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4. Why Licensed, Bonded, and Insured Matters: Protecting Yourself as a Consumer
86 Plays1 year ago
In Episode 4 of Exposeco’s podcast, Brian and Paul Tarpy delve into the significance of hiring contractors who are licensed, bonded, and insured. They break down these terms, explaining why each aspect is crucial for consumer protection. From the importance of workers' compensation insurance to the role of bonds in safeguarding against incomplete work, this episode highlights the hidden risks in home services and how to navigate them. Tune in to learn how to make informed decisions and avoid potential pitfalls when hiring contractors. Don't miss the real-life stories and expert advice that can save you time, money, and stress.
Website: Exposeco.com
Tags: #podcast #ExposecoPodcast #HomeServices #ConsumerAdvocacy #ContractorTips #HomeImprovement #HVAC #ServiceCalls #HomeRenovation #SmartShopping #HomeMaintenance #EmpoweredConsumer #Proposals #ConsumerProtection #InformedDecisions #BrianTarpy #PaulTarpy #ContractorAdvice #EstimateTips #HomeRepair #consumereducation #HomeImprovement #LicensedBondedInsured #ConsumerProtection #HomeServices #ContractorTips #Exposeco #HVAC #HomeSafety #PaulTarpy #BrianTarpy
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Transcript
Introduction of Hosts
00:00:15
Speaker
Hey, welcome to Xposed Co. Episode number four. I'm b Brian Tarpy. I'm here with my partner and co-host, Paul Tarpy. Paul, how are you doing tonight? Doing great. Excited to be here.
Why Licensing Matters
00:00:28
Speaker
And I am refreshed and excited about the topic we're going to be talking about tonight. Awesome. Awesome. Love the energy tonight.
00:00:37
Speaker
We wanted to talk about it. It was funny. It just came from my wife and she saw a company advertising that they were licensed, bonded and insured. And she asked me, why does it even matter? Why would it even matter if they were licensed, bonded, insured? Like what's at risk in this whole, in this whole thing?
00:00:58
Speaker
That's a great question because a lot of that is pretty confusing. If you look at it license, what does that have to do with me? What does that mean? It just seems like a certification, right?
Licensing Requirements in California
00:01:10
Speaker
Bonding. People don't need, a lot of people don't know what a bond is. That's another pretty confusing term. People understand insured, but are insured in what way? Does that help the consumer or is that just helping the contractor?
00:01:25
Speaker
And why does it all matter? We're going to break this piece by piece and we'll start out with licenses in as this, as a HVAC, old i ex-business owner being licensed was, was the, was the card of being legitimate in this state of California.
00:01:43
Speaker
And in light, in some states, I believe I'm not a hundred percent sure that they don't even necessarily require you to have a license to be able to perform heating and air conditioning. But the majority of states do require it. And what that does is the state is requiring you to carry the proper insurance to make sure that consumers are protected.
00:02:11
Speaker
And they hold the contractor accountable to making sure those are active. First off, in order to get a license, they have to show that you have to show that you have competence and also work history in the trade. And then they make you take a test.
00:02:27
Speaker
showing them that you have the knowledge to be able to perform the trade that you're trying to get a license for. So that's step number one. Once you pass that test to show that you have the knowledge and that you're capable, you understand the trade and that you have the years of experience to be able to provide that service.
00:02:48
Speaker
Then you get past the test part. In California, there's two tests. There's one that's a a trade specific and then there's a law in business and they require those two tests. One is actually understanding different things about the trade to make sure that you understand the knowledge of the trade. The other is making sure that you understand the laws that you have to abide by in the state that you're doing business in and the requirements. So.
00:03:17
Speaker
Both of those are important. Does the state provide a great test? No, but it is, I believe overall a good thing that the state does that.
Consumer Protection Measures
00:03:29
Speaker
It does protect consumers and it makes sure that people are really doing what they should be doing to make sure that consumers are protected.
00:03:38
Speaker
Now, the state isn't perfect because somebody's insurance could not go paid and the state wouldn't find out for a good amount of time, could basically have lost their bond or not paid their licensing fees or whatever. There's a number of reasons why the state wouldn't catch a contractor But it's a good check it's a good basic check when they do issue a license if you have employees they will require you to carry workers compensation insurance so this is a license bond and insured so this is the insured part right so a lot of.
