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While licensing isn’t necessarily a measure of competence, it does imply a certain level of professionalism and suggests that the contractor is committed to his or her job. More significantly, licensing can protect you from a number of potential problems, such as the following:
Noncompliance with building codes. Unlicensed contractors are often unfamiliar with the applicable building codes.
Poor quality work. Not all unlicensed contractors do poor quality work. And, not all poor quality work is done by unlicensed contractors. However, as a rule, if there’s shoddy work to be done, it’s usually done by unlicensed contractors. They are often untrained, less experienced, and unqualified to do certain types of work.
Potential safety hazards. If the work isn’t done properly, there could be serious safety ramifications.
Limited recourse for broken contracts. If you have a dispute with a licensed contractor, you can call his or her licensing agency. The licensing agency has the authority to suspend or revoke a contractor’s license. While this doesn’t necessarily ensure a contractor will play fair, it gives him or her considerably more incentive to do so. These regulatory authorities, however, cannot take this sort of action against unlicensed contractors.
Lack of protection from damage to third parties. The implications of using an unlicensed/uninsured contractor go beyond the risks associated with the property worked on and injury to the workers. A homeowner who hires an unlicensed contractor can also be liable for the negligence of the contractor. A neighboring property, a passerby or other property that is damaged by the contractor can lead to liability problems for the person who hired the unlicensed contractor. As the contractor’s employer, the hiring party is responsible for the contractor’s actions during the course of that employment.
Unlicensed often means uninsured. If you use a contractor who is uninsured, it means the contractor has no way of reimbursing you for any property damage he or she causes. This means you will end up paying the price in most instances. Likewise, if the contractor’s carelessness leads to injury or damage to someone else’s property, the problem is likely to become yours.
No Workers Compensation Insurance. Protection from injury to a contractor or his workers can be a huge liability to you. In California, if licensed contractors have employees, they’re required to carry workers’ compensation insurance. The importance of this cannot be overstated. If a serious injury were to occur to an unlicensed contractor the person who hired the unlicensed contractor could potentially be liable to pay for injuries and rehabilitation. This could turn a simple $1,000 repair into a bill for tens of thousands more. Your homeowner’s insurance may or may not cover those costs.
Property Damage. Commercial general liability insurance is not required, however, it covers damage to your property. If contractors do not carry general liability insurance, they should be able to explain how they would cover losses that would ordinarily be covered by insurance. If your contractor damages your property and doesn’t carry commercial general liability insurance, you or your insurance policy could end up paying for damages.