Using Independent Contractors Can Be Risky Business

Contractors should be cognizant of the Arizona Registrar of Contractor’s Policy Statement regarding hiring independent contractors

Arizona Registrar of Contractors Independent Contractor

The October 5, 2010 hailstorm in Maricopa Countybrought roofing opportunities for roofers who had the ability to handle an onslaught of work. Many roofing companies hired workers as independent contractors to assist with the temporary surge in need. Until now, the Registrar has not weighed in on whether this practice could cause a contractor to be disciplined. The Registrar’s silence has empowered many roofers to hire independents contractors to perform roofing work.

Substantive Policy Statement regarding independent contractors

In response to inquiries after the 2010 hailstorm, in a Substantive Policy Statementissued May 17, 2013, the Registrar has attempted to clarify its position regarding independent contractors. Unfortunately, the policy is unclear and contradictory. However, it appears that the Registrar is saying that contractors may hire independent contractors, and utilize temporary employment agencies, to perform job duties that do not include acts related to a contracting trade. So, contractors are free to utilize clerical workers, accountants, office managers, or other workers for duties that do not include the act of contracting. On the other hand, if a contractor needs an extra worker to perform the skilled labor in which the contractor is licensed, the contractor needs to utilize an independent contractor who is licensed in the trade he is to perform or hire that worker as an employee.

The Policy Statement points out that there is a gray area between a worker who is truly an independent contractor and one who is an employee but being called an independent contractor. In general, the more control the employer has over the worker’s job duties, and how the worker performs his/her job, the more likely that worker will be deemed an independent contractor by a court or the IRS.

In the event a court or government agency determines that a contractor violated laws or regulations, the Registrar can discipline the contractor. The Policy Statement provides examples of such laws and regulations including

  • Failure to comply with social security statutes and rules
  • Failure to provide worker’s compensation coverage or to comply with unemployment benefits coverage
  • Failure to pay income, withholding, or any other required tax
  • Aiding and abetting an unlicensed contractor, or entering into a contract with an unlicensed contractor to perform work for which a license is required

The most likely violation that may get the attention of the Registrar would be the aiding and abetting allegation, or entering into a contract with an unlicensed contractor.

To date, the Registrar has not actively begun to enforce the thrust of the Policy Statement. It took two and one half years after the hailstorm of 2010 for the Registrar to issue its Policy Statement. However, contractors should be cognizant of the Policy Statement and abide by it now and, particularly, when the next hail storm hits.

Your Warranty May Be Longer Than You Think

workmanship warranty laws Arizona

Many residential roofing contractors have told me that they limit their warranties to two years. They do this to mirror the jurisdiction of the Registrar over defective construction. Contractors can limit their express warrantiesto two years by stating in the contract with the customerthat the warranty lasts for two years.

However, the law implies warranties – that is, warranties that exist because the law says they exists, no because parties to the contract have agreed upon the warranty. Three examples include Lemon Laws (e.g.: if you purchase a defective car that cannot be fixed within four attempts, you can obtain a refund), Warranties of Merchantability (e.g.: the seller of an item warrants the item is worthy of being sold) and Fitness for a Particular Purpose (e.g.: the seller warrants that an item sold will work for a specific use). 

If you never have a workmanship issue, you never install roofs. Warranty issues can be avoided but not eliminated.

As to residential contractors, the law implies warranties of good workmanshipand habitability upon them. The implied warranty of good workmanship and habitability can be claimed by purchasers of new housing as well as subsequent purchasers, the warranty applies to defects that could not have been discovered with a reasonable inspection prior to its purchase. Because a claim based upon this implied warranty is six years from the date of discovery of the defect, your company’s exposure to a lawsuit could be lengthy. The implied warranty of good workmanship and habitability cannot be waived by a contract provision.

For example, assume you re-roof a residence. After the third year, the homeowner alleges that your workmanship was substandard. The homeowner waits five more years, and then files a lawsuit against your company. Because the homeowner filed the lawsuit within six years of the date of discovery of the alleged defect, the lawsuit will be timely.

However, there is a cut off to your liability. Under Arizona law, any lawsuit based upon a claim of poor residential workmanshipor habitability must have been commenced within nine years. As a result, after nine years, your company cannot be sued by your customer for breach of the implied warranty of workmanship or habitability, irrespective of when your customer discovers the allegedly defective work.

If you never have a workmanship issue, you never install roofs. Warranty issues can be avoidedbut not eliminated. If you are notified of a workmanship issue, and your company performed the work within the prior nine years, it is best to listen to your customer and try to do what is necessary to repair the rood. On the other hand, assuming you only have an express warranty of two years in your contract, the customer may not know that his or her implied warranty extends past your explicit two year warranty. In that case, you may find that you can use your customer’s ignorance to your advantage.

Tips for the Competitive Bidding Process

Bidding on a public job can be frustrating. The process the government body utilizes to request bids and then to decide can be shrouded in mystery. This article will present insight on the bidding process and shed a bit of light on the process.

Competitive bidding process Arizona

Bidding on a public jobcan be frustrating. The process the government body utilizes to request bids and then to decide can be shrouded in mystery. This article will present insight on the bidding process and shed a bit of light on the process.

Rules may vary

Most public bodies follow the Arizona Procurement Code, but not all of them. Partly because of this, depending upon the Request For Proposal, the rules will vary. Requirements in the Request For Proposal must be followed. If a Proposal from bidders is due at 3:00 p.m., and the requesting body requires 10 copies to be submitted, if you submit a Response at 3:10 p.m. or with less than 10 copies, your Proposal probably will be found to be non-responsive and the Proposal will not be considered. 

Recently, a contractor I representedfound out he was not the successful bidder five days after his competitor was awarded the project. The contractor had 10 days to file a bid protest. He asked for backup documentation from the contracting body, but did not press for the information to be released immediately. He received the information about 10 days later. Any bid protest would have been late and, as a result, would have had an uphill battle.

With that said, bid protests sometimes work with just a few letters to the correct person. Recently, I represented a rooferwho challenged the award of a contract to a competitor. In this situation, we alleged that the architect for the county colluded with the salesman of a particular product to require the salesman’s product to be used in the project. Based on information from the salesman and the architect, the Procurement Officer did not consider my client’s suggested use of a different product that was an “equal alternate.” This requirement eliminated all other roofers who had submitted bids because none of the other roofers were approved to apply the product, including my client. After I pointed out the wrongfulness of the process to the Procurement Manager, the Procurement Manager reversed the Procurement Officer’s decision and awarded the contract to my client.

In the event that letters to the correct person do not work, the aggrieved party may commence legal action, often with the Arizona Department of Administration(the forum is dependent upon the public body that issued the Request For Proposal). In the case of the Arizona Department of Administration, a hearing officer will hear the case and submit his or her decision to the Director, who has the ability to accept it or modify it. As in the case with a decision from the Arizona Registrar of Contractors, if the aggrieved party is still not satisfied, that party can seek judicial relief in Maricopa County Superior Court.

If you are not the successful bidder, you will immediately wonder why you were not. You may want to inquire about the scoring process that the public body uses. That is, the public body may put different weights on the different requirements within the proposal. Some of the requirements within the RFP may be mandatory, and some may be discretionary.

Additionally, the actual scoring may have an error. Scoring implies assigning numbers to different criteria. The numbers are weighted, and then added up. This process requires humans to enter the numbers into a spreadsheet. This data entry is subject to mis-entry of numbers, or mis-calculation of numbers.

If you follow the bid requirements closely, aggressively follow up with any requests for clarification, and demand information immediately when denied an award, you will be in a much better position to protect your rights.