00:04:20
Speaker
When in California, just California specific, I'm just going to speak on this state, but a lot of states follow after California, actually with their requirements. So when somebody becomes licensed, they're required to be bonded and they're required to be insured. So that whole statement is a little bit of a marketing term because those three things are required to to hold the license. So if they're if they truly are licensed,
00:04:49
Speaker
Legitimately, they are already bonded and they are already insured, but they want to be able to push that out of marketing material to make people feel a little bit more warm and fuzzy inside about doing work with them.
The Role of Bonds in Contracting
00:05:03
Speaker
Now to jump over to it what a bond is. So a bond is something that you pay for.
00:05:13
Speaker
as a contractor to protect consumers from you walking off the job or not paying your materials bill or something that would go back and fall on them even if they paid you or if you failed to perform. A bond is there to protect the consumer from a contractor walking out on them, not completing a project, going bankrupt,
00:05:42
Speaker
Now in the state of California, I believe it's 15 or $20,000 bond. And I'm not a hundred percent sure, but I believe it's only a one time use. So if a contractor walks out on your job.
00:05:58
Speaker
And then he walks out on three other people's jobs. Whoever files for that bond first is going to get their $15,000 to $20,000 back. So the bond is there to protect the consumer from losing all their money and having a contractor walk away from them. It's like an insurance policy for the consumer. But most bonds are one time use, so they ah could have a maximum payout of $15,000 or $20,000.
00:06:28
Speaker
to one person. I want to share one brief story about a bond situation And just tell me what you think about it. We recently hired, uh, as our church hired somebody to do a heating air conditioning gig and they ghosted us. They did half the job, but we paid them a hundred percent of the money. So big mistake right there. We paid them a hundred percent upfront. It was like a friend of a friend. but We didn't do a great job of vetting them. Exposedco wasn't around at this time.
00:06:59
Speaker
And anyway, I'm just, as just as we're having this conversation, I'm thinking, man, since they ghosted us, is there a way in which we could file to file for their bond? Absolutely. That's what the bond's there for. Now, what people need to understand is if somebody's totally ghosting you or they're, they walked out on your job, they didn't complete it. They didn't do what they said. They took your money.
00:07:29
Speaker
The best thing you can do if they wanna stay a legitimate contractor is you go to the contractor's license board and you file a complaint. You're gonna need to write bad reviews on every site possible until they respond. That's gonna be the first thing that they're going to need to do to get a good response from the kind from the contractor if he cares about his reputation.
00:07:55
Speaker
Then the thing that's going to take a little bit longer is the license board, but it's going to have the most impact because that will stop him from doing business if he doesn't rectify it. Then the bond, you just file a claim with his bond. there The bond information is on the license board.
00:08:14
Speaker
wow And the state of California makes you do that, makes you ah provide a bond. So you have to do that. Now, I believe other states do that, but I'm not privy to every single state offhand, but it's pretty easy to do that research to find out.
Importance of Insurance for Contractors
00:08:29
Speaker
Now, insured, there's a couple different insurances that, actually there's a lot of different insurances out there, but the ones you need to be worried about the most as a consumer is, does the contractor hold workers' compensation insurance and also general liability insurance?
00:08:51
Speaker
Most contractors, if they have employees, their license, they should have workers' compensation insurance. Now, why is that important to you as the consumer? Because if somebody is on a ladder at your house and they're working on your air conditioning system, they're part of the company, they fall off that ladder, they break their leg, they break their neck.
00:09:17
Speaker
whatever, that would be taken care of by the workers compensation insurance by the company. Now, they didn't have workers compensation insurance, that person would be going after your homeowners insurance.
00:09:35
Speaker
Then when your homeowners insurance is tapped out, they're going after you personally. You could be held liable for somebody from a company working at your house, falling off a ladder and hurting themselves. Isn't that crazy? That's so crazy, man. This just got really serious and somber.
00:09:56
Speaker
That thought is sobering to think that just because somebody didn't pay their insurance and then they're working and I didn't check in on that, I could literally lose my entire livelihood. I could lose my house, everything.
00:10:12
Speaker
Accidents happen every day and is this industry, people are working with saws, they're working with torches, they're working with refrigerant. I can tell you a story myself. I had refrigerant spray all over my hand and my hand became a block of ice, like instantly. And I watched my hand defrost in front of my face and I had third degree refrigerant burns threw throughout my whole entire hand.
