Building a Sturdy Business
Contractors: How to Comply with Regulations in the Construction Industry

Construction is one of the most heavily regulated industries in the U.S., so it's no surprise that contractors must jump through a few hoops when bidding for jobs. It can be a task in itself to sort through the legalities — from licensing regulations to insurance requirements. And that's all before the real work even begins.

Regulations change depending on the type and amount of work being done, the qualifications of the contractor, and the state or municipality in which the contractor operates. This means you must research applicable local laws and regulations before starting work. Knowing the rules can prevent lost money, wasted time, and even criminal charges. That said, here are some of the most crucial regulations for contractors.

Licenses and Permits for Construction Professionals

Licenses and Permits for Construction Professionals

Here are the licenses you may need before you can take on a construction project:

  • A contractor business license from your state or local municipality.
  • A specialty license allowing you to perform specific construction tasks (depending on what kind of contracting work you do).

Trades like plumbing, electrical work, and roofing all require specialty licenses before you can legally practice them. These licenses are a way for the local government to ensure that buildings are being constructed to code for the welfare of the public. Basically, they don't want buildings easily burning up or falling down. They're also important for winning bids and gaining clients, as most clients would prefer to hire licensed and qualified contractors.

You might need to have additional permits to do certain kinds of work, hire employees, or file taxes in a city. These are usually dependent on the city or county in which the work is taking place. You can read more about that in our post, "Business Licenses and Permits for Contractors & Construction Businesses."

If you plan on using subcontractors, they will probably also need licensing, depending on the amount of work they do. This can change from state to state, but most states require a subcontractor to have the same licensing as they would if they were a contractor.

You can find applicable licenses and permits that you'll need on the U.S. Small Business Administration's website, SBA.gov. Or contact your state's regulatory agency that issues business licenses and permits.

Lastly, you may need to carry a License or Permit Bond in order to demonstrate that your construction business complies with all regulations governing your industry. Learn more about these bonds in the article, "How (and Why) to Get Bonded and Insured as a Contractor."

Small Business Insurance for Contractors

Small Business Insurance for Contractors

Many states require construction professionals to carry Workers' Compensation Insurance even if they don't have employees. This coverage pays for medical expenses associated with occupational injuries. However, each state has different laws, so be sure to check out your state's requirements in our Workers' Compensation Laws by State guide.

Additionally, you'll likely need General Liability Insurance to comply with the insurance stipulations in client contracts. This coverage can pay for…

  • Property damage you cause while carrying out your work.
  • Physical harm your finished work may cause.
  • And more.

Depending on the project and your role in it, you might also need to carry Builder's Risk Insurance, which protects buildings from loss or damage while they are being constructed. General contractors often need to purchase this policy, but sometimes the property owner will purchase it instead. The contract will typically specify which party is responsible for obtaining coverage.

Construction and Environmental Regulations

Construction and Environmental Regulations

Many construction jobs deal with hazardous materials or alter the landscape significantly. That's why it's important to be aware of any federal or local environmental regulations that govern your work. For example, you may need to follow certain protocol for…

  • Removing and disposing of asbestos.
  • Controlling dust at worksites.
  • Handling PBC waste.
  • Reporting spills.
  • Disposing of hazardous and solid waste.
  • Discharging dredged material (which requires a permit from the state).
  • Discharging storm water runoff from your construction site (which requires a permit from the National Pollutant Discharge Elimination System (NPDES) program).

It's also important to know whether construction activity could affect federally protected land or endangered species. Consult with experts or local environmental agencies if you have any questions about the environmental impact of your work.

Other Building Codes and Construction Regulations

Other Building Codes and Construction Regulations

Most licenses require you to have adequate knowledge of current building code as it applies to your work, but know that regulations can change. Energy efficiency standards, for example, might change from city to city and county to county. These standards may also evolve to keep up with technological developments. Be aware of advances in your field so you can maintain an edge on your competition and comply with local laws.

Failure to follow regulations can ruin your business's reputation and rack up fines. Take your time to learn what you need to do in order to be a successful contractor. Measure twice, cut once, as they say.

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