Contractors: Licensed, Bonded, Insured

As an entrepreneur, you may have run across the term “licensed, bonded and insured.” If you find yourself inquisitive as to what these terms mean, welcome aboard. Contractors or the owner of another type of service-based business frequently sign on to these terms to the general public but, what precisely do they mean as they seem to go hand-in-hand. What exactly is the difference between a contractor that is licensed, one that is bonded and/or one that is insured?

The following will give you a brief overlay of bonded, licensed and insured contractors. This will allow consumers to have insight into why each may certainly have its’ benefits when choosing someone to work for you. Let’s be frank, competition in the construction industry is brutal. Wading through contractors to determine the most qualified individual at the most reasonable price leaves many consumers baffled.

Licensed: A license implies that you have the necessary training and meet the requirements needed to complete the job you are attempting to get hired to perform. These licenses may or may not be required by state or local authorizes to ensure that the contractor has passed tests regarding their business practices, trade skills and ability to pay for the fees associated with the required license.

A transitory review with the Iowa Division of Labor indicates the Iowa does not have state licensing requirements for a “general contractors” license. However, any construction contractor who makes $2,000 or more a year doing construction work, “must register” online with the Iowa Division of Labor.

Conversely, Contractor's doing electrical, plumbing, HVAC, refrigeration, hydronics, fire sprinkler or fire alarm system work must be “licensed” by the State of Iowa.

In the State of Illinois “general contractors” must also register but are not required to be licensed. Yet, Wisconsin requires licensing and registration for “general contractors” in connection with home alteration, home improvements, commercial projects and public projects.

Bonded: Bonds are procured by contractors to prove their stability to customers. There are a variety of bonds that contactors can purchase to ensure they are trust worthy. These bonds are a contract between the contractor, the property owner and the bonding company. It ensures that the contractor has financial backing incase the project is not completed as stated in the contract. Common bonds that many contractors have are bid bonds, performance bonds and payment bonds, all of which will be discussed in a subsequent blog.

Insurance: Contractors are required to have insurance to cover their business for protection from financial losses related to events in the workplace. There are numerous types of business insurance to cover various types of losses, some of which are: property coverage, liability claims and Workers Compensation claims that may occur while completing work on a project. Many projects have written insurance specification requiring certain limits and requirements.

When hiring a contractor, it is usual that a contract is written which includes the bid and scope of work to be performed plus payment terms, along with procedures for changes in the contract. Prior to choosing a contractor to complete wok one should verify you are protected from wrongdoing. Always ask and receive certificates that state they are registered, licensed, and insured. If the status of these certifications is in doubt don’t feel pressured into hiring this individual contractor.