Dangers of Late Renewal

You will not hear any trumpets blaring, bells ringing or alarms sounding warning but I have a serious call to action for contractors. Don’t read this at your own peril, or to paraphrase John Donne, ‘don’t ask for whom the bell tolls; it tolls for thee’! Like blood in the water it doesn’t take ‘sharks’ long to find their prey and a recent change in law has created the perfect environment for a ‘feeding frenzy’ all at the expense of contractors…

As many long-time readers know, I have written about the danger of a late renewal, which results in your contractor’s license expiring – even for a short time. What is apparent, based on a number of recent phone calls to my office, is the peril that exists for contractors who are unaware their license history shows an expiration or (bond or workers comp) suspension.

This week several attorneys contacted me and the main topic was B&P Code Section 7031(b). For the uninformed, this law allows a contractor to be sued for full repayment of all monies paid on a contract if their contractor’s license was NOT in good standing for the entire duration of the project. Lawyers refer to it as “disgorgement”: an ironic term requiring repayment of “ill-gotten” gains that is imposed on “wrongdoers” by the courts.

According to the Contractors Board in one of their prior newsletters, “In its decision, the (CA Supreme) Court ruled that a contractor cannot sustain an action to recover payment for work performed unless he or she was properly licensed for the entire duration of the work. In MW Erectors, Inc. v Neiderhauser Ornamental and Metal Works Company Inc, the Court held that a subcontractor (MW Erectors) who performed approximately $1 million worth of structural steel work on a major hotel project could not recover payment for the work because he had worked without a license for the first 18 days of the project”.

You’re licensed so why worry? Well, if your license was expired or suspended for even one day, you could be subject to these penalties – even if the reason for the renewal lapse or bond suspension was inadvertent. Sometimes knowledge of these lapses are not known for years – until you’re embroiled in a lawsuit with attorneys fighting over your future existence.

It is time for the State Legislature to recognize this problem and pursue a solution. It’s hard to believe that when the Legislature enacted this statute, they wanted one of their constituents to suffer a terrible financial loss because of a one-day lapse in their bond or license renewal. It may be your fault for sending in a renewal the day after it expired or it may be that you sent in the renewal weeks prior to expiration (with one signature missing) and it was unacceptable; or your bonding company may have dated the bond such that it caused a lapse or your Worker’s Comp lapsed and the new certificate was a day or two late arriving at the CSLB. The reason doesn’t matter. If you were not “properly” licensed during the entire project, your future is in the hands of the court.

I may be just a lone voice in the wind. But unless contractors individually and collectively through their associations, builders exchanges, and related organizations take action, there are going to be fewer construction companies in the future. Lose one court action, which requires you to pay back all money on a project — in addition to not collecting money you feel you’re due – and you’re out of business! Don’t think it can happen to you? Think again.

If enough contractors write, call or email their state legislators and associations — and even the Contractors Board — to let them know this law -in light of the Supreme Court case – needs to be re-examined, it just may get done.

The status quo is not good government, regardless of what the Supreme Court says. 7031(b) was enacted to go after the unlicensed contractor; the guy who does not have a license; has never applied for a license; and has little intention of ever becoming licensed. This is the guy who is busted regularly by the CSLB for ripping off unsuspecting consumers and rightly should not be able to profit from these illegal activities. Unfortunately 7031(b) has become a ‘monster’ lurking in the shadows ready to rear its ugly head and to take a huge bite out of your, the legitimate contractor’s, bottom (line).

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