by Quenda Behler
True, the temptations loom large and numerous: You're not good
at paperwork or taking tests, so why sit through a test for a
license? And why pay for all those building permits just so the
inspector can hassle you to death? Why carry all that
incredibly expensive insurance when you never have accidents?
Why do this stuff when you're competing with some guy who works
out of his pickup and doesn't spend money on any of it?
Good questions, all. It's hard to be competitive when you do
everything you're supposed to, yet know the system is rigged
against you if you don't. Okay, maybe "rigged" isn't the right
word. It's just that the system is geared to worst-case
scenarios and you probably already make an enormous effort to
avoid worst-case outcomes.
Following all the rules is like paying huge auto-insurance
premiums for years but never having an accident. Somehow you
feel cheated. It's not that you wanted a whiplash injury, but
who wants to spend all that money and not have anything to show
Let's address one issue at a time. Why bother getting a
license? First, if you want your company to grow beyond the
working-out-of-your-pickup stage, you'll find that the clients
with large jobs — the bigger remodels and houses that are
financed by lending companies, and the commercial work —
aren't interested in your bids if you don't have a
it's definitely worthwhile to get your license has to do with
the way most states enforce laws about contractor licensing.
Most communities don't have a staff to patrol building sites
and ask to see your licenses. But if a customer for a job worth
more than a certain amount of money doesn't pay you, state law
says you can't sue to collect that money if you have no
license. You may build someone a $10,000 addition, and when you
turn in the invoice, the customer can say, "Oh, gee, you aren't
licensed, are you? Guess I don't have to pay." And in many
states he can get away with it.
Still not convinced you need that license? Consider this: It
may be a crime in your state to work without one — a real
crime, as in jail time and fines. I don't know how many states
rigorously enforce this, but those laws are on the books in
many places, and states could enforce them if they wanted
Michigan, where I live, has adopted a property-tax law that
contains a huge disincentive to getting a building permit. It's
too complicated to explain here, but the point is that there
are customers who will go out of their way to find contractors
who will build without permits.
But so what? Why bother with permits and inspections anyway? A
couple of reasons: First, it's the law. Second, the release of
funds by the bank is often tied to the permitting and
inspection process; the bank won't pay unless all the documents
are in order.
Breach of contract. Here's
another source of motivation for getting those inspections and
permits: If your customer decides you didn't do the job right,
the final inspection permit is a terrific legal tool to use as
a defense against a breach-of-contract lawsuit. Your argument
could be that the job meets industry standards because the
building can be used for its intended purpose. The fact that an
occupancy permit was issued is proof that this is so.
And don't underestimate the value of the dispassionate eye.
When you have an experienced building inspector hanging around,
he's not in love with your work, and he doesn't get his
paycheck with your name at the bottom, so he doesn't have a
problem telling you if you're doing it wrong. Unless you're
hiring a construction engineer to look over your shoulder,
that's very useful information.
Here's one final reason to pay attention to both permitting and
licensing issues: If you don't, you're taking the risk that
someone in authority will show up on your job site and shut you
down. Yes, someone could do that: close the job right down. And
after that, anyone who comes on that job site and tries to do
some work while the permits and licenses are being straightened
out could be arrested.
Last, but not least on the money scale, are all those insurance
premiums: workers' comp, liability, comprehensive property
damage. And of course you design-builders should carry errors
What do you get for all this money? For starters, it could save
your business. If a tornado or a flood comes, if a neighborhood
kid cuts off his arm with the circ saw you turned your back on,
if your roofer falls onto the rebar that's sticking up from the
concrete — that's what insurance is for. These are all
events that could put you out of business if you don't have
that insurance. And they are events that happen all the
Is the insurance too expensive? Well, that's another question
for another time. The question here is: Do you need it? And the
answer is yes, you do.
Quenda Behler Storyhas practiced and taught law for more
than 25 years and is the author of The Contractor's
Plain-English Legal Guide