Letter of Agreement Question

Question:

Terri, as I continue to read though the documents I received in the Design Biz Tool Box package I purchased I have come across some verbiage in the Letter of Agreement I would like to make you aware of in regards to our state laws in CA when it comes to contractor law. 

Are you aware of statements such as what is in your suggested sample Letter of Agreement book page 13 stating:

“Four onsite visits are included to observe the accuracy of contractors’ work”.  Unless designers in this state are licensed contractors, we cannot make statements about “observing the accuracy of contractor’ work.” 

I believe that according to the state, this is practicing general contracting without a license and is actually a felony.  I had a good friend get turned in by a disgruntled contractor, (they had a falling out over fees with him feeling he wasn’t getting paid enough for a job even after signing a contract with her), and she was brought up on felony charges that were of course later dropped but scared the **** out of her. 

In my agreement I state, “Four onsite visits are included to observe design intent of contracted labor.”  This allows me to check in without stating I am validating accuracy.  I explain to my clients the law in my state and that this is the way I have to word it in the Agreement, but that I will be dropping by unannounced during these four times to ensure they are following my plans accurately. 

Fortunately I work with some great GCs and I have never had a problem, but it’s something that in your book you might want to consider noting in the event other states have the same laws.  If you have any other information that would invalidate this for me, please by all means let me know.  But this “event” for my friend happened about 9 years ago and I am not aware of this law changing since.

 Answer:

Thank you for looking out for me and the DBB Letter of Agreement. This is a very good point to make.

I think that you know that I am a contractor in AZ I am very aware of how contracting laws in Arizona work. I am aware that California and many other states that has these protective laws as well, and they affect our work as designers. 

The reason that your girlfriend got in trouble was that she WAS actually contracting without a license.
 
That is, according to your story… that SHE hired the contractor, supervised him, signed a contract with him, paid him and charged the client for the work. Any one of these or all of these acts are indeed contracting without a license and it is a felony in most states.

The problem is that many designers create this situation unknowingly.

The DBB Letter of Agreement that you are reading is an agreement between the designer and the client and says that the designer will observe the contractors work. 

What happens here is that a designer may legally observe and tell the CLIENT about the accuracy and quality of the work being performed by the contractor who has been HIRED BY THE CLIENT. 

The designer MAY NOT hire, tell, direct or supervise the contractor DIRECTLY because that could be construed as contracting.

It is my belief that the wording in your Letter of Agreement is fine, and so is the DBB one. Both observe the intent of the law…that our agreement is with the client and that we are NOT performing any of the above contracting services.

This is a serious issue. I heard that recently that a designer in the Bakersfield, CA area was arrested and jailed (not for long I hope) for contracting without a license. 

The other side of this situation is that you can get a contractor’s license and do these kinds of installations legally. You need to qualify for and take the test (not so hard), post bond and have the proper insurances.
I will share a secret …the job profitability is considerably higher with a contractors license.

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One Comment

  1. Doaa Says :

    Posted on September 8, 2012 at 1:04 pm

    make sure that any sub-contractors that you hire submit a cuerrnt certificate of liability insurance, for obvious reasons. and also a copy of their workman’s comp. certificate. all it would take, is for one person to get injured on your job site, and all the money you saved by being your own general contractor, would be going in a lawyer’s pocket.and don’t just take their word for it, call the numbers on the certificates, and verify the expiration dates on the policies. you should also check with your own insurance co. and find out what your exposure is, and maybe add a rider for the duration of the construction.

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