Most RMO agreements I review have at least 3-4 of these red flags. Each one represents potential personal liability—meaning your license, your savings, and your future contracting career are at risk.
If you're signing an RMO agreement, check for these issues first. If you find them, don't sign until they're fixed.
Language like "RMO shall be personally liable for all claims arising from Contractor's work" or "RMO assumes full responsibility for Contractor's operations."
This means if the contractor builds a deck that collapses, you're personally on the hook—even if you never saw the project.
Limit indemnification to claims arising from RMO's own negligence or breach of the agreement. The contractor should indemnify the RMO for construction defects.
Agreements where only the RMO indemnifies the contractor, but not vice versa. This is shockingly common.
If the contractor's negligence causes a loss, you have no contractual right to recover from them. You're left holding the bag.
Require mutual indemnification. Contractor indemnifies RMO for construction defects, worker injuries, and contract breaches. RMO only indemnifies for their own direct negligence in oversight duties.
Clauses stating the RMO is "jointly and severally liable" with the contractor for all obligations.
This means a claimant can collect 100% of any judgment from you personally—even if the contractor was 100% at fault. They'll go after whoever has money.
Allocate liability based on fault. Each party should be responsible for their own negligent acts. Include contribution rights so if you're forced to pay, you can recover from the contractor.
No limit on how much you could owe. Construction defect claims can easily exceed $500,000. Without a cap, your exposure is unlimited.
Cap liability at the amount of insurance coverage, or a reasonable multiple of fees paid. Example: "RMO's total liability shall not exceed $X or the amount of available insurance coverage, whichever is greater."
Language like "RMO shall provide oversight as required" or "RMO shall supervise Contractor's work" without specifics.
When problems arise, both sides have different ideas about what the RMO was supposed to do. The RMO can't prove they met their duties.
Specify exact duties: "RMO shall conduct monthly site visits, review all contracts over $25,000, receive weekly project status reports, and approve all permits before filing."
Clauses stating the RMO has "full control" or "complete authority" over the contractor's operations.
This creates an impossible standard. No RMO actually has complete control over a contractor's daily operations—but this language makes you responsible as if you did.
Use "general oversight" or "supervision sufficient to satisfy CSLB requirements." Specify that day-to-day operations remain with the contractor.
No requirement for the contractor to report projects, problems, complaints, or incidents to the RMO.
If you don't know about problems, you can't address them—but you're still liable. Many RMOs first learn of issues when they receive CSLB notice.
Require weekly/monthly reports on: active projects, new contracts, complaints received, incidents, and permit status. Contractor must notify RMO within 24 hours of any complaint or incident.
RMO is qualifying multiple contractors simultaneously without clear time allocation or capacity limits.
The CSLB expects meaningful oversight. If you're qualifying 5 contractors, how can you properly supervise all of them? This weakens your defense if problems arise.
Limit arrangements to what you can reasonably oversee. If qualifying multiple contractors, document time allocation and ensure it's realistic. Consider exclusivity clauses.
RMO payment tied to contractor's revenue, profits, or project completion rather than fixed monthly fees.
If the contractor has a bad year, you get paid nothing—but your liability exposure is the same. This also creates perverse incentives to overlook problems.
Fixed monthly compensation regardless of contractor performance. If you want upside, add a bonus structure on top of the base—never replace the base.
Contractor agrees to indemnify RMO for damages but not for attorney fees and defense costs.
Even if you win a lawsuit, you could spend $50,000+ in legal fees. Without defense cost coverage, you pay that out of pocket.
Indemnification must explicitly include "attorneys' fees, costs, and expenses of defense" in addition to damages.
Agreement requires 30, 60, or 90 days notice to terminate—even for cause.
If you discover the contractor is doing dangerous work, you shouldn't have to wait 90 days to disassociate. Every day you remain the qualifier, you accumulate liability.
Immediate termination right for cause: CSLB complaints, safety violations, insurance lapse, failure to report, or material breach. 30-day notice only for convenience termination.
Indemnification obligations survive "indefinitely" or with no stated limitation period.
Construction defect claims can surface years later. Without a sunset provision, you're on the hook forever.
Limit survival to the applicable statute of limitations (typically 4 years for construction defects in California, 10 for latent defects). After that, indemnification obligations expire.
No requirement for who notifies CSLB when the RMO relationship ends.
If you terminate but nobody notifies CSLB, you're still listed as the qualifier on public records. You could be associated with work done after you left.
Require both parties to notify CSLB within 5 business days of termination. Include right for RMO to submit unilateral notification if contractor fails to cooperate.
Agreement doesn't require the contractor to maintain general liability, workers' comp, or other insurance.
If the contractor is uninsured or underinsured, you're the deep pocket. Claimants will come after you personally.
Require minimum $1M/$2M general liability, workers' comp, and auto insurance. RMO should be named as additional insured. Require certificates and automatic cancellation notice.
Contractor has insurance, but RMO isn't listed as additional insured.
If you're sued, the contractor's insurance has no duty to defend or indemnify you. You need your own coverage—which you probably don't have for this specific risk.
Require endorsement adding RMO as additional insured on contractor's GL policy. Get certificate showing additional insured status before signing.
Agreement requires insurance but has no mechanism to verify it's maintained.
Contractor could let coverage lapse. By the time you find out, a major loss has already occurred.
Require annual certificate renewal. Insurer must provide 30-day cancellation notice to RMO. Insurance lapse is automatic termination trigger.
No requirement for contractor to maintain insurance coverage after the relationship ends.
Claims can surface years after project completion. If the contractor dropped coverage or went out of business, there's no insurance to respond.
Require contractor to maintain GL coverage for minimum 4 years after relationship ends (or purchase tail coverage). This should be a survival obligation.