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First of all lets explore the benefits of hiring a Licensed Contractor. Contractors must be able to demonstrate some level of competency within the trade they are licensed: most states require experience ratings and testing. They must be bondable and insurable. Think of it as an attempt to protect the consumer from deceptive practices and shady craftsmanship. So how does hiring a contractor work for you the consumer? Bonding is simply a method of protecting the consumer from financial loss: there are many types of bonds used in the construction industry. Insurance on the other hand is generally used to protect the contractor by providing financial protection should a loss occur. This could include
property damage, personal injury, bodily injury and many other risks associated within the construction industry. Contractors are also required to have a Warranty period (In Arizona that is 2 years).
Dont assume all contractors are up to date and current on their bond and insurance. It is up to the consumer and/or general contractor to ask and see proof: in some cases, ask to be additional insured if it is a requirement. It is best to ask for these policies before work begins.
Although hiring a contractor provides the least amount of risk there is some areas of contracting you should understand and how these trends could effect you. There is a term in the construction industry called "tier contracting" this is where a licensed contractor works as a sub for another contractor who works as a sub for another contractor and so on. This contracting model is often used by large corporation (big box stores) who deal in low to medium range products. The lure of lower prices and installation cost drive this model. In order for this model to work there has to be some sort of inflation built into the price. Generally these prices are offset through some offer or promotional strategies such as: "buy one get two free, free upgrade, free installation, or no interest. What ever the strategy is to get you committed to the sale. Although the sales team does not physically work on your project, they re considered the first tier of the project because they represent the licensed business.
The contract is now referred to a large contracting service that is often located in another state but has a license to contract in the state where the work is to be performed. This contractor you will most likely never meet unless something goes wrong and there is a problem. They may send you some information about their service and facilitate extra charges and final billing. As a second tier contractor they control the specifics stated in their contract and require the most compensation. This contractor does not use employees to perform the work but seeks out a third tier contractor who is properly licensed, bonded and insured. The third tier contractor assumes the work to be performed stated in the contract but is controlled by the second tier contractor and is paid a substantially less rate.
The third tier contractor could be good or worst case scenario. Since 75% of your installation fee has been distributed before work has begun on your project the third tier contractor either works the job himself usually for less then half the industry rate or negotiates with another person to perform the work. This person is usually not an employee because there is not enough money leftover for workman's comp insurance and employer tax obligations. This person will have to work as a 1099 contract on a percentage basis. Persons working under a 1099 contract do not have to meet any licensing standards and therefore, usually have no contractors license, insurance, or bond.
How can you protect yourself and your property? Simply ask the right questions....
1. Who will be working on my project?
2. Are they a licensed contractor or an employee?
3. Don't assume they have the right insurance coverage so ASK.
4. If they are using employees ASK if they have workman's comp insurance.
5. ASK if any additional charges are necessary and get it in writing.
6. ASK about Warranties and understand the terms of coverage
7. ASK who is liable should damage occur
8. ASK for additional contact information on who is overseeing the project and who takes the complaints if necessary.
9. ASK who will do the follow-up after completion.
10. ASK how to care for your investment DURING the warranty period and thereafter.
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