Simple Ways For Contractors To Protect Themselves

As we approach the end of yet another year, we thought that it would be important to highlight some of the simple things that contractor's should do - but do not always do - in order to protect themselves.

 

First and foremost, is licensure. We have written numerous articles in the past regarding licensure. It is of the utmost importance to make sure that you are properly licensed or you may be considered unlicensed. Remember that if you are considered unlicensed, many rights are lost because you are technically operating illegally. Your customer could have the right to collect any money that you have already received on a job, even if the work was perfectly executed.

 

Even if you are licensed, it is imperative that you are properly licensed for the correct type of license class for the specific work that you are contracted to perform. In addition, if you have a change of business entity (for example: sole proprietor to corporation), you need will need to obtain a new license. We have seen many new corporations without a license learn they are not able to collect even though its owners are individually licensed. You also need to report any change of officers or qualifiers in order to maintain licensure.

 

Maintain all paperwork and records properly! Starting with your Preliminary Notice. You should make sure that you receive copies of the Preliminary Notice from each subcontractor that you hire. If you are a subcontractor make sure that you send the Preliminary Notice to all of the proper parties so that you can protect your rights. Do not forget the construction lender even a prime contractor must serve the construction lender with a Preliminary Notice.

 

Make sure that any contract that you enter into is in writing, signed by all parties, and complies with the current California License Law and other laws - including using the correct names. You should keep a copy of each signed contract because that is your best defense in the event of a dispute.

 

Change orders should also be in writing and signed by your customer. You know that changes orders are a very common and important part of any job since they act as amendments to your contract. Having your change orders or your subcontractors change orders is writing and signed by the customer will help protect you if there are any disputes.

 

Other important record keeping is basically EVERYTHING that happens on the job! Keep a daily job log that documents what is done and any conversations with the owners, suppliers, and other contractors. Your payroll records need to be pristine as well. A digital camera is great for documenting any concealed conditions of situations that could arise in a claim; these days, your phone is a camera with enough clarity to document most conditions.

 

The reason any contractor takes the job is to get paid so make sure that any progress payments are paid timely and that you give or get the appropriate waiver and/or release on that progress payment or final payment so that there are not disputes. Never give an unconditional release before the payment covered by the release clears your bank.

 

If it turns out that you do not get paid, you typically have 90 days after you last did work on the job to record a Mechanic's Lien (or serve a Stop Payment Notice) in order to preserve your lien rights. Remember that this can be shortened! Once the Mechanic's Lien is recorded you then have another 90 days within which you will have to file your lawsuit. Make sure that you do not blow your chances of collecting by not meeting the statutory deadlines.

 

Follow the above for a much better chance of protecting yourself.