills as well as lost wages when the roofer is unable to work.
Unfortunately, being sued for damages or injuries for work performed by an unlicensed contractor is all too real. And there is limited legal recourse to the customer who knowingly hires an unlicensed contractor or allows a licensed contractor to use unlicensed subcontractors. In addition to financial responsibility for damages and injuries, customers can incur expensive legal fees trying to locate, serve and process any legal case against an unlicensed contractor and actually collect on any financial award ordered by a court.
Finally, Florida’s construction lien law allows some unpaid contractors, subcontractors, and materials suppliers to file liens against customer properties even if a customer has made payment for a project in full. What does that mean? In layman’s terms, if you pay your contractor and the contractor doesn’t pay its subs and suppliers, you can be liable to make additional payments to your contractor’s subs and suppliers. If you don't, they can file a lien against you to secure payment.
Unlicensed contracting, depending on the situation, is often considered a felony in Florida. Where the crime occurs will dictate how it is handled. Yet not every county or city law enforcement agency handles unlicensed construction activity. All too often, a local law enforcement agency will defer victims to the DBPR to file a complaint. Unfortunately, as with most governmental agencies, DBPR’s law enforcement officers sometimes carry 200 to 300 cases per officer, so timeliness to follow up on a complaint is gravely diminished.
Special Notes: Unlicensed contracting is a serious problem throughout Florida. If you suspect unlicensed construction activity, please contact the DBPR. Rewards are available to individuals who identify an unlicensed contractor. Always have your attorney review every contract for construction work. Call references—material suppliers and previous customers—for any contractor you hire for construction work in Florida. A reputable and legally licensed contractor will have no problem with you doing this. There are many reasons to use a licensed contractor but none are more important than avoiding costly legal battles.