Hiring a Residential
Building Contractor
A consumer’s guide to
Who we are
About this guide
We prepared this document for those planning to contract to have
a new home built or an exisng home remodeled. It describes the
rules about licensing and performance of contractors, recommends
steps to help ensure a sasfactory job and explains the recourse
consumers have when results are less than sasfactory.
Minnesota Department of Labor and Industry
Construcon Codes and Licensing
Residenal Building Contractors
443 Lafayee Road N.
St. Paul, MN 55155
651-284-5069
dli.contractor@state.mn.us
www.dli.mn.gov/workers/homeowners
Contractor Recovery Fund:
www.dli.mn.gov/workers/homeowners/contractor-recovery-fund
License Lookup (check a license):
www.dli.mn.gov/license-and-registraon-lookup
The Construcon Codes and Licensing Division at the Minnesota
Department of Labor and Industry protects the health, safety
and welfare of the public through the enforcement of uniform
standards for Minnesota’s buildings and construcon professionals.
We license residenal building contractors, roofers, manufactured
home installers, plumbers and electrical contractors in Minnesota.
We have the authority to iniate administrave disciplinary
acon and impose civil penales against disreputable licensees.
Instrucons for subming a wrien complaint about a contractor
are printed at the end of this publicaon.
Contact us
4
Few business transacons are more important than those negoated with a residenal building contractor.
Having a comfortable and well-built home — as well as protecng a considerable nancial investment — all rely
on the successful compleon of the job.
For these reasons, Minnesota establishes standards and safeguards to help its homeowners avoid hiring
disreputable or unqualied contractors, and to oer protecon against sloppy or subpar construcon.
Choosing a contractor
We recommend hiring a contractor licensed by the state of Minnesota. A license ensures the company has met
requirements that include having a principal of the company pass an exam and having liability and property
damage insurance. A licensed contractor must also complete connuing educaon classes each year.
Hiring a licensed contractor provides another very important benet: access to the Contractor Recovery Fund.
That fund reimburses consumers who suer nancial losses as a result of a licensed contractor’s misconduct.
Minnesota law exempts some contractors from the license requirement. They include contractors who earn less
than $15,000 each year, specialty contractors who provide only one skill and homeowners working on their own
home. Although these contractors are operang legally without a license, if an unlicensed contractor is hired and
a loss is suered, access to the Contractor Recovery Fund will not be available.
Contractor registraon
We administer a Contractor Registraon Program that helps us enforce state laws related to the classicaon of
workers in the construcon industry. Registraon is separate from licensing as it provides no level of consumer
protecon and is primarily required for subcontractors, not general contractors. Registered contractors are issued
a registraon number that begins with the leers “IR.” A contractor who gives you a “license number” that begins
with the leers IR is NOT a licensed contractor and should be reported to us if they are oering to contract with
homeowners to provide services for which a license is required.
Verify a contractor’s license
Verify the status of a contractor’s license at www.dli.mn.gov/license-and-registraon-lookup or by calling us at
651-284-5069 or 1-800-657-3944. We will check if the contractor has a license and also if there are any acons or
sancons on record. For the names of local licensed builders, call your local chapter of the Builders Associaon of
Minnesota.
Planning to build or remodel a home?
5
Here are a few important quesons to ask when interviewing contractors for a home or remodeling project as
well as other ps for selecng a contractor:
• Consider the type of home or remodeling project and inquire about the names of builders who specialize in or
have experience with that type of construcon.
• Ask friends or neighbors who have completed similar projects. Ask building supply companies or others in the
industry about reputable contractors.
• If concerned about designing an energy-ecient home or addion, call the Minnesota Department of
Commerce Energy Informaon Center at 1-800-657-3710.
• Contact the Beer Business Bureau to see if it has received complaints against a parcular contractor.
• Ask the contractor for references and contact former customers to see if they were sased with the quality
of the work or encountered problems.
• Ask the contractor how long he or she has been in business and where, and ask for a Minnesota business
address other than a post oce box. Obtain a local phone number where the contractor can be reached
during business hours.
• Check the ligaon and criminal history of businesses and individuals on the state court system’s website:
hps://mpa.courts.state.mn.us/default.aspx.
Red ags
The following are indicaons that a contractor may not be reliable. It is probably best to avoid working with a
contractor who:
• arrives in an unmarked vehicle;
• oers to complete your job at an unusually low price;
• requires full or substanal payment before beginning work;
• refuses to provide a wrien esmate or contract;
• refuses to provide a DLI license number or provides a registraon (IR) number;
• oers to pay your insurance deducble;
• refuses to provide references;
• shows up unsolicited;
• uses high-pressure sales taccs;
• asks the homeowner to obtain permits for the job.
