Liability in the Bargain? The Dangers of Hiring an Unlicensed Contractor:

By Timothy J. Smith Esq.


Homeowners and homeowners' associations often face expenses to maintain or repair their property. It makes sense to look for the most affordable contractor available to do the work. Many times, through friends or relatives, a homeowner will come across an unlicensed contractor during their search for a person to do the work. The unlicensed contractor will provide a bid that is much lower than bids from licensed contractors and promises to do the same work. It sounds so appealing to save money but still get great workmanship that many people fall into the trap and hire the unlicensed contractor. However, the cheapest contractor available might be the one that will cost the most in the long run.

It is not surprising that an unlicensed contractor would be less expensive than a licensed contractor. Unlicensed contractors have advantages that enable them to provide the lowest prices. They do not have to pay licensing fees, they do not have to obtain a bond to protect their work, and more often than not they do not purchase liability or workers compensation insurance. Without these added expenses the unlicensed contractor can provide their services at a rate lower than the legitimately licensed professional.

It is true that having a contractor's license is not a guarantee that the work will be done well, or even properly. Since there is no guarantee that a licensed contractor will do a better job why should a homeowner or association care if the contractor has a license? The answer is simple--to protect the homeowner or association from a myriad of problems that could arise.
When is a License Required?

The Contractors State License Board, a division of the California Department of Consumer Affairs, governs the issuance and supervision of contractors' licenses. The State License Board specifies a number of classifications for licensing and sets the standards necessary to receive the license. The contractor can only legally perform the work associated with the classification of the license they hold. A contractor must hold a valid contractors license for any work that will cost more than $500 in labor and material for any work that would fall into the classifications set by the License Board.

Basic Protection
Many professions require a special license or admittance to an organization for that specific profession. Lawyers, doctors, teachers, and contractors are just a few of the professions that immediately come to mind. For those of us who have to obtain a license or join a trade association, it feels that the purpose of licensing may be to keep out competition from other states and to generate revenue for the state. But the truth is much simpler. Everyone wants at least a minimal level of certainty that their doctor is competent, or that their lawyer actually knows at least a little bit about the law. The general goal of professional licensing is to ensure that the person in the profession has a minimal level of competence in their field. Does this mean that a person with a license will be the absolute best at what they do? Of course not. It is a minimal assurance that the person working on your home has more experience than that gained by simply watching TLC and Discovery programs on home renovation and thinking that they can do that work.

Hiring a contractor that has a license also provides an avenue of grievance if a dispute arises. California Contractors State License Board requires mandatory arbitration for disputes under $12,500 (consequently the same amount that is required for the mandatory bond). A licensed contractor must participate in the mandatory arbitration in an attempt to resolve the dispute. With disputes between $12,500 and $50,000 the licensed contractor can opt for voluntary mediation to resolve the dispute. A voluntary dispute resolution process can be a much cheaper and less time consuming venture than litigation. If a dispute arises with an unlicensed contractor your only recourse would be to file a lawsuit. And if the unlicensed contractor is particularly shady, good luck finding them or collecting any award you might obtain.

http://www.berding-weil.net/newsletter/2010/12/59/