Registrar Conference on Fraud & Qualifier Replacement

A complex question regarding bids after the Qualifier has left the company gets us rolling this time around. We also take a ride on a ‘vicious cycle’ that is the focus for a special meeting called by the Registrar…

Q: I have a concern that a competitor is not operating properly. My understanding is this corporation was purchased and has a license through a Responsible Managing Officer (RMO) who was the President. Isn’t it true that the corporation license is valid so long as the President is still an officer? Well I happen to know that the President was discharged a month ago.

What is the status of the license now that the RMO is gone? The company is continuing to use the existing license not just to finish existing jobs, but also to engage new business, without an RMO or Responsible Managing Employee (RME).

At this time, there is no one supervising operations that have passed the contractor’s exam, so how can they legally continue operating? Also, what happens with the departed RMO? Is he still “liable” for their work?

A: The Company may continue to use the license for 90 days to complete projects in progress and engage new business- even if the RMO has been discharged. If they do not replace the RMO within that time, the license will be suspended. However, if the company files an application to replace the Qualifier and processing has not been completed within the initial 90-day period, the company can request another 90-day extension. This request must be made in writing within the first 90 days. The “departed” RMO is NOT liable for work performed after he leaves the license.

Another important question to ask is whether this was a stock or asset purchase. Generally speaking, if this were an asset purchase, the buyer will be required to apply for a new license. If this is a stock purchase, the seller has likely agreed to relinquish the corporate name and corresponding license number.

A contractor bids project after project only to lose out to an unlicensed individual or licensed competitor who is not paying his or her required payroll taxes or Worker’s Compensation Insurance. This bidder, who may be lower by 20% to 30%, is also likely paying employees cash “under-the-table”. The legitimate contractor gets fed up and in order to compete (or even survive), starts to underestimate payroll, stops pulling permits or pays some employees off the books. It’s a vicious cycle but one that was brought to light at a recent construction Industry meeting held in Sacramento.

At the September 28th meeting called by the Registrar of Contractors, it was estimated that California loses up to $100 Billion every year in revenue, a significant portion of which is attributed to the construction industry. As many contractors are aware, California continues to experience the severe problem of businesses operating in the underground economy. As discussed, in the current economic climate, the problem is getting worse.

The 60 people in attendance from throughout the State included several County District Attorneys, representatives from the Department of Insurance, Franchise Tax Board and CSLB, staff representing both Democratic and Republican legislators, as well as industry leaders for numerous building trades. Among the topics discussed were: ways the CSLB can work more effectively with the Joint Enforcement Strike Force (JESF); what actions can be taken against repeat offenders; methods of prioritizing construction fraud investigations; and how best to respond to leads from contractors and the industry aimed at combating fraudulent construction activities.

According to the Registrar’s invitation, “the expectation is that the CSLB and Industry Associations can work together to demonstrate to the public, governmental agencies and business groups the extensiveness of construction fraud and the need to prioritize and provide enforcement resources.”

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