Let's See Your License Board Members Should Bone Up on Contractor Law

Let's See Your License

 People say “ignorance of the law is no excuse.” In the same vein, ignorance of contractor illegalities is no excuse—and no comfort—when something goes wrong. Association members are well-advised to bone up on  what’s important before they sign their names to a contract for repairs, renovations  or new construction.  

 The courts, unfortunately, are full of litigants who didn’t go that far.  

 Knowledge of bonds, licensing, workers compensation and insurance coverage may  not be a factor when someone accepts a board role, but before long, given the  nature of aging buildings and new projects, it can become essential. If a board  signs a contract with an improperly licensed or bonded company—perhaps to save on construction costs—the end result may be expensive; unfinished work, financial losses and months in  litigation.  

 If something goes wrong, not knowing enough about construction laws or contracts  could even result in board members being held responsible.  

 “Take steps to make sure the association is not held liable for any negligence of  the contractors,” David M. Lewin says. The former chairman of the Illinois Association of Defense  Trial Counsel’s Insurance Coverage Committee, Lewin has spent 20 years representing  contractors, owners and condominium associations. He writes extensively on the  topic on his website, www.chicago-construction-lawyer.com.  

 Thomas A. Bagley of Anderson, Bagley and Mayo (ABM) Insurance Agency, located in  Leominster, Massachusetts, says understanding your current insurance policies  is critical. “The first thing they need to understand is that most work that’s performed by a contractor is not itself insured under their contractor’s liability insurance. If there’s an issue regarding workmanship and quality, most of that is not insured under  a standard general liability policy; there seems to be a lot of misconception  about that. Contractors will advertise themselves as being fully licensed and  insured—and that’s a meaningless term. There’s really no such thing; there are many, many different kinds of insurance people  can purchase, and I have yet to meet anyone that’s purchased every type available to someone.”  

 Check the Subs, Too

 The association should be most concerned about whether the contractor carries  adequate general liability insurance and that its workers compensation  insurance is in effect, Bagley says. Look over the contractor’s Certificate of Insurance before the job starts, he urges. “And if the contractor is planning on using any subcontractor, they should  require that the contractor be licensed and insured as well.”  

 If the contractor says not to worry about subcontractors, and assures their  performance—that can and does happen—the concern is that “if the condo association is not directly receiving Certificates of Insurance,  they need to be sure they have a very strong contract in place with the general  contractor, and in particular be sure any contract they have with the general  contractor will indemnify and hold the condominium association harmless for any  claims arising out of the work.”  

 This level of preparation is a little unusual for smaller jobs and with smaller  condominiums, he says. His firm sees many informal, “handshake” agreements at that level. “They are undertaken with just a proposal; that’s not much to rely upon if there is a problem with a subcontractor.”  

 While there is recourse through the courts, it’s ultimately better to ensure that contracts are in place from the start. “But generally we are only seeing that on very large projects, where they  probably have professional management or an attorney who is actively involved  with the association.”  

 A small association can protect itself quite well by asking their own insurance  agent what they should be requiring of contractors, Bagley says. “An insurance agent can give them some advice as to what type of policy they  should be looking for; the insurer should be able to review a CI and help the  board understand whether the coverage is adequate or not.”  

 Ralph Noblin of Noblin & Associates Consulting Engineers in Bridgewater, Massachusetts, concurs, noting  that another pair of eyes—or more—is probably needed before agreeing to a contract.  

 “Your attorney can be very helpful in reviewing some of the paperwork; your  insurance agent can be very helpful,” he said. It’s not the best idea to leave it all in the hands of a property manager, unless  the board absolutely knows his skills. “A lot is asked of managers and a lot of them have the background—but some don’t. That’s not good with a $1.5 million construction project.”  

 “Licensing is very important in choosing a contractor,” agree Charles Minasalli and Tara Saxton of KTM Properties in Derry, New  Hampshire. “It ensures that qualified people are performing the necessary work,” they state, “and gives board members a sense of assurance that the work is being performed  according to state laws and regulations.”  

 Take Time to Read the Contract

 KTM operates throughout New England. Compliance with the laws can become  complicated, as every state has its own set of regulations, followed by towns  and cities with their own. Knowledge of those regulations is critical, another  reason that consulting with qualified people is important.  

