Change Orders / Cost Overruns / and Permits

Cost overruns from “Change Orders” occur when customers add work to original bids, and screw themselves from meeting original bid prices, or when they hire incompetent contractors that ignore building codes that must be corrected.

While Licensed builders are the lesser evil, there are plenty of unethical practices they inflict that eventually get a response from the CA License Board. As seen by similar Upselling-Scam bulletins, and employee certification efforts, desire of law is vastly different from compliance, and civil litigation to enforce consumer protection is costly and uncertain.


Leverage is a more elegant solution

If permit/inspections are scheduled city plan check can describe critical items that should be included on project bids. If contractors didn’t address those items in original bids, the owner can avoid disputes or Change Orders before construction begins. Owners may also request a limit to Permit scope, to make unrelated violations found on the property advisory only, except for fire-life safety issues, such as missing a $25 smoke detector.


Beware of Avoiding Permits

Besides voiding insurance policy after bad plumbing floods your home, or oversized fuses burn down the building, if losing bidders or neighbors notify code enforcement of unpermitted construction, or unlicensed contractors, inspection scope can be most costly. The city loses revenue, and risks being sued by property insurers, unless they revoke occupancy until permits are issued for the building-code inspections.


Owner-Builder Permits

For property owners to ensure no legal grounds exist for insurers to deny claims; liability, fire, & property-damage, a building Permit for renovations will shift liability to the municipality. However, since Supreme courts (1) punish cities that issue permits / inspections during licensing violations, the only unlicensed contractor that municipal inspectors in CA now tolerate are owners, family, or employee payrolls per CA B&P §7044.

(1) Lowe v. Lowndes County Building Inspection Department, 760 So. 2d 711 (Miss. 2000).

Unlike private home inspectors hired during purchases, to negotiate repairs, municipal-inspection Permits enforce fire-life Safety, building codes, and usually fail if unlicensed contractors are discovered and not removed. For cities that will allow it, the typical legal disclosures and warnings that must be acknowledged before Permits are granted to Owner Builders are shown below.

[   ] I understand a frequent practice of unlicensed persons is to have the property owner obtain an “Owner-Builder” building permit that erroneously implies no liability or serious financial risk exists for injuries sustained by an unlicensed person, their employees working on my property, or voiding my homeowner’s insurance due to their illegal activity. I willfully act as Owner-Builder, aware of insurance limits for worker injuries on my property.

[   ] I certify that, in the performance of the work for which a permit is issued, I shall not employ any person in any manner so as to become subject to the workers’ compensation laws of California, and agree that, if I should become subject to the workers’ compensation provisions of Section 3700 of the Labor Code, I shall forthwith comply with those provisions.

[   ] I understand if I employ or otherwise engage any persons, other than California licensed Contractors, and the total value of my construction is at least five hundred dollars ($500), including labor and materials, I may be considered an “employer;” subject to withholding payroll taxes, provide workers’ compensation insurance, and contribute to unemployment compensation for each “employee.”


Summary of the Law

No projects over $500.- can be legally done in CA by unlicensed contractors, and property insurance can void any associated claims.

Helpers hired by contractors are never covered by property insurances, since Workers Comp. is compelled by law, and property insurance can void any associated claims.

In 2016 the State License Board (CSLB) clarified checking a license number would show over 50% of all licensees have filed WC exemptions, for work not practical without employees.  To deal with this industry practice of workers’ compensation (WC) insurance fraud, a new law grants CSLB representatives the authority to issue citations, without a peace officer, or district attorney, presumably during SWIFT sting operations.  (CLC Newsletter, Winter 2015-16)

Case precedence shows that courts consider how property owners screen contractors for proof of required Workers-Comp. insurances, before determining who is liable for worker-injury claims and damages.

No contractor can assure the public against unforeseen disasters, or resulting litigation, but it helps to be conscious of the governing law, from which insurance legally denies claims, especially claims from uninsured helpers, or unlicensed contractors –work performed beyond the Tradesman’s license limits–.

Teaching prospects to screen out unqualified contractors, or referring them to licensed partners, demonstrate a willful refusal of work where licensing, or Workers-Comp. violations exist, and furthers the goal to leave no legal grounds for property insurance to deny claims.


Permit-Transfer Procedures

When city-plan check demands a State-licensed specialist, with full lien and binding contracts, Owner-builder permits may not be allowed. Consumers are then advised to begin the process of weeding out credit risks, corporate name changes, fraudulent license numbers or bonding, enforce down-payment limits, escrow accounts, and lien releases after each phase of the project. See Rebuilding After a Natural Disaster Video produced for the Contractors State License Board (CSLB)

Owners may wish to remove a contractor after discovering: 1) a registered sex offender in your home, 2) fake credentials or bonds, 3) credit risk or bankruptcy, 4) overbilling, 5) illegal labor, 6) going AWAL with your money & material, 7) or otherwise burning down the building. Finishing a project with alternate bidders requires a proper exorcism of the previous State-licensed contractor, their building Permit, and proving their contract breach.