How do I protect myself as a general contractor?

Written by Kacie Goff

Working as a general contractor can be lucrative, fulfilling work, but it comes with its fair share of risks. You need to be in a position where you can comfortably manage everything from inclement weather to unrealistic client expectations. And fortunately, a few protections can help to get you there.

Specifically, there are three areas where all GCs should lay down some safeguards: insurance, bonding, and contracts. Let’s look at each one — and what they can do for you — in this guide. 

Insurance

Insurance can be your first line of defense if something goes seriously south. Plus, most states require contractors to at least carry general liability insurance. Let’s look at that coverage first, followed by other protections general contractors might want. 

General liability

Basically, this type of insurance is designed to step in if you could face a lawsuit. If your client trips over a tool one of your employees left out and gets hurt, general liability coverage can help pay for the fallout. It steps in for medical bills, along with legal fees and settlements if you do end up in court.

General liability coverage also extends to property damage. So if you accidentally stain a client’s high-end couch while on the job, it can come to the rescue.

A lot of states attach general liability coverage in a specific amount to their contractor licensing requirements. Look into your state’s laws to figure out how much general liability coverage you need to carry. 

Other types

While general liability insurance is the only type of coverage many states require for licensing, it’s by no means the only protection you need. You probably also want to consider:

Workers’ compensation insurance:

In fact, your state probably requires this if you have employees. It covers medical bills and lost wages if they get hurt on the job. 

Commercial auto insurance:

You’ll use this to cover your work truck(s). Don’t assume your personal car insurance will be sufficient here. It doesn’t extend to business uses.

Products and completed operations insurance:

This covers issues that arise after your work is done. 

Equipment coverage:

For your tools, machinery, etc. 

Bonding

Like general liability coverage, most states require contractors to have a bond in a certain amount as a condition of licensure. 

This is essentially a contract that you enter into with the bond issuer (also called the surety company) and your state (called the obligee, in this case, because they’re obligating you to get the bond). 

If you violate the terms of that contract — say, you don’t complete the work for which you’ve been paid or your work is found to be defective — your client can make a claim against the bond and get paid from it. 

The bond ensures they get paid quickly, but you’re then responsible for repaying the surety company for what they paid out. This might not seem like much protection, but it does buy you some time to figure things out. 

It’s not uncommon for states to require bonding of $25,000 or $50,000. That doesn’t mean you need to come up with that full amount right away. You can usually get a bond for 1% to 5% of the amount you need, depending on your credit standing. 

Contracts

Last but not least, general contractors benefit from the protections offered by clear, fully fleshed-out contracts. These documents ensure that you and the client are on the same page about key details like the project timeline and the scope of the work. To get an idea of what your contracts should include, refer to this guide. 

With proper licensing and bonding and comprehensive contracts, general contractors can avoid a lot of the pitfalls that could capsize their businesses.