Licensing is one of those critical areas that can take a back seat when managing the compliance of your contractor network.
The reason is that virtually every contract contains language that requires the contracted company to maintain licenses to perform their work. To make matters worse, the contractual indemnification clauses provide an even greater false sense of security that license management is not needed. Because of the contractual clauses, we have the impression that it will not make much of an impact on mitigating risk compared to other areas of compliance, much less help with overall operations.
If your goal is to achieve trade license tracking benefits such as reducing legal, financial, operational, and reputational risks then it’s time to look at actively managing and monitoring your contracted networks’ trade licenses.
The added trade license tracking benefits are that you will find yourself with a contractor network that provides high-level quality work and a reduction in claims and liability while supporting your company’s name and reputation.
In many states, it is illegal to hire or contract with an unlicensed contractor. If a project goes bad or the contractor gets caught in a sting operation, you will risk taking on the legal liability.
Worse yet, some states will remove the protection of your contractor being an independent contractor if they are not licensed. For example, in California, according to Labor Code §2750.5, an unlicensed worker performing services for which a license is required is not an independent contractor. Each state is different, but one thing is for sure — hiring an unlicensed contractor leaves you more exposed to liability.
In the most severe cases, state attorney generals may file charges of corporate negligent hiring when using unlicensed contractors is a pattern.
Licensing was designed by government entities together with the trade associations to protect public health, safety, and welfare. More and more, states, counties, and municipalities are finding themselves fighting fraud from unlicensed individuals who are taking advantage of others by offering their services, collecting payment, and then not completing the work. This has led to numerous sting operations, which is getting news coverage, to identify unlicensed contractors, and many larger companies who are dispatching the unlicensed contractors are getting caught in the stings. Regardless of whether your contractors are committing fraud, it doesn’t hide the fact that governments are actively searching for unlicensed contractors and issuing citations for aiding and abetting to those that hire them to perform the work on their behalf.
If you have a large contractor network, you probably have a certificate of insurance (COI) management program in place. If so, then you are aware that insurance policies can commonly get canceled and you don’t always find out until it’s too late and you are stuck paying a claim. Most states and jurisdictions require proof of insurance to maintain a valid license. In many states and jurisdictions, such as Washington State, they verify directly with the state workers’ compensation fund that they are staying up on their quarterly payments and reporting of employees. If the contractor fails to keep valid insurance or remain in good standing, then the license will be suspended or revoked leaving you unknowingly dispatching unlicensed contractors.
Most states require that a licensed contractor provide a bond and/or participate in a warranty fund to cover faulty work. This is added protection for you and your customers. Dropping or canceling the required bonds is another reason why licensing boards will revoke or suspend a license.
Also, a licensed contractor can have their license suspended or revoked if complaints have been filed against them and the complaint involves a statutory violation. One of the most common complaints is failure to complete the job in a satisfactory or competent manner. Being able to identify when a license is suspended or revoked is a critical aspect of tracking and monitoring licenses to ensure that you utilize not only a licensed contractor but one that has not been suspended. This will help you develop a higher quality network that will protect your brand’s reputation and reduce legal and financial risks.
When you onboard a licensed contractor to your network, you know that you are bringing on a company that will perform at a higher standard. To be licensed, a contractor must complete a minimum number of hours as an apprentice, pass standardized tests within their trade, and complete continuing education courses to renew their license. Just like we know an employee who continually focuses on professional development will perform at a higher level, those that are licensed and continue to renew are learning new and better methods in their trade.
Like any other business, training leads to higher customer satisfaction. It is no different with a contractor network. The training they complete to be licensed will lead to higher quality work which will, in turn, create customer retention and loyalty because they will be pleased with the work. Additionally, companies that take the time and money to be licensed will generally run a better business; they do not cut corners. Overall, the contractor will be a better face for your company and generate loyalty for your company name.
When the work performed is completed by someone with the proper training, then there will be fewer accidents and more first-time resolutions. How often does a water distribution line or sanitation drain get incorrectly attached and cause damage? You will naturally see a decline in claims and complaints when your contractors know what they are doing. If the contractors do not maintain their continuing education credits, then this will also cause a license to go into a suspended or revoked status.
If you are seeking trade license tracking benefits such as improving operations and reducing risk, then actively monitoring and tracking licenses is an area to focus on. Not only will it help close the gap on potential liability and claims but it will ensure that you have quality contractors who will have higher standards of competency, ensure they are meeting government standards of protection for the customer and will protect, and even improve, your company name.
About PlusOne Solutions
PlusOne Solutions has been an industry leader in the risk management field by specializing in compliance programs that meet the complex challenges of geographically dispersed contractors, vendors, and employee networks. PlusOne Solutions protects companies from possible financial, legal, and reputational risks associated with contractor and vendor relationships while creating safer work environments. To learn more, visit https://plusonesolutio.wpengine.com.
Contents are provided for information purposes only and should not be construed as legal advice. Users are reminded to seek legal counsel with respect to their obligations and use of PlusOne Solutions services.
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