7 Legal Mistakes Contractors Make (and How to Avoid Them)

7 Costly Errors to Avoid

Skipping Permits (or Pulling the Wrong Ones)

The Mistake:
Skipping permits to “save time” or “help the customer” is one of the biggest legal mistakes contractors make.

Many homeowners even ask for it:

“Can we do this without a permit? It’ll be faster.”

Why it’s risky:

• You’re violating local law.
• Homeowners may refuse to pay later if they find out.
• Work may need to be torn out if inspected.
• Your liability skyrockets if something goes wrong.
• Unpermitted work can void insurance.

How to avoid it:

• Always pull proper permits for every job.
• Verify exact permit requirements with your city or county.
• Put permit responsibility clearly in your contract.

Pro move: Explain to customers why pulling permits protects both sides — and that legitimate contractors always follow the rules.

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Using Vague or Verbal Agreements Instead of Written Contracts

The Mistake:
A handshake is not a contract.

Relying on casual verbal agreements leaves you wide open to disputes, chargebacks, and nonpayment.

Why it’s risky:

• Misunderstandings over scope of work
• Disagreements on payment terms
• Disputes over materials or changes
• Lawsuits that you can’t defend without paperwork

How to avoid it:

• Use detailed, written contracts for every job.
• Include:
  • Full scope of work
  • Payment schedule
  • Start/end dates
  • Permits required
  • Change order procedures
  • Warranties
  • Termination clauses

Pro move: Review your contract templates with a local construction attorney every few years to stay updated.

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Not Verifying Subcontractor Licensing & Insurance

The Mistake:
Assuming your subs are covered because “they’ve worked with me for years.”

Why it’s risky:

• You may be held liable for their mistakes.
• Your general liability may not cover unlicensed subs.
• Injured subcontractors can sue you directly.
• State boards may fine or suspend your license.

How to avoid it:

• Require current licenses and insurance certificates from every subcontractor.
• Keep copies on file.
• Verify worker’s comp coverage.

Pro move: Build subcontractor verification into your job start procedures automatically.

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Ignoring Change Orders

The Mistake:
Making mid-project changes verbally — then fighting over costs afterward.

Why it’s risky:

• Customers may refuse to pay for extra work.
• You may be accused of unauthorized work.
• Disputes over time, cost, and scope multiply.

How to avoid it:

• Use written change orders for any deviation from the contract.
• Include:
  • Date of change
  • Detailed description of the work
  • Price adjustment
  • Timeline adjustment
  • Customer signature

Pro move: Have pre-made change order forms ready on every job site.

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Misclassifying Workers as Subcontractors

The Mistake:
Calling regular workers “1099 contractors” to avoid payroll taxes.

Why it’s risky:

• IRS and state labor boards can audit you.
• Massive back taxes, fines, and penalties.
• Workers may sue for benefits or overtime.
• Insurance claims may be denied.

How to avoid it:

• Understand employee vs. contractor classifications.
• Use proper payroll services for employees.
• Consult with your accountant and employment attorney.

✅ Pro move: If you control their schedule, provide tools, or supervise their work daily — they are likely employees, not independent contractors.

🔗 External Resource: IRS Independent Contractor Guidelines

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Poorly Written Warranty Language

The Mistake:
Offering “lifetime warranties” or vague guarantees that sound good but aren’t legally enforceable.

Why it’s risky:

• You may unintentionally promise coverage far beyond what you can support.
• Disputes arise over unclear coverage.
• State warranty laws may override your policy.

How to avoid it:

• Use clear, written warranty terms that define:
  • What’s covered
  • For how long
  • What voids the warranty
  • The repair process
• Stay compliant with your state’s contractor laws.

Pro move: Use warranty templates reviewed by legal counsel.

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Failing to Document Everything

The Mistake:
Not keeping job files, communication records, receipts, or inspection reports.

Why it’s risky:

• You may lack evidence in disputes.
• Insurance claims may be denied.
• Regulatory boards may fine you.
• Lawsuits become harder to defend.

How to avoid it:

• Document:
  • Signed contracts & change orders
  • Photos before, during, and after work
  • Customer emails & texts
  • Inspection sign-offs
  • Payment receipts

Pro move: Use job management software to store all project documentation securely.