00:10:41
Speaker
Now that was, I was on a rooftop at an apartment complex and a crazy situation that happened, but accidents happen and it's not if it's when over the years of having hundreds of employees and seeing the different things we've had people where they almost cut their hand off. They've fallen from ladders. There's just endless amounts of stuff that's happened and workers compensation has picked up.
00:11:11
Speaker
A lot of different claims now for a long time contractors would do everything possible to not claim anything on workers compensation because your rates go up. It's like they call it. I won't bore everyone with this, but it's called an X mod. So if your X mod goes up, then you're paying more premium for the workers because they think you don't do good with your safety protocols
Impact of Regulations on Contractors
00:11:35
Speaker
and such. Right. But California now requires you.
00:11:40
Speaker
by law that if there's any incident whatsoever, it has to be reported. So what contractors used to do is they used to take people and take them to the hospital and pay out of pocket to make sure that they're taken care of. So because their workers' compensation insurance would go so much, you gotta go up so much. It's relevant because that's just cost that's gonna get passed on.
00:12:07
Speaker
Yes. Ultimately, when the that's just going to be added to the consumer down the trickle down in reality. It is. That's the thing about, that's why people in California, they go, oh man, like it's so expensive because the California taxes, this and that. No, it's a lot about regulation. It's a lot about like them.
00:12:30
Speaker
They think they're protecting people when actually, when they create so many things to regulate stuff that it makes it almost impossible to stay compliant. And that's why you find like a lot of insurance companies don't want to insure in California at all, just because the amount of.
00:12:50
Speaker
compliance and in different regulation that's put on them. It doesn't necessarily make sense for them. They can just go to another state and they can probably make a lot more money and not have as much risk.
00:13:02
Speaker
But, so going back to it, that's really the justification of licensed, bonded and insured. If they are licensed and they're truly licensed, they should be already bonded and insured. Um, but it matters significantly, especially if you have people working obviously in your home and a place that, especially if they're doing a job, that's super dangerous.
00:13:27
Speaker
And HVAC and roofing are probably the two most dangerous jobs in in a home to be doing. So want to make sure that those are all those boxes are checked for sure.
00:13:40
Speaker
Yeah, no, it's just one of those things you would never think of. You would think that the clearly an employee that's working for a company couldn't come after a homeowner for anything. No liability, right? No liability. There's just, it's all on the contractor. But then when you realize that the contractor hasn't, hasn't done their due diligence and prepared for the worst case scenario, that doesn't fall on them. It's going to fall on you. And so it's.
00:14:11
Speaker
and And who has time? That's one of the things I keep coming back to in all of our conversations in my mind is wondering, the average homeowner doesn't have time to worry about this stuff. They don't have time to think and research and all that stuff. It's just, but it's also not worth the risk of just assuming all that stuff's okay. Because I don't know you tell me you've been in this industry a long time. How many people do what people do with car insurances when they register their vehicle, right? They go in with the insurance all, all good to go. The registration's done. And, and then they just, they don't pay their insurance premiums. And so.
00:14:48
Speaker
It looked like they had insurance while they registered their car, but now they're driving around uninsured because of the premiums. Like you said, it's impossible to do business maybe with the premiums.
00:15:00
Speaker
Yeah, I think it goes back to the cheapest contractor is not always the best contractor. I, I'm a firm believer of that, but I'm also a firm believer that there is more cost-effective contractors that do things right that are just more honest.
00:15:19
Speaker
and have things and more in check a little better. And they're not like these giant corporations that have ah insane marketing budgets and a lot of overhead and such that can cause this to be, the job to be more expensive. So I, there's a good balance, but you need to have a trained eye to understand that balance and to be able to find those people.
Finding Reliable Contractors
00:15:43
Speaker
yeah That's really what we're here to do is be that trained eye to say, you fell we we found the right guy. And the right guy is going to do a great job. He's going to have all the coverage. He's going to be able to stand behind his work. He's going to be around for a long time.
