Protecting Your Right to Payment: What Contractors Must Know in the Wake of Hurricane Hilary

As a disaster recovery contractor, you play a vital role in helping communities rebuild after a devastating natural event like Hurricane Hilary. Your dedication to repairing and restoring homes and businesses is commendable. However, rushing out to address the damage can lead to some legal and financial pitfalls if you don’t carefully navigate California’s labyrinth of consumer protection regulations. It is essential understand and comply with the statutory requirements to ensure you are paid for your services. Here are some crucial points to consider:

1. The 7-day Notice Requirement
In the event of a state of emergency declaration, California law mandates that contractors provide a residential customers with statutory 7-day notice before commencing work. This notice is necessary to preserve your right to payment of your contract price. To comply with the regulation, make sure the notice is word-for-word from the California statute and is accompanied by two cancellation notices. Failing to provide the correct notice can jeopardize your right to payment, so be diligent in following this step. For a complete set of forms and instructional video, check out The Book on the California Right to Cancel.

2. Licensing Requirements
California has stringent contractor licensing requirements. If you’re removing building materials, you need to have a valid contractor’s license in the state. Working “under someone else’s license” is only permissible if you’re a W2 employee of the licensed contractor. You cannot operate as a “subcontractor” unless you hold the appropriate license to perform the work. Bear in mind that out-of-state licenses are not recognized in California, and performing work without a license is a crime. If you work without a valid license, you are entitled to no compensation for your services. Avoid legal trouble and make sure you meet all licensing requirements.

3. Confirm Insurance Coverage
Don’t assume that property owners have insurance to cover flood-related damage. Many California homeowners do not have flood insurance, leaving you at risk of not being paid for your work. Before you begin any project, confirm the existence of coverage with the property owner. If no one can commit to paying for the work, it’s advisable to move on to another project. There is plenty of work to go around, and being selective can help ensure you get paid for your efforts. Keep in mind that roof leaks may or may not be covered by insurance, so check with the insurance provider before starting repairs in this area.

4. Execute Fixed Price Contracts for Residential Work
Time and materials billing arrangements are illegal for residential work in the State of California. For those who wish to protect the right to payment from the property owner, occupant, or policyholder, there must be a signed contract that states a fixed price in dollars and cents. Attaching a price sheet is insufficient. “TBD” or “per Xactimate” are also insufficient and could lead to the ruling that the contract it “illegal,” which will make collection difficult. Get fully-compliant California contract forms here.

Quoting lump sums on emergency work is easier than many contractors think. The key is to agree to a very limited scope of work at the outset. Do not execute a scope of work “to return the property to its pre-loss condition” for a lump sum unless you are confident you can earn a profit at that price. Then, simply determine a lump sum price for the very first phase of the work, and memorialize that in a written contract signed by the residential customer before any work begins. Before the work, begins on every project, someone will make a decision about how much equipment will be placed and how much labor will be expended. This is the “first phase” of the work. It is a known quantity and a price can be generated for it.

If you cannot quantify the cost to return the property to its pre-loss condition, before signing the contract, explain to the customer that the State of California requires you to give a lump sum price but that you are only able to quote a lump sum for the first phase of the work. Explain that you will return on day two or day three to monitor the progress and offer a change order, as needed. California residential customers have the right to decide in advance how much money they will spend. Thus, a change order should be executed before change order work begins. If they won’t agree to pay a specified sum for additional phases of the work, take your crew to another job, or risk working for free.

Your work is vital in helping communities recover from natural disasters, and it’s essential to protect your legal and financial interests by following the necessary regulations. By providing the required 7-day notice, ensuring you hold the appropriate contractor’s license, contracting for lump sum prices, and confirming insurance coverage before starting work, you’ll be better positioned to get paid for your valuable services.

Stay vigilant, and thank you for your dedication to helping those affected by Hurricane Hilary.

General information. Not intended as legal advice.