By Beth Mulcahy, Esq.
Have you ever heard the phrase “penny wise but pound foolish”? Over the years, I have seen some expensive mistakes made by association boards. One common mistake is trying to save a little money by hiring an unlicensed contractor. I’ve often found that, in the end, the unlicensed contractor ends up costing a lot more money for the association.
My advice… Hire licensed and bonded contractors for projects that under Arizona law require you to hire licensed and bonded contractors.
Here’s a good example of a construction project costing an association a lot more money in the long run than it should have. The property manager of an association hired an unlicensed contractor to install new rain gutters on the condominium building. The unlicensed contractor, who did not have workers’ compensation insurance, hired a person to perform some of the work at a contracted daily amount. When a rain gutter came in contact with a high-voltage electrical wire, the worker was severely shocked and fell, sustaining serious injuries. This case eventually came before an appellate court to determine which entity was considered the “employer” for purposes of workers’ compensation liability. The court determined that both the management company and the unlicensed contractor were employers of the injured man. Furthermore, the court found that the homeowners’ association was also liable as an employer based on the management company’s authorized actions in the association’s behalf. In this case, the association was required to compensate the worker for the worker’s medical bills, injuries and loss of income.
This case does have a moral – associations and property management companies should never hire unlicensed contractors (unless it is minor handyman work – see below for definition – or contact the Arizona Registrar of Contractor’s Office for clarification). Both associations and property management companies may be deemed “employers” and subject to liability for workers’ compensation benefits when an employee of an unlicensed and uninsured contractor is hired to work at an association. It should be standard procedure for contractors who work for an association to provide proof of a contractor’s license as well as proof of insurance prior to the start of work.
The Arizona Registrar of Contractor’s Office (www.azroc.gov or 602-542-1525) has a user friendly website with great information. Check this site for license and bond information and for complaints or disciplinary action against a prospective contractor. Where there is smoke, there is usually fire. So, if the contractor already has open (or closed) complaints, we suggest re-considering the use of that contractor. A contractor must have a current and active license, showing he or she is qualified to perform the type of work required, before he or she can even bid on a project. Violation of this statute is a class 1 misdemeanor.
The most frequently claimed exemption to the licensing requirements is that of the “handyman”. Arizona statute allows individuals who perform minor repairs or installations to do so without being licensed. To qualify for this exemption two conditions must be met: 1) The work does not require a local building permit; AND 2) The total cost of the project, including labor, materials and all other items does not exceed $1,000.00.
Finally, don’t forget to have our law firm review the contract between the association and contractor BEFORE the contract is executed. We can help protect the association by inserting association-friendly language in the contract to protect the association in the event of problems with the contractor down the road.