The first thing you really have to figure out is what type of license, subcontractor or general contractor, you wish to have. The best answer to this is ...

Go with what you know ...

If you have experience in one trade (ie: acoustical; framing; plumbing; etc.) then you probably want to start out with a subcontractor license. If you have a good amount of experience working as a superintendent for a general contractor then you may very well be able to qualify for a general contractor license.

Curtis (my husband) had been hanging ceilings for other acoustical firms for over fifteen years. When we decided to start our own company we considered a general contractor license but really he had very little knowledge about concrete, framing, roofing, plumbing, electrical, etc. While he knows how the flow of a project is supposed to go by paying attention on different job-sites, he still had much more knowledge in his own individual trade as far as installations are concerned. We opted for a subcontractor license in his area of expertise, suspended ceilings, and have since paid attention at individual job-sites to learn all we could about the world of general contracting.

A popular misconception is that the general contractor makes the most amount of money for the least amount of work. While a general contractor, usually, makes more money on a project than a subcontractor does, remember that a general contractor usually also has the highest risk (as well as overhead) ...

Non-Performance of the Subcontractor

Should any of the one to thirty or more subcontractors on a project not 'perform' on the job, the general contractor has to make it right or s/he might immediately fall into breach of contract. S/He might be able to cause the subcontractor to perform, and then again maybe not.

The general contractor will either have to perform the work himself or find another subcontractor, very possibly at a higher price than the original subcontractor. Sure the general contractor can enforce his legal rights against the subcontractor who has defaulted on his contract but S/he'll have to initiate legal proceedings.

Insurance Requirements

A general contractor's workers compensation and liability insurance rates are usually higher than that of a subcontractor due to at least a couple things:

1) a general contractor can perform many different types of work on a project thereby increasing his chances and severity of employee injury and

2) a general contractor is responsible (read as legally liable) for the entire project, as opposed to a subcontractor being responsible for only his portion of the project.

Now typically, a general contractor will ask for proof of liability insurance on your part. This requirement is satisfied by providing a certificate of insurance through your insurance agent. The general will require that his company be listed as an additional insured. This means that if your work causes harm to someone else in some way, the general contractor will look to your insurance policy for reparations, rather than to his own.

The same often goes for the Owner. It is usually required that they be listed as additional insured, even the architect is sometimes included in the requirement!

Payroll

If a subcontractor does not pay his employees and/or pay them properly, the general contractor will eventually be held legally liable for the unpaid wages as well as interest and penalties.

Why? Because it is ultimately the general contractor's responsibility to see that all laborers on the project are paid full wages whether those laborers are his direct employees or employees of a subcontractor. Now we aren't saying that the subcontractor doesn't get in trouble with the EDD, because the subcontractor gets into plenty of trouble, but it's the general contractor who has to fork over if the subcontractor cannot.

The General Contractor can then turn around and sue the Subcontractor, but chances are if the EDD isn't successful in getting the money out of the Sub then the Sub probably won't have the funds available for the GC.

Material Expenses

A general contractor's material expenses may be higher. Rumor has it that a general contractor will sometimes, if not most times, pay more for material from a supplier than a subcontractor will pay for that very same material from that very same supplier.

Employees

A general contractor almost has to have at least one employee right away. For every project that a general contractor has in process, he must have on-site, full-time, a superintendent to manage the varying subcontractor's schedules and quality of work. He can't be at two different projects full time on the same day.

Of course, should you choose to be a general contractor and you'll just be doing small jobs, utilizing just a few subs, then you could probably do it on your own without superintendents (it most likely wouldn't be easy though).

A subcontractor on the other hand, can have two or more projects at the same time and manage them all (based on the size and scheduling of the projects) by himself. The Subcontractor has to be on the job only while he is performing his own scope of work, not for the entire project.

Office Administration

One thing that is important for both types of contractors, Subs and Generals alike, is to have a person other than yourself handling the administration part of your business.

There are lots of contractors out there who are doing the estimating, installation and administration all by themselves. Most of them will tell you how they wish they had someone running the office for them. Of those contractors that do have someone running the office for them, most will tell you how important it is to have that someone running the office!

When we started, I (Diane) was working a full time job at a muffler shop and Curtis (my husband) was working full time at a (now) competitor's business. Since neither of us was available to answer the phone at the house/office, we'd have to collect all our messages at the end of the day and return all those calls the next day during our breaks at our respective jobs.

Curtis did all of his bidding and I did all of the office work at night after we put our kidlets to bed (at the time 1 1/2 and 2 1/2 years old). We saw the clock strike midnight enough times to cover every single new year we could ever possibly experience, and then some!

Eventually I left the muffler shop and Curtis left his employer, and we both went to work for our company and it's been this way since 1995. :)

Experience Requirements

Please note that in order to obtain a subcontractor license you must have a minimum of four years field experience in the classification you wish to be licensed in. To obtain a general contractor license your minimum four years experience can fall into any of the classifications that are licensed by the State of California.

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