Condominium and homeowner Declarations and Bylaws often dictate that the contractor be qualified by licensure and insured. State laws vary on licensing and mandatory insurance. The burden of compliance rests with the association’s Board of Directors.
While licensure is mandatory in many states, an association should always investigate the contractor through a background check. References are not the most reliable form of verification as the contractor will not readily volunteer people who will not give a good reference. The best references are from association trusted sources. Likewise, the management company, if present, may also volunteer contractor suggestions. The suggestion should be considered; however, the same reference background check needs to be completed as if the contractor was a non-referral contractor.
One of the most important aspects of the background check is verifying the general liability and workman compensation insurance policies of the contractor. A certification should be issued to the association by the insurance carrier and update each time that the contractor is used. Failure to receive the certification could open the Association to legal risks for accidents or property damage occurring on the association’s property.
The insured contractor’s overhead is higher and those costs are generally reflected in quoted estimates. There is always the temptation to find the lowest costs and to assume liability of a non-insured contractor. The Association should exercise extreme care if venturing down this road. What seems like a great deal upfront can quickly change to a catastrophic event.
In the event that the association does use a non-insured contractor, the Association should insure that the Condominium Master Insurance Policy will cover contractor related accidents or property damage that occur on the premises. The project scope for non-insured contractors should not include structural elements of the association. The Association should use a liability limiting contract with the contractor, whether insured or not, and they should always use liability waivers upon completion of the project.
Overall, the Association must use a risk vs. cost analogy in determining whether a project can be safely assigned to a non-insured provider. Part of the risk assessment is to insure that the association’s own policy provides the necessary coverage and that the association is following an established risk reduction program. The Association should not use any provider that is not insured with structural elements of the Association. Structural elements includes, but are not limited too, roofing, load bearing walls, exterior wall repairs, support joists and foundation work, electrical, plumbing, and HVAC services.
It is recommended that the association use commercially insured and licensed contractors for their repair needs and if the decision is made to use noninsured or “handy-men” workers are used, that those workers only perform nonstructural work and that the risk reduction plan is observed.