00:16:01
Speaker
He has a good reputation. He does what he says he's going to do. And he has all the insurances, the bonds and the licenses, and he's making sure it's going to be done. That protection for the consumer is what I think is a huge gap in home services right now because everybody's out there to make a buck and they only have their own interests at heart. And we're here to be able to close that gap and only have the consumer's interest at heart. And we we do this every day. So it's right in our wheelhouse. This is something.
00:16:37
Speaker
that we're constantly checking where we know where to check. We know how to make sure it's actually valid and it's not smoking mirrors. It's not just on an advertisement saying that just because somebody puts it on an advertisement doesn't necessarily mean that their license is still there, that they're still bonded and they're still insured. Even though they put that on there, it's sad to say, but people go through hard times people or people actually notoriously Contractors are very disorganized. That's a commonality with most contractors. So sometimes you get the contractor that he means all well, he's marketed all that stuff, but he just forgot to pay his insurance. Or, you know what, his secretary wasn't doing a very good job, or his accountant wasn't doing a very good job, and
00:17:34
Speaker
didn't pay the insurance bill and all of a sudden their insurance is not valid anymore or their license is suspended. They don't even know it. And I've, believe me, I've heard of people, contractors. I have friends that are contractors where they've literally gone on the contractor state license board website and all of a sudden they look at their license is suspended and it's because no proof of insurance. So.
00:18:06
Speaker
Now they're not insured or they're not licensed. I've never heard once those guys say, I'm not going to do any business until this is unsuspended. Right. never They're not stopping. It's not like they're stopping work. They're going, they're getting it fixed right away, but they're not stopping. They can't afford to stop. These guys need to be able to pay their bills. They can't, they have crews of 10, 15, 20 guys. What are they going to do? They're just going to, the state requires you to stop. Says you can't conduct business like this.
00:18:38
Speaker
But I haven't seen one of them stop. So it happens and you want to be protected. So if that happened, even to a good person that you're not the one that's your job is not the one that's showing up when they are suspended or not, they haven't paid their insurance bill. So you are not protected.
Challenges in Maintaining Compliance
00:19:05
Speaker
Wow, that is so crazy. And I think that rings true. People get irritated by having to pay insurances, paying to keep their licenses up or continuing education, whatever it is, they get irritated. So I can completely see people not wanting to pay those things. And even willfully ignoring them because it's just you mean You imagine what that what saving that money could get you that kind of thought So people are I think people in general are willing to turn to blind eye sometimes to those things so or it could be just negligence like you said I wanted to ask you going back to the licensing part of it because we just we glossed over that a little bit and
00:19:52
Speaker
Is it, I don't know what it could be compared to. I keep going to the registration, like the DMV, the motor vehicle department, idea of a driver's test. Like you get licensed to drive a car. How hard or how much experience is required to get a contractor's license to do heating and air conditioning like any given state? Is it more intense than?
00:20:15
Speaker
I assume it's way more intense than getting like a driver's license, but what what is really entailed? Can you like just learn from your brother for a couple of years and then just take the test and be good?
00:20:26
Speaker
Yeah. So that's a great question. I'm glad you asked that it's in California. And this is, I'm going back a couple of years. I haven't applied for a license for, I don't know, 10 years or so, but you need to have qualified work experience. So they need us. You need to so be able to submit that you've worked in the trade for us. I think it's three or five years. It was one of the two.
00:20:52
Speaker
You need to have somebody sign off on your work experience that says that you're competent. and So another contractor, any contractor can sign off on it that is in the same trade or I believe it. So not all of this is exact because it's been a while since I've actually gone through the process, but this is the way it was.
00:21:14
Speaker
If they held a license that worked within the license that somebody else is trying to get, so like a general contracting license, umbrellas, a lot of other smaller trade, like specialty trades, I believe that general contractor could sign off on multiple trades type of i work experience.
00:21:35
Speaker
So once once you get approved for that, you you basically you wait obviously to get your test date, then you go do your test. There's two tests. there's It's a two part test. Like I said, there's the trade portion and then there's the law and business. And it's funny. A lot of people are like, oh, I know my trade. i Then they don't study at all for the trade portion.
00:21:58
Speaker
And they're like studying their butts off for the lawn business and then they end up passing the lawn business and then they fail the trade. Wow. But it's because a lot of the trade stuff, there is trades are so broad and different skills and different things like Not all air conditioner guys know how to work on a system that is built for a high rise. And a lot of guys that are working on a system that's built for a high rise don't know the system that's built for a freezer at 7-Eleven. You know what I mean? Or not even a freezer, just like a window air conditioner.
