Four contractors bid a $42,000 kitchen renovation in the same week. Three landed within $4,500 of each other. The fourth came in $10,600 under the lowest of them. Nothing about the kitchen changed between bids.
The homeowner took the low bid. Most people would. Three months in, a subcontractor’s soldering torch caught a wall cavity on fire during a plumbing rough-in. The damage ran to $17,600, and that’s when it came out that the general contractor’s liability policy had lapsed eight months earlier. He’d let it go the same quarter cash was tight, which was also the quarter he underbid the job to win it.
The Missing Line Item Is Not Padding
General Contractors Insurance, a national agency that has written coverage for general contractors in all 50 states for more than 30 years, prices general liability the way every legitimate carrier does: about 0.75 percent of annual revenue, with a $1,600 floor. On a $42,000 kitchen job, that line is small enough to disappear inside a rounding error and big enough that most contractors quietly build it into the bid anyway. Three of them did. Cutting it doesn’t make a contractor cheaper. It makes him unpriced.
Standard Limits Exist Because Somebody Has To Pay When Things Go Wrong
Standard general contractors insurance carries $1 million per occurrence and $2 million aggregate. That’s the number a serious client asks to see on a certificate, and it’s the number that actually responds to a claim like the one above. The plumbing sub had no policy of his own. When a general contractor lets that happen, carriers count the sub’s labor as the contractor’s own payroll at the year-end audit. He pays for the gap twice: once at audit, once in a homeowner who never calls him again. The audit bill is the boring part. The reputation is the expensive part.
Not Every State Treats Workers Compensation The Same Way
Workers compensation is required in 49 states once a contractor has employees. Texas is the outlier. Coverage there is optional, though most commercial clients and plenty of homeowners still ask to see proof of it before signing anything. Not everyone does. Ohio runs its system as a state-run monopoly, which changes how a contractor licensed there actually buys the coverage in the first place. A four-bid kitchen renovation in Ohio and one in Texas are not shopping in the same insurance market, even when the cabinets cost the same.
Claims History Moves Next Year’s Price Whether Or Not This Year’s Job Goes Wrong
A contractor with a clean record for a few years typically sees his experience modification rate settle below 1.0, which lowers the premium at renewal. One serious claim, the kind that comes from a lapsed policy on a $42,000 job, can push that number past 1.0 and raise the bill for the next three years. The contractor who underbid this kitchen didn’t just lose the certificate fight. He bought himself three years of paying more for less.
A Certificate Only Tells You What It Tells You
Get the certificate straight from the issuing agency, not a PDF the contractor forwards you, since a forwarded file is easy to alter and impossible to verify by looking at it. A responsive agency can usually turn one around within hours of the request. A contractor who stalls for days on that request is telling you something before he says a word. Confirm the policy dates cover your entire project, not just the day you requested the certificate. Ask to be named as an additional insured instead of settling for certificate holder status. None of that costs you anything.
The three contractors who landed within $4,500 of each other weren’t colluding. They were pricing the same real number into the same real job. The fourth one wasn’t cheaper. He was $17,600 more expensive, three months later, and by then the money had already changed hands.