Overhead and profit was recently mentioned by a colleague, Brandon McWherter, in, When Is Overhead and Profit Due in Tennessee? He noted that the general rule for when contractor overhead and profit is to be paid is when it is:
reasonably likely that the insured would be expected to hire a contractor to repair the property.
But he also noted the following Tennessee law requiring the hiring of a contractor:
Who Is Required To Be A Licensed
NOTICE! A Tennessee contractor’s license is required BEFORE bidding or offering a price, for projects $25,000 and up (includes materials and labor), as a prime (general) contractor; and also subcontractors performing electrical, mechanical, plumbing, HVAC, roofing and masonry are also required to be licensed as a contractor, when the total portion on the project is $25,000 or more; masonry, when $100,000 or more. In addition, a sub to a sub would need to be licensed whenever there are more than one (1) subcontractors on the project. Reciprocal agreements do NOT allow using another state’s license in Tennessee, but provides a trade exam waiver, only. License issuance takes 4 to 6 weeks and must be approved by the Board during regularly scheduled meetings (see Public Meeting Information for meeting dates).
A Contractor’s license is required prior to contracting (bidding, offering to engage, or negotiating a price) for projects $25,000 or more, when acting as one of the following:
Prime (General) Contractor – Bidding or contracting directly with the “owner” of the project;
Subcontractor – Contracting directly with any contractor (not to the owner) to perform projects when the total cost of that portion on the project is
*$25,000 or more, for the following (includes all materials, equipment, and labor):
Electrical, Mechanical, Plumbing, HVAC, and
**Roofing; and Masonry when *$100,000 and up
Construction Management – When the value of the total project is $25,000 or more.
*Masonry subcontractors must be licensed as a contractor when the project is $100,000 or more.
**Roofing subcontractors must be licensed as a contractor, effective January 1, 2014, in addition to performing work currently as a prime, for projects $25,000 or more.
The definition of contractor is found in the statute at T.C.A. § 62-6-102 and covers a very broad area, which includes construction, installation, movement, repair, etc.
All contractor licenses are assigned a monetary limit and also a classification, such as: Building (Residential, Commercial and Industrial); Electrical; Mechanical (Plumbing and HVAC); Heavy Construction; Highway; Railroad & Airport; Masonry; Municipal Utility; Environmental; and Specialties (landscaping, excavation, roofing, cell towers, solar panels, audio visual, etc.,). Contractors must bid/contract in the exact name as licensed. See more information below in the "Summary of Contractor License Requirements". See the Law and Rules for legislative updates.
This would seem to indicate that contractors have to be hired on a lot more jobs than what most insurance companies will agree to do. Property insurance adjusters should check state regulations.
This regulation also seems to imply that some type of construction management is to be considered cost for projects $25,000 or greater. I have often said somebody knowledgeable needs to be hired to protect the policyholder owner and make certain that larger repairs are done correctly. This is usually a construction manager as an owner’s representative, interior designer, or architect.
I will get back to my discussion of determining deprecation tomorrow.
Positive thought of The Day
Teachers can change lives with just the right mix of chalk and challenges.