How To Verify Contractors Before Hiring: 5 Simple Steps
It’s a scenario many business owners have been in: A storm damages your property. An old building finally springs a leak. You need to upgrade your office space. Whatever your reason, you need a contractor. Hiring established, local contractors with great reputations will keep you from throwing good money away on bad work. The best contractors may not be the cheapest, but they will be much more affordable than paying to repair shoddy work. This article lists hiring best practices, including how to verify a contractor’s license and other information so you can be sure you’re getting the best one for the job.
1. Research Qualified Contractors
Your first step is always to do your research. You’ll want to find a contractor with at least five years of experience in the specific type of work you need. For smaller projects, you can find that out by looking on their website or the old-fashioned way: calling around and asking.
For larger projects, you can also hire a firm that will oversee the entire process. In addition to designing your project and outlining what you need, they can hire a manager who will handle:
- Hiring and managing contractors and subcontractors
- Getting the right materials and ensuring quality
- Investigating any zoning rules that apply to your project
- Applying for permits and licenses
2. Confirm Licenses and Insurance
Once you have a list of qualified contractors, your next question should be, “Is my contractor licensed and bonded?” First, check that each contractor has the appropriate insurance and licenses for your area. (Hiring a contractor with no insurance leaves you vulnerable if they cause property damage or don’t finish the job.) Here are the most common terms you’ll encounter:
- Licensed means they have a trade license that meets your local regulations. The requirements vary by state and city, but they typically need to pass an evaluation and prove they have insurance. You can verify licenses with your local contractors' association or building department.
- Registered means they’ve paid a fee to the state or local government and proven they have insurance, but haven’t had to take any tests or classes.
- Insured means their work is backed by an insurance provider. This is a minimum requirement for any contractor. So how do you check if a contractor is insured? It’s easy: Have them give you a certificate of insurance. Many states also have contractor insurance lookups you can access online.
- Bonded helps ensure the contractor will complete the work up to a reasonable standard. Where insurance protects you from damage the contractor is legally liable for, a bond protects you from the poor work itself. Many specialty trade contractors are required to purchase a bond as a requirement of their license.
Ultimately, you don’t want to proceed with any contractor who won’t back up their work, either through insurance or bonds.
3. Check References
While it’s important to know how to check if a contractor is licensed and insured, you’ll likely find many contractors fit these criteria. Another way to narrow down your list is to check references. You should:
- Contact the Better Business Bureau to see if any complaints have been filed against them and to get more information.
- Ask the contractor for at least three previous clients with similar jobs.
- Contact every reference and ask them if they were happy with the timeline, budget, and overall quality of the work.
4. Evaluate Bids
Once you’ve checked references, it’s time to identify your top three picks and request bids. To get accurate bids, you’ll need to provide a detailed description of your project, including:
- A description of your business
- The goal of your project
- Your desired timeline
- Your expected budget
- Any materials you already have
- Anything you want to emphasize
Contractors’ responses should include the types of materials they plan to use, as well as costs and timelines. That way, you can evaluate each bid based on quality, not just cost. Remember, good work from a licensed, bonded, and insured contractor might not be the cheapest, but in the long run, it can be a better bet than poor-quality work that you need to have redone.
5. Establish a Comprehensive Written Contract
In addition to knowing how to verify a contractor’s license, writing the contract itself is an essential business skill. Like a bid, it specifies the work to be done. Unlike a bid, a contract is legally binding. It should include:
- A detailed description of the project, including blueprints and other plans
- A list of materials that will be used
- A timeline, including start and end dates
- The total budget
- The payment schedule
- Confirmation of permits, insurance coverage, and bonds
- Information on guarantees or warranties
- An outline of how disputes will be resolved, like arbitration or mediation
Contracts can go through many rounds of revisions, so be sure to review it carefully before everyone signs on the dotted line. Beware of any language that requires you to “indemnify, defend, and hold a contractor harmless” for personal injury or property damage resulting from their work. Better yet, have an attorney review the contract and answer your questions.
Pro Tip: Maintain Your Own Liability Insurance
While it’s always good to ask yourself “Is my contractor licensed and bonded?,” the truth is that your contractor’s insurance may not fully protect you if you’re sued due to their poor work.
For example, imagine your contractor uses a subcontractor to complete part of the job, like building a stairway. A customer then injures themselves on the stairway due to a loose handrail, and sues you for personal injury. Because it was a subcontractor’s work, your main contractor’s insurance may not cover it. And if the subcontractor is uninsured, that could leave you on the hook financially.
That’s why you also need your own comprehensive insurance coverage. Taking out your own liability insurance provides additional protection for whatever your contractor’s insurance may not cover—and that’s just smart business.
The Bottom Line
You should always follow the steps above to verify a contractor’s license and be on the lookout for predatory contractors, who may swoop in after a storm promising you the world. Remember that if something seems too good to be true, it probably is. And the peace of mind you'll have knowing you've hired a trustworthy contractor is worth the extra effort.
Have more questions? Need to find your own business insurance? Contact the experts at LandesBlosch for help. We’ll help make sure you’re covered, whether your contractor is licensed and bonded or not.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.
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