00:22:39
Speaker
So there's, there's so many, there's such a spectrum and the state of California, they have one test. So they've got to cover all angles and you've got to be well-rounded, even if you're never going to touch the piece of equipment that, or have never even seen it. You don't even know what it looks like. You got to just memorize the answer. It's one of those. So I'd say 25% of the the test is.
00:23:03
Speaker
not relevant to most contractors, right? Percents relevant to one side and then it, but it's the other 25% is not relevant to the other side, vice versa. It's like anything else with the test. They also give you practice tests and half the answers from the practice tests are actually on the test. A lot of that stuff too is you don't have to be a rocket scientist to figure out how to pass that stuff.
00:23:27
Speaker
Yeah. It sounds like demonstrated competency is important. Making sure reviews and like all the background checks are done on each contractor. Cause it doesn't sound like from what you're describing that the state does like a thorough job in actually vetting people. In principle, the idea is great that someone signs for you and you also have three to five years of experience, but you could probably be a great business person and find a way of getting contractors licenses.
00:23:58
Speaker
to do it, but really not have demonstrated competency to perform the work. So the state of California, and I believe other states too, like they don't allow felons to become contractors. So you do, they do have different requirements. There's also, there's called a HIS certification, which is a home improvement salesperson certification.
00:24:22
Speaker
that anybody that's selling in homes it has to get certified. A lot of people don't do that. A lot of contractors don't have that, but it's actually pretty important because the state of California is background checking you, making sure you're a good person if you're gonna be in people's houses selling them home services. Some of this stuff is actually pretty good if you if they make it easy enough to get. Some of it's semi-mundane and can be annoying for a contractor, but in the end, it really does help the consumer out to make sure that they're feeling a little bit more protected about who's in the home and making sure that they're semi a good person. Uh, but they're still, gre they can be a greasy salesperson. They just haven't been a child molester or went and robbed a bank type of thing. So they do check that even for the salespeople, if the company is following the rules of the state.
00:25:17
Speaker
Now, I would say the majority of companies don't follow that rule, um but there is a couple, usually the large companies are the ones that are going to follow that rule. but those large companies, you're probably going to pay the most to have your system installed by. So and there's some, there's some stuff that those companies do that are good to make sure that you have the peace of mind that there's somebody to back it up. They're playing by the rules or doing things legitimately. They have attorneys that work for them to make sure that they're following all the rules.
00:25:50
Speaker
And the smaller contractors just don't have that. So the state does do some vetting if you're following all the rules to answer to. yeah yeah I'm one to not necessarily care for a lot of regulation, but the more I learn.
00:26:06
Speaker
I think intentions are well with with some of the regulation. I can see why they have it, but also I think that they just don't do a good job of being able to make it accessible for people to stay in good standing with everything. Yeah. It seems like the people who follow the rules are almost penalized because it just costs them so much more in terms of effort, time, capital.
00:26:35
Speaker
And those who don't follow the rules aren't really punished because the system doesn't have a great way of accountability. And so they just are allowed to skirt underneath those rules. The protections are good though, the heart and mind behind them. Keep coming back to in my mind, how does reviews work in all this?
The Power of Reviews in Contracting
00:26:52
Speaker
It's got to be a combination of, yes, licensed, bonded, and insured, but there's got to be another level of whether or not these people are reputable. How do we assess that?
00:27:03
Speaker
So reviews are the single most important thing when vetting a contractor. So if they have really poor reviews, that means that if somebody's had a bad experience, they've really just not done anything to make that experience better. And they've just left them high and dry or they just didn't do anything to rectify the situation. Now companies that have a ton of good reviews,
00:27:30
Speaker
A lot of times they've gone through a lot of hard things with customers and they worked through them and made it right at the end of the day, no matter what the cost is in order to make sure their reputation stays intact. I had hundreds and thousands of good reviews.
00:27:48
Speaker
That is an extremely difficult task as a contractor to do and it is very expensive. Your reputation is everything and the guys that don't care about their reputation, they're not going to care about you as the consumer. If something goes wrong, they're going to go on to the next job.
