Thinking about becoming a carpenter, plumber or some other type of contractor?
Then get your financial house on sound footing, or your business won't be the only thing you lose.In the past month, the state Division of Occupational Licensing has taken action against the licenses of four contractors who failed to comply with the Utah's financial responsibility requirements for contractors.
Construction contracting is the only profession regulated by the state that requires financial solvency to qualify for a license. That's because it's the only profession where a third-party (a homeowner) can be harmed by the financial problems of a tradesman, said Jud Weiler, construction licensing coordinator for the state Division of Occupational and Professional Licensing.
But a home, on the other hand, is property that can be encumbered by creditors of a financially troubled contractor.
For example, if a general contractor doesn't pay his bills for a project, then the unpaid sub-contractor or supplier can file a lien on the homeowner's property and force a foreclosure sale to collect.
It's not uncommon for homeowners to pay twice for construction work to avoid losing their homes over a delinquent contractor. To further protect the public, the state has set financial operating standards for contractors, one of which is to regularly demonstrate financial solvency.
The requirement has been in place for years, Weiler said, but the Legislature repealed it in 1987 along with other contracting laws. After finding they made a huge mistake leaving the profession unregulated, lawmakers put it back in force two years later.
The new version has more teeth than in the past, when a contractor's net worth was simply multiplied by a certain factor to determine the limit he could bid on any single project. Weiler said a bid limit per project still allowed contractors to extend themselves, so the new law restricts contractors to an aggregate amount that can be bid out at any certain time.
To find out what that limit is, the division has a computer model that will take a contractor's financial status - working capital, total assets and net worth - and determine the bid limit.
The division plans to have bid limits set for all contractors by July. After that, regulators will take on more auditing responsibilities as licensed contractors regularly submit their financial statements to the state to update their status.
Because the program treats each contractor individually, the only way someone could be denied a license is if he was financially "upside down when he came in," said division auditor Jim Adamson.
"We haven't prevented anyone from getting started and we haven't driven anyone out of business," Adamson said. Contractors are also asked to submit what they think their bid limit should be, and the computer estimate is usually fairly close, he said.
But when regulators began the process, they upset a few contractors who found they couldn't bid on as much work as they planned.