One of the many upsides of owning a house is the freedom to make renovations. But it also means making necessary investments in the property, even if they’re more mundane than digging a pool for that perfect backyard summer oasis. Whether it’s replacing the roof or retiling a bathroom, the expectation is that the work performed by a contractor will be done in a timely manner and to specification. But what recourse do homeowners have if a contractor performs shoddy work — or never even shows up? Luckily, the Arizona Registrar of Contractors (ROC) manages a Recovery Fund for such circumstances. Eligible cases can receive a maximum of $30,000 to remediate the issues with a particular job done by a licensed contractor.  

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“Ultimately, [the fund] is nothing more than part of the consumer protection mission of the ROC,” explains Gary Smith, partner at Guidant Law.  

When the state legislature created the agency, lawmakers understood there would be instances where homeowners who, through no fault of their own, were “severely injured by bad contractors who do bad things,” he continues. “Given the dollars at stake — and that you’re literally talking about where people live and sleep — that can be horrendous in certain circumstances.” 

The ROC, according to its website, requires any business which contracts to “build, alter, repair, add to, subtract from, improve, move, wreck or demolish” a structure, must obtain a license to operate lawfully. 

Joe Citelli, chief counsel and chief of ROC’s legal and Recovery Fund department, explains, “Any contractor performing residential work pays an assessment [into the Recovery Fund] at their renewal and time of licensure.” 

Receiving a payout from the Recovery Fund requires satisfying certain conditions laid out in the statute. Here’s what homeowners should keep in mind in the event of a botched contracting job.  

Eligibility  

The first criterion one must meet is being a homeowner. A claimant must be the owner-occupier of the residence to receive money, but problems with construction on a brand-new home also qualify. Owners of investment, rental and commercial buildings cannot receive payments for unsatisfactory work done on the property. Claims also must be filed within two years of the incident. 

“[The Recovery Fund] is for homeowners who have dealt with a contractor working within the scope of their license and screwed up,” Smith explains.  

The ROC maintains a database that consumers can use to ensure a contractor is properly licensed for the desired job. Any mistakes made by an unlicensed contractor are not covered, so it is paramount for homeowners to hire wisely and communicate throughout the process. Citelli notes that most cases stem from miscommunication and unclear contracts.  

Once a complaint is filed about a licensed contractor, a ROC investigator will determine if poor workmanship was performed as described according to the agency’s standards.  

“When people hear that, they’ll say, ‘I didn’t pay for minimum standards,’” Citelli notes. “But unless something is explicitly called out to be done in a specific way in the contract, the registrar looks at those minimum standards.”   

Getting a decision

If the ROC determines that a contractor failed to meet the required specifications, the agency issues a citation. If the business contests the decision, an administrative law judge reevaluates the facts and makes a recommendation on whether poor workmanship did occur.  

“After a contractor’s license has been disciplined — whether that be a revocation, a finite suspension or some other type of suspension — that’s when the claimant has an option to apply for the Recovery Fund,” Citelli says.  

Before receiving any money from the ROC, Smith adds, homeowners must first try to collect from the contractor’s bond — one of the agency’s requirements to hold a license.  

“You don’t have to succeed in getting [the bond money], but the ROC will insist on seeing evidence that you made an attempt,” he continues. “The bond company might come back and say, ‘No, sue us,’ but the fund won’t hold that against you. If the [ROC] ultimately approves and pays you, they’re essentially buying your claim off.” 

Once a license holder has Recovery Fund payments made on its behalf, they are obligated to reimburse the fund. In the same way, if the bond company were to pay out, the contractor would have to make the bond company whole.  

To decide the amount of the award and guard against fraud, the ROC requires a claimant to get three bids from licensed contractors, though Citelli notes that in certain edge cases the agency will accept less. 

“We use those bids to evaluate the cost to repair or complete the project,” he continues. “We ensure the bids are consistent with what was ordered by the ROC for correction and what was originally contracted for. We take the lowest bid that matches the directive issued in that case.”

Once that amount is determined, the ROC cuts a check to the homeowner to make them whole. It should be noted that the Recovery Fund can only be used to repair and remedy the issue for which the contractor was disciplined, which means that the claimant cannot use that money to build a pool if it was designated for fixing a faulty roof installation. Moreover, there is no award of attorney’s fees available.  

Two paths 

Homeowners that have been negatively impacted by a contractor’s poor workmanship have two paths where they can be made whole via the Recovery Fund — an administrative or civil claim.  

“You can just sue the contractor and include your bond claim in the lawsuit,” Smith explains. “The benefit of that is that anybody who would want to challenge your entitlement to Recovery Fund monies, or even the dollar amount to be paid from the fund — they’d have to go and deal with all that in your lawsuit.” 

Since the Recovery Fund is capped at a $30,000 award, particularly large cases are better suited for civil court. 

Some of the advantages of the administrative route are that it’s faster and cheaper. Because of the less-formal tenor of an administrative hearing, Citelli says it’s not uncommon for homeowners and contractors to represent themselves.  

“The rules of evidence and civil procedure don’t apply,” he continues. “The [Arizona] Office of Administrative Hearings sees tons of [ROC] cases every year, so it’s familiar with our process and unrepresented parties. But there are more complicated cases where [claimants] might want to [hire a lawyer] and they have the right to do so.”  

Smith, on the other hand, doesn’t typically recommend self-representation. “What happens if you show up all by your lonesome and your opponent has a lawyer? Now you’re really in trouble,” he says. 

If someone does decide to hire representation, Smith notes that not all lawyers are well-versed in the particularities of administrative law.  

“When selecting counsel, don’t just go hire any lawyer,” he concludes. “Your divorce lawyer is probably not the best choice for your contractor case.” 

What is the Recovery Fund?

The Recovery Fund is a form of financial protection provided by licensed Arizona residential contractors to residential homeowners. The Recovery Fund is governed by statute and available only to claimants who own and occupy, or intend to occupy, residential property. In some circumstances, the Recovery Fund is also available to lessees of residential real property and homeowners’ or unit owners’ associations. The Recovery Fund does not accept claims from suppliers, subcontractors, laborers or other commercial entities.