Some Keys To Success For Small Contractors

Posted by Tom Squeri on Mar 18, 2015


Tom Squeri, Vice President and General Counsel, Granite Rock Company

In the climactic scene of the comedy classic, Naked Gun: From the Files of Police Squad, villain Vincent Ludwig’s (Ricardo Montalban) plot to assassinate the Queen of England at a Los Angeles Angels baseball game is revealed.  Jane Spencer (Priscilla Presley) is shocked to learn Ludwig is an assassin.  “To think I respected you,” she says. “How could you do something so vicious?” Ludwig coolly replies, “It was easy my dear.  You forget I spent two years as a building contractor.”  The scene gets laughs, especially from the large segment of people who have had bad experiences with their own contractors.   Of course, there are many excellent, well-managed contractors doing very good work and delighting their customers.  But, as the joke about my profession goes, “it’s the 99% of you lawyers that give the other one percent a bad name.”  Talk to many owners who have lived through a new construction or remodeling project, and you will hear disappointment and frustration with the construction team.  Too many projects end in disputes with customers.  Many contractors abandon jobs or fail altogether. Even on projects completed without major problems, the customers may be a long way from satisfied.  The good news is that this state of affairs provides an opportunity for good contractors to rise above the rest.

How do small contractors avoid the disappointed customers, job disputes, poor references and cash flow problems that are common in our business?  In over 25 years of resolving construction disputes large and small, I have found that it takes more than doing quality work to win in the contracting business.  Customers certainly expect high quality work, but that is just the starting point.  In a series of installments, this blog will discuss ten things contractors—especially new or small contractors—can do to succeed.

First, Get the Requirements of Being in Business Done Right. 

Construction contracting is a highly regulated business.  This is even more true for home improvement work, a staple for small contractors.  It should go without saying that the first step for anyone in the business is to get a contractor’s license in the right classification.  Unfortunately, the requirement is widely disregarded.  In a one-day sting operation in Southern California (April, 2011), the Contractor’s State License Board issued citations to no less than a dozen unlicensed contractors who responded to a homeowner’s request for bids for painting and fencing work.

The penalties for contracting without a license are severe.  They range from criminal prosecution (those caught in the sting operation are to be arraigned on misdemeanor charges) to the inability to collect payment for work performed.  The law goes so far as to allow a customer of an unlicensed contractor to seek reimbursement for payments already made, even if the work was performed well and there are no other disputes.  Avoid these penalties by getting a license, getting the license in the right name (it must match your business name and form of organization; you can’t “borrow” a license, do business under your brother-in-law’s license, or start a corporation but keep using your personal license), getting the license for the classification of work you want to do (a landscape license does not allow you to do line voltage electrical work, for example), and keeping the license current throughout the course of your career (don’t let it lapse for any reason).  If disputes arise on the job, one of the first things a savvy customer may do is look for holes in your license history, and use the legal leverage that provides.

The License Law imposes other obligations on contractors, including regulating the amount of the up-front payment that can be demanded from homeowners, the terms of home improvement contracts, and the content of advertisements.  Contractors also need to know and follow the EPA and OSHA regulations for lead renovation, repair and painting (the RRP rule), asbestos abatement, and disposal of hazardous materials.  There are new rules controlling run-off of storm water from construction sites.  Failing to know and follow these laws can lead to big problems and unhappy customers.  One of the best ways to stay on top of these rules is to join a reputable contractors’ association covering your line of construction.  These groups often provide legal updates and education to help you navigate the maze of regulatory requirements imposed on contractors.  Good material suppliers also offer education to customers.  Get informed and follow the rules.

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