Obtain mulple bids
Once you have a list of contractors, ask them to submit bids. Obtain at least three, detailed bids for any
construcon or major remodeling project. The lowest bid may not be the best and we have no authority to
regulate the prices that contractors charge.
The bids should be in wring and detailed in the scope of the work, type of materials and total cost. If me is a
factor, an approximate compleon date should be included. If hiring a contractor to build a home, have a builder’s
risk insurance policy or amended homeowner’s policy in eect from the me construcon begins.
Before you select a contractor
6
A contract with a builder or remodeler should be specic and detailed. It should include the kinds of materials to
be used and, when possible, specify brand names, colors, grades, styles and model numbers. The contract should
also include the names of any subcontractors and suppliers of material. This is especially important in case of any
acon against a homeowner for nonpayment by a contractor or subcontractor.
State law also requires licensed contractors to include performance standards and informaon about the state’s
statutory warranty (Minnesota Statutes Chapter 327A) in their wrien contracts.
Items that should be in a contract:
Building permits: The contractor should obtain the necessary permits so the contractor is responsible for
meeng all building codes. If the consumer obtains the permits, he or she is responsible for ensuring code
compliance for the project.
Starng and compleon dates: Delays can and do occur, but a general statement allowing for reasonable
delays is a good idea.
Change order clause: This is an agreement stang the contract cannot be modied without the wrien
consent of both pares. Any changes to the scope of work or total contract price should be reduced to a
wrien change order and signed and dated by the homeowner and the contractor. State law requires that the
homeowner is given a copy of any change order when it is issued.
Schedule of payments: A down payment is customary, but it should not be more than a modest percentage
of the total job. Addionally, a payment schedule might be set up based on the amount of work done to date.
Financially stable contractors who have lines of credit with suppliers do not usually require substanal down
payments for materials.
Holdback clause: This allows withholding payment unl someme aer the job is completed, allowing me
for the homeowner to inspect the job.
Cleanup: This should be included in the contract, especially if a project is likely to create debris.
The contract – What to include
7
Minnesota law requires builders and remodelers to warrant that a
new home or home improvement project is free from defects for
varying lengths of me:
One year: Work must meet “building standards” that are
dened as the materials and installaon standards of the
State Building Code that is in eect at the me the work is
performed.
Two years: The plumbing, electrical, heang and cooling
systems must be free from defects caused by faulty
installaon due to noncompliance with the materials and
installaon standards of the State Building Code that is in
eect at the me the work is performed.
Ten years: Home must be free from “major construcon
defects,” that are dened as damage to the load- bearing
poron of the home that vitally aects or is imminently likely
to vitally aect use of the home for residenal purposes. It
does not include damage caused by natural disasters.
This statutory warranty is in addion to any other warranty that
may be in place. It is in eect regardless of whether it is in wring,
though state law requires licensed contractors to include it in their
contracts.
No government agency has authority to interpret or enforce
this warranty law, however. If the contractor fails to meet the
warranty, the homeowner has the right to pursue private, civil
acon to seek damages necessary to remedy the defect or to
make up the dierence between the value of the home without
the defect and the value of the home with the defect. In the
case of a home improvement project, damages are limited to the
amount necessary to remedy the defect or breach.
The warranty is limited to the previously listed items. It does
not extend, for example, to loss or damage caused by defects
in design, installaon or materials supplied by the owner, or to
damage resulng from negligence or improper maintenance by
anyone other than the contractor. Nor does the warranty cover
damage from dampness and condensaon due to insucient
venlaon aer occupancy.
A complete list of exclusions is found in Minnesota Statutes
Chapter 327A.
Warranties are required
8
Despite taking care in selecng a contractor and wring a contract, a consumer could end up with an
unsasfactory job or the contractor may not be able to complete the work. If either of these occur, the rst step is
to take legal acon and obtain a judgment against the contractor.
If unable to collect from the contractor, a consumer can seek compensaon through the Contractor Recovery
Fund (as long as the contractor is licensed by the state).
Access the fund
First, the homeowner must pursue civil acon against the contractor and obtain a nal judgment against the
contractor.
Next, a search for assets to pay the judgment is completed. If the contractor has none, the homeowner must
apply to the Contractor Recovery Fund within two years of the entry of the judgment. For an applicaon and
procedures visit www.dli.mn.gov/workers/homeowners/contractor-recovery-fund.
The next steps depend on the amount of damages sought and how many claims there are against the contractor.
The fund can only compensate a homeowner for the poron of their judgment that represents their actual direct,
out-of-pocket loss. The fund cannot reimburse aorney or court fees, nor can it reimburse homeowners for
repairs they perform themselves.