 At the very least, they add, “We would advise the board to thoroughly read the contract and sit down with the  contractor so that they can go through each line item and get a full  explanation of the services being provided. This will help ensure that everyone  is on the same page before the work begins.”  

 It’s really too late once the project is launched.  

 Lewin warns that an association cannot control the means and methods of the work—it’s hands off, once it begins. “Don’t tell the contractor what to do. Don’t tell the contractor how to do it. Don’t lend the contractor equipment. Other than pointing out the area where the work  needs to be done and what time to start and stop, don’t give any instructions to the contractor.” Even the superintendent, ideally, should not be involved more than absolutely  necessary.  

 KTM holds that an exception may be made where residents affected by the work  being done ask to see the project agreement.  

 “If the scope of the work involves their living space, and they are the said  owner of the property, then yes, they should be privy to the contractual  agreements if they wish,” says Saxton. “We believe that a contract is not a secret, and if you are paying your condo  fees as requested, then you should, within reason, be provided with information  pertaining to the work being done in or around your property.”  

 Let the contracted firm do the work, without constant interruptions, KTM  recommends. “They also should not deviate, if possible, from the original scope, as this  often causes delays and holds up the project, (leading to) unexpected costs.  This is why it is important to discuss the job in great detail and hash out the  full scope in the contracting phase.”  

 Get the right people for the job, they also advise.

 “Any project, you want to know who the licensed construction supervisor is—not to be confused with someone with a license from the home remodeling program  (a contractors’ pool),” Noblin says. “To become a licensed construction supervisor requires passing a very difficult  test. It’s understood that if you want to be a major player you’d better have it.”  

 Proper insurance coverage and bonding are critical, agrees KTM. “We would not advise using unlicensed contractors; the quality of work is not  guaranteed, nor a warranty of the work. This could open the board up to legal  issues if the work is not performed properly and someone gets hurt. It could  also cost the board a lot more money down the road, if the work is not done  right and they have to pay a licensed contractor to come in and properly finish  the work.”  

 Know the basics, Noblin says. “Insurability is very big; the board wants to make sure that the association gets  a Certificate of Insurance from the carrier, and I always advise they verify  that the insurer is a real company, authorized to do business in the state. You  can do this online now. There are state websites with that information.”  

 Failing to do so is a critical risk. “Imagine if a company is not insured and, God forbid, somebody gets hurt or  killed on the job, or if damage occurs,” Noblin says. “Construction sites are dangerous by nature—anything can happen.” The multi-million-dollar cost of some projects nowadays can leave the  association in very bad straits, should they fail to obtain insurance and other  certification of coverage against accidents or errors. “Some contractors in this economy are hanging by a thread. And with some of these  houses you can have damage of huge magnitude. What are they going to do?”  

 Translation: the board is left holding the bag.

 Bonding is equally important, Noblin says. A member of the Community  Associations Institute (CAI), his firm works extensively with condominium  associations. If negotiations with Company A go sour after a few months and the  board has to start all over again, they may have lost the short window for  construction starts allowed by New England summers—and the next firm may cost much more money. “But a bid bond assures that, if this guy gets the bid, he’s going to follow through and actually do the job. It adds a lot more  seriousness to the project.”  

 Once rare in condominium construction, bid bonds are becoming more common,  Noblin says. “With a performance and payment bond, the insurance company will step in to  finish an uncompleted job.”  

 Another bit of critical advice Noblin provides: “Always get manufacturer’s warranties. That’s especially important in roofing and siding projects.” Some can be for 20 years or more, he says. “And get a minimum two-year contractor guarantee, stating the warranty on his  labor and materials is two years.”  

 Above all, Noblin says, “be vigilant. Someone who really knows construction needs to be in the middle of  this process from the start.” Engineers often perform that function. “There are some guys who become approved applicators for the very first time on  your job, because they portrayed themselves as being approved applicators to  get it. Would you want to be a surgeon’s first patient?”  

 Get it in writing as well. “Sometimes, in the course of getting the job, contractors will say they have this  and that warranty for products, but with a very large project they may get  called in after the fact.” He recalls a situation in which a contractor for a major project received 100  percent of the cost for a major labor warranty from the client, yet neglected  to issue it. Horrible scenarios can—and do—result. “Even the good, established guys can get buried with work; if you don’t have guys who know what they’re doing, you’re in trouble.”    

 Ann Connery Frantz is a freelance writer and a frequent contributor to New  England Condominium.  

 

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