Change Orders / Cost Overruns / and Permits

Cost overruns from “Change Orders” occur when clients add work, increase project scope & screw themselves from the original bid price. 

A common industry practice between contractors  & owner builders is the unqualified help doing the work; either in training without proper payroll reporting, or missing Workman’s Comp  insurance entirely.

Building permits with municipal inspectors often fail to police qualifications during inspection.  Inspectors must tolerate multiple failure attempts before a pass, and are indemnified from their own errors & omissions resulting from lack of Continuing Education Units (CEU), or improvised interpretations of building code.

With the industry practice engaged in Upselling Scams, identified by the CA License Board (CLC Newsletter, Summer 2014), (CLC Newsletter, Summer 2016) Re: HVAC bulletin, and with unqualified-employee certification failures (CLC Newsletter, Fall 2010), the desire of law is vastly different from defacto compliance, and civil litigation to enforce consumer protection is costly and uncertain.

Leverage is a more elegant solution

The other Authority Having Jurisdiction (AHJ) described in the National Electrical Code, NFPA-70 §90.4, are insurance inspectors with cause to disqualify claims. 

If missing any required licensing, product listing, smoke, or A/GFCI device, technically violates the law adopted by property-insurance policy, it won’t matter who installed it, or who passed the inspection.

Insurance policy only needs evidence of a violation to void claims, or cancel the policy entirely, and property owners provide that evidence when claims are screened by recorded phone interviews.  If theres any insurance settlement, regardless of re-building costs, any existing mortgage balance is still due regardless of casualty losses.

Just like demanding a copy of contractor’s Workmans Comp. certificate for their helpers may avoid losing property to helper-injury claims, demanding your contractor prove General Liability coverage may avoid a total loss.

The common Certificate of Additionally Insured from a General Liability policy allows victims to file claims any time, regardless of contractors that disappear, go out of business, change names, and/or license numbers.

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 construction lacking Permits, 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, a building Permit removes one legal cause.  Since Supreme courts(1) punish cities that issue permits / inspections during licensing violations, the only unlicensed contractor that municipal inspectors 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 not supposed to pass if license violations exist. 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. are legal in CA with 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.

The industry mandate to pass inspection fails to avoid other legal grounds for property insurance to deny claims.  The best leverage for property owners attempting renovations or remodel is proof of Workmans Comp Insurance, and a Certificate of Additionally Insured from the contractors General liability policy.

Permit-Transfer Procedures

Owners may wish to remove a contractor after discovering a registered sex offender in your home, fake credentials or bonds, credit risk or bankruptcy, over billing, illegal labor, or after realizing the helpers wiring methods could burn down the building. 

During the Permit process, consumers are advised to weed 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)

Failure to get 3 bids while screening contractors may result in finishing a project with alternate bidders.  If anyone is willing to assume the leftover mess, a proper exorcism of the previous contractor’s building Permit will be needed, perhaps with proof of contract breach.