In today’s soft market, hotel owners may cut corners to stay financially healthy. But trimming costs comes with risk and must be done carefully. When choosing a contractor, price, instead of professionalism, is often the deciding factor. Regrettably, many owners later discover that an unqualified contractor costs them twice as much because often the work must be redone. Worse yet, lawsuits can lead to financial ruin if an owner hires an uninsured contractor who is injured on the job.

To help ensure that a project is done correctly, on time and on budget, the contractor should meet standards set forth by the state. Licensing and insurance are required by most states.

Professional Licensing
Many states use professional licensing as a means to regulate activities that are deemed dangerous when performed incorrectly. In most states, construction professionals—including building contractors, electricians, mechanical contractors and plumbers—are required to have a professional license. Swimming pool contractors, roofing contractors and screen room contractors may also require a professional license.

Professional licensing is important because it helps to ensure practitioners are competent and ethical before they are given permission to practice. Because each state has unique professional licensing requirements, an owner must first research whether an occupation requires licensing and then research whether a potential contractor meets this requirement.

To ensure that a contractor’s professional license is active, owners should visit their state’s Professional Licensing Division website and view the database that contains the names of licensed (and previously licensed) professionals.

It is important to know that an occupational license is often mistaken for a professional license because the words “profession” and “occupation” are similar. The difference between them is this: An occupational license pertains to a business. A professional license pertains to an individual. Therefore, although an occupational license may authorize a company to engage in business, it does not authorize an individual to perform a licensed trade.

Contractor Insurance
Contractor insurance coverage is important because it helps protect from lawsuits arising from a project. Regardless of whether these lawsuits have merit, all parties named in a suit must spend time and money to refute the claims.

In construction, workers’ compensation insurance and general liability insurance are important not only to the contractor who purchases it, but also to the owner. A major difference between workers’ compensation insurance and general liability insurance is that workers’ compensation covers the employees of a company, while general liability covers the public affected by a company’s operation.

Workers’ compensation insurance
Because a construction jobsite has long been recognized as a site where injury can occur, most states require contractors to have workers’ compensation insurance. Again, workers’ compensation insurance helps protect owners from costs that may be passed on to them by uninsured contractors who are injured as a result of the project. A company’s workers’ compensation policy status, including any authorized exemptions, can be verified by the state’s Workers’ Compensation Division.

In an effort to reduce the cost of workers’ compensation insurance coverage, some companies run their employees through “leasing agents.” In this instance, the policy covers specific individuals listed on the policy and not all the employees of the company. To make sure that a particular worker is covered, you must verify that his name is on the policy for the dates he is working on your project. As an added precaution, you should look at his driver’s license to make sure that the name on the policy actually belongs to the person on your jobsite.

Authorized workers’ compensation exemptions
Even though workers’ compensation insurance is required by most states, provisions exist that allow exemption from coverage. For example, a state may allow a construction company to exempt some of its corporate officers. These exemptions are generally documented by authorized waivers.

Although these authorized exemption waivers protect against claims of injury from the exempted individual, problems arise when this person brings a nonexempt (and uninsured) helper to the jobsite. If this helper gets hurt, he may seek compensation from his employer and anyone associated with the job―including the owner.

General liability insurance
Whereas workers’ compensation insurance covers the cost of an employee’s job-related injury or illness, general liability insurance protects against claims from the public that result from a company’s negligent acts or products. General liability insurance generally covers both property damage and bodily injury. For example, let’s say Joe Public steps on a nail that was dropped on the sidewalk by a roofing contractor. If Joe Public seeks compensation, the contractor’s general liability insurance addresses Joe’s medical and disability expenses. The property damage portion of the contractor’s general liability policy protects from damages resulting from construction defects on a project.

Because general liability coverage, in contrast to workers’ compensation coverage, is not as strictly regulated by state law, state insurance divisions do not provide coverage information. Therefore, owners must ask the contractor to have his or her insurance company send the insurance certificate directly to them. This is a critical step toward assuring authenticity because forged certificates do exist.

The Building Department is the government’s first line of defense against unlicensed and uninsured contractors. Because hotel renovations, repairs and new construction are considered “commercial” construction and must be permitted, the Building Department will require the contractor to demonstrate compliancy with the laws.

Hire professionals
Because a low price is often uppermost on people's minds, it's sometimes a challenge to explain why professionalism costs more. But in the long run, an owner is better served to hire a qualified contractor who does the work correctly and in a timely manner.

Kia Ricchi (aka The Contractress) is a Florida-licensed building contractor and author of ”Avoiding the Con in Construction”. For more tips about construction contracting, visit www.thecontractress.com.