One important cauon: There is a limit to the amount that can be paid out of the Contractor Recovery Fund
against a licensed contractor. Claims are limited to $550,000 per contractor and $75,000 per claim. These limits
are per builder, not per year. It is possible that a homeowner will not be able to recover the full judgment amount
if mulple claims have been led. If the claims against a contractor exceeds $550,000, all claims are prorated.
Completed claims must be submied by June 1 each year to be considered for payment in December of that year,
or December 1 to be considered for payment in June the following year. In the event that we deny all or part of a
homeowner’s claim, the dispute is resolved through the Minnesota Oce of Administrave Hearings.
For help with quesons about the Contractor Recovery Fund, contact us at 651-284-5057 or
contractor.recoveryfund@state.mn.us.
The Contractor Recovery Fund
Apply to the Contractor Recovery Fund
www.dli.mn.gov/workers/homeowners/contractor-recovery-fund
Phone: 651-284-5057
9
Any contractor, subcontractor or material supplier may le a mechanic’s lien against the property where they
worked if they are not paid for their labor or materials.
State law allows a consumer to pay a subcontractor directly and deduct that amount from the total contract price.
Another opon is to withhold that amount from the contractor for 120 days aer the work is completed, unless
the contractor has provided waivers signed by the contractors who give up their right to le a lien against the
property.
Homeowner protecon
Minnesota law provides procedures and condions that protect homeowners from being the target of an unfair
mechanic’s lien, though only a court can determine whether a lien is valid.
Contractor requirement
In most cases, a contractor must provide wrien noce of intent to le a lien if the contractor is not paid. This
noce is required whenever subcontractors or material suppliers are employed. It must either be included in the
wrien contract or delivered separately within 10 days aer the work is agreed upon. The noce must explain
that subcontractors and suppliers may also have a lien on the property if they are not paid, and it must also state
the Minnesota law that allows consumers to pay the subcontractors directly. This contractor’s noce must be
given properly for the contractor to have the right to le a lien against a property.
Pre-lien noce
Subcontractors and suppliers must also provide a “pre-lien noce” within 45 days of the me the subcontractor
rst furnishes labor or materials.
If a lien waiver is obtained from a subcontractor, or if the contractor is paid in full before receiving a pre-lien
noce from the subcontractor, a homeowner cannot be forced to pay for materials or services a second me if
the contractor fails to pay the subcontractor. If the homeowner pays the subcontractor directly, a lien waiver from
the subcontractor should be obtained.
Know the subs and suppliers
For protecon against a lien, have the contractor list in the contract the names of all subcontractors and suppliers
of material.
In addion, keep track of any pre-lien noces received during the project. Any me payments are made to a
general contractor aer receiving a pre-lien noce, ask for at least a paral lien waiver from the subcontractor(s)
from whom a pre-lien noce was received. This will verify that payments to the general contractor are being used
to pay the labor and material costs of the job. Before making nal payment, be certain to obtain full and nal lien
waivers signed by each of the subcontractors and material suppliers.
Paying for the job – Understanding liens
10
Problems or complaints
For help with a dispute with a residenal contractor, contact us at 651-284-5069 or
dli.contractor@state.mn.us and we will oer suggesons about how to resolve the maer.
If eorts are unsuccessful, we’ll request a wrien complaint so we can begin a formal invesgaon.
When ling a complaint:
• Explain the details of the dispute that lead to the complaint.
• Include as much informaon as possible: dates, what was said, policy and claim numbers, etc.
• Provide copies of the contract and other relevant documents.
• Provide contact informaon including phone number, mailing address and an e-mail address if available.
Visit www.dli.mn.gov/workers/homeowners/le-complaint-and-view-enforcement-acons to le a complaint.
Minnesota Department of Labor and Industry
CCLD – Enforcement Services Unit
443 Lafayee Road N., St. Paul, MN 55155
A copy of the complaint leer will likely be sent to the contractor to obtain a clear and complete response.
Although we are unable to require a contractor to perform the specic remedy sought by a homeowner, we
can iniate disciplinary acon against the contractor’s license if it is determined that he or she has violated
Minnesota’s contractor licensing laws and rules.
Resources for homeowners, including inspector contact details, online electrical permits, code handouts and
more, are available at www.dli.mn.gov/workers/homeowners.
The Oce of the Minnesota Aorney General oers a brochure that provides help for consumers working with
residenal builders and remodelers.
Download the brochure at www.ag.state.mn.us/Brochures/pubHomeBuilding.pdf or call the Oce of the
Minnesota Aorney General at 651-296-3353 for a copy.
How to file a written complaint
Additional resources