00:28:09
Speaker
and you're gonna be in line and you're not gonna have any priority. Now guys that have great reviews, the what the squeaky wheel is gonna get the grease because they want their reputation to stay intact because that is what feeds their family, that is what feeds the company. That's what drives a lot of revenue and that's what keeps the the company as successful. And it really just tells you that they care about their reputation.
00:28:39
Speaker
People that don't care about their reputation are going to be hard to get a hold of. Now, I'll run a quick story of something that happened to me and this is the power of a review. So I had bought a tractor off of somebody and it was actually off of eBay.
00:28:57
Speaker
and It was a like a was ah is advertised as a low hours, so I had under a thousand hours, which is pretty pretty low hours for a tractor. I had used this tractor for six six months, and um I had a major repair come up, and my mechanic is a caterpillar mechanic. So he has a computer that plugs into the caterpillar. When he plugged it into the caterpillar, the computer showed that it actually had 5,000 hours, which is five times the amount of hours that the machine showed and what was advertised to me on eBay.
00:29:35
Speaker
So I go back to eBay. eBay has their guarantees and their guarantee is for 90 days. So they say you need to deal directly with the ah person, which I shipped this machine from Florida to California, which is all the way across the United States. And that's not a cheap thing to do. And so.
00:29:59
Speaker
I reached out to the, the business that I bought it from and I said, Hey, this machine has way more hours than you advertise. This is mis advertisement. I either. We need to work this out where it's fair for both of us. I have a $5,000 repair bill for this machine that I wouldn't have but had the hours that you claim to have. And they said, sorry, we can't do anything. We don't guarantee our hours.
00:30:26
Speaker
And I was like, wow, I've never been treated like this by a business. This is crazy. This is like fraud. And what did I do? First thing I did, I went on, they have great Google reviews. I just wrote a honest review about my experience.
00:30:44
Speaker
The next day they call me and they say, we want to refund you every single thing that you've had to pay to have this machine. We'll take the machine back. We'll take, we'll refund you everything and we'll pay for the tax. We'll pay for the shipping. We'll pay for everything. And as long as the end of the day you update your review.
00:31:07
Speaker
No problem. It was over $50,000. Crazy. so That's the value. That's the value. And that is a personal experience of mine. Literally they had a truck at my house that two days later picked up the machine and they they shipped it off and did whatever they were going to do with it.
00:31:27
Speaker
and I updated my review, but it's crazy. They were, they literally told me they were going to do nothing. And, and the guy, the next day when I talked to him, he's, I was like, man, what happened is that's our policy is we don't do anything. We don't do anything until somebody writes a bad review.
00:31:46
Speaker
Wow. Wow. and It wasn't, it's not a small company either. Crazy. Yeah. Yeah. That's, that's a shame, honestly, that they wouldn't own that until it cost them something. But that's the caliber of businesses that we are dealing with in this world. It's just the nature of the beast. and You got to have the protections. You got to know what to do. You got to have people in your corner.
00:32:08
Speaker
one One quick thing I want to talk about the reviews. Don't weaponize reviews to take advantage of contractors. because that is wrong as well or businesses. So obviously if they're not upholding their reputation, then all for it. But if you're just trying to weaponize it to to, there's people out there and it's sad. They use the review platforms to get discounts or work companies for extra stuff. And that's just sad. I would hope that consumers would understand that
00:32:47
Speaker
There's a lot of power in that and it shouldn't be abused. I wanted to make sure that that was said because it can be, it can go real South for somebody that doesn't deserve it.
00:33:01
Speaker
Yeah. Yeah. That's what we're saying. Like we're saying be good people. And for businesses who want them to be decent people, do business as if you were doing business with your own brother. It's the same thing as if your dad owned a company, treat them that way with a sense of honor and a sense of respect.
00:33:18
Speaker
And all those dealings, like everything will be better for you in those ways. Yeah. Don't weaponize reviews. Just be honest. I love how what you said was you didn't just blow them up in a review. You just said, I just told them the truth and the truth is powerful and it affects people.
00:33:35
Speaker
Paul, this has been an awesome conversation. I feel like a new man understanding license bonding and ensuring and how that impacts me as a consumer, what protections it offers me and also what things I should be concerned with. I feel like you've really brought us a long way. So just appreciate that, man. And good job. And thank you for your time tonight. Yeah, no worries.
00:34:32
Speaker
I'm sorry.