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Working with contractors is common in the construction industry. Contractors perform a range of jobs and multiple contractors may be needed to complete a construction project. Additionally, contractors may hire subcontractors to complete certain tasks as part of the duties they have been hired for.
Understanding exactly what a contractor is and what they do is essential if you want to make sure your business has the right insurance. Whether you want to hire contractors or you are a contractor yourself, it's important to understand what being a contractor means and how they fit into a construction project.
When you're familiar with the definition of a contractor, your next step is to check what insurance may be required if you hire one or act as a contractor. So what does a contractor do and how do you work with them?
Contractors are people who are hired to carry out specific tasks for projects. The word could refer to an individual or might refer to their business or company. There are multiple types of contractors and terms that are used to distinguish the roles of contractors. These include general contractors, independent contractors, and subcontractors. Contractors work for themselves, although there are times when they could be viewed as employees of a company.
One of the things to consider when defining a contractor is that there can be differences in the definition depending on context. An independent contractor for tax purposes might not be an independent contractor for insurance purposes, and possibly even vice versa. Employees and independent contractors are taxed differently, so it's important to know how the IRS defines an independent contractor. It's also necessary to know whether someone is an independent contractor when it comes to insurance, as it is an employer's duty to provide workers' compensation for their employees but they aren't necessarily required to for independent contractors.
In terms of how the IRS defines independent contractors, it is based on how much control the contractor has over their work, how their finances are managed, and their relationship with the client or employee. Employees are required to be provided with benefits, and employers must withhold payroll tax for employees, whereas they don't need to with independent contractors. It's important to check if your state's workers' compensation rules may say something different about who should be classified as a contractor and who counts as an employee.
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A general contractor is a type of contractor that is hired to oversee a construction project. It's essentially their job to manage the project, and they will have a team of employees or will hire subcontractors to carry out various tasks during the project.
So exactly what do general contractors do? General contractors fill a number of different roles to ensure the construction project goes smoothly.
They may be handling a range of tasks to manage and monitor the site, and generally oversee everything. Some of the tasks that general contractors may be responsible for include:
Negotiating with clients
Daily managing and monitoring of the construction site
Communicating with vendors and tradespeople
Being the main point of contact on the project
Supplying and/or overseeing the physical labor of the project
Monitoring the quality of work and schedule for the project
Managing financial aspects of the construction project
Keeping records during the project
General contractors will typically have their own insurance, and their clients will ask them for a certificate of insurance. Occasionally, the client might add the contractor to their existing insurance policy.
Subcontractors are hired by contractors as a way to outsource certain tasks. For example, a general contractor might be hired to build a house. That contractor might hire subcontractors to complete certain parts of the build, from preparing the foundations to installing the roof. Subcontractors have a specialty and typically focus on one area of work, whether it's plumbing, electrical work, carpentry, or anything else.
Subcontractors might have their own insurance or could be insured by the general contractor on some occasions. The client could also take steps to insure a subcontractor, and will typically pass the cost onto them.
The right protection and insurance are important when hiring a contractor. One of the main ways contractors protect themselves and their clients are through the use of bonds. A surety bond provides a guarantee that the contractor will fulfill the agreement made in a contract. It's a three-party agreement that includes the principal (the business buying the bond), the obligee (the client requesting the bond), and the surety (the company that underwrites the bond).
If a contractor is unable to fulfill the contract, the surety reimburses the obligee. However, this is different from an insurance policy as the surety then expects to be reimbursed by the principal after they have made a payment.
Contractor bonds or construction bonds are also often used to guarantee government-issued building permits. This type of bond can provide protection if something goes wrong. For example, if a plumber installs a water pipe that later fails, the client would be able to make a claim against the bond to pay for repairs and damages.
Choosing the right contractor for any job can be a long process, with multiple factors to look at. One of the most important things to consider is whether a contractor is licensed or not. However, understanding what exactly it means to be a licensed contractor is essential if you want to make the right choice. It is possible to hire an unlicensed contractor, although there may be some types of licenses that are legally required.
A licensed contractor holds a license that demonstrates their professionalism and training in their field. Generally, a license will indicate that the contractor meets certain industry standards, showing that they are capable of carrying out work in a safe way, with high-quality results. An unlicensed contractor might do a good job, but they're not offering you the same guarantee that you can get from a licensed contractor. Unlicensed contractors may not even be able to get the job done properly, as they may be unable to do things such as acquire permits.
Many people can find the idea of hiring an unlicensed contractor appealing because they offer lower quotes. But this could come back to bite them later if something goes wrong, especially if the contractor doesn't have the right insurance. It's much better for the contractor to be both licensed and insured to protect the client and the contractor too. An unlicensed contractor is unlikely to have liability insurance or workers' compensation, which means there won't be an insurance policy to make a claim against if anything goes wrong.
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If all goes well with a construction project, everyone can walk away happy. However, there are times when the client might not be happy with the results. But what do contractors do when something goes wrong? What responsibility do they have to put things right? And what can the client do to make sure that it happens?
When a contractor has produced poor work, they haven't met the terms of their contract. The first thing to do would be to ask them to make it right. This could result in the contractor fixing the work to give you what you want. You could also choose to fire the contractor if you don't want them to continue working for you.
It might also be a good idea to see if you can file a claim or complaint. The contractor might have a surety bond or a form of insurance that will allow you to make a claim. You can get a copy of the contractor's surety bond, if you don't already have one, and file a claim for the cost of damages or repairs that might be required.
Other options may include requesting arbitration or mediation, going to small claims court, and hiring an attorney to help you.
If you feel that you have been ripped off by a contractor, you can take similar steps to when they do poor work. There are many reasons you might feel ripped off, whether it's because the contractor took your money but didn't complete the work or because their work doesn't meet your standards.
If the contractor is licensed, you can get in touch with your state's licensing board in addition to filing a claim with their bond or insurance company. You can also look into legal options for making things right, such as going to small claims court or hiring a lawyer for a civil case.
When hiring a contractor, it's always smart to check that they have the right insurance and protection so that you aren't left with unexpected expenses.
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