I regularly visit The Contractor’s Board Headquarters in Sacramento.  While hand-delivering applications for clients, I often overhear discussions taking place between contractors and CSLB staff.  Sometimes these discussions also take place among contractors waiting in line.  On a recent occasion, one contractor conversed with both and herein lays the question:  When should I listen to the CSLB and when is it advisable to instead listen to the fellow contractor?

In this particular case the person at the public counter gave the contractor correct information.  The question related to an unsolicited mailing the contractor received promising a waiver of the license exam.  The skeptical contractor was rightly told what was required; when he can make application and what the law is regarding an exam waiver.

Yet, not two seconds later, he begin talking to another contractor in receipt of the same letter who basically told the first contractor to ignore everything he was just told by the CSLB employee.  As contractor #1 is exiting the building he thanks contractor #2 for “all the great information” and tells him he’ll go with his suggestions.   The problem as “contractor #1” will soon discover, is that by listening to “contractor #2” his application and request for a waiver will almost certainly be denied.

The CSLB is not perfect; they have been known to make errors; however, beware the contractor who is sure they have all the answers.  In my many years assisting the construction industry, I cannot count the times I’ve heard the words:  “A contractor friend of mine told me….” only to learn they were given incorrect information.

Q:  I am familiar with a contractor who is renting his license to a company however, I don’t think he’s the least bit involved with any of their projects.  I know this because he tried to recruit me to do the same thing.  He told me there are a few agencies on the Internet that line up Responsible Managing Officer’s (RMO), and set them up with contractors that may not otherwise qualify for a license.  Is this legal?

This contractor has his own active license and I know he uses it daily.  Aren’t RMO and RME qualifiers supposed to oversee the contract?  How can the CSLB let contractors get away with this?

A:  Contractors can qualify more than one license at a time if they own at least 20% of each entity.  This would explain how this contractor could qualify as a RMO yet continue to use his own personal license.  If he owned less than 20%, the State would have required that his license be inactivated.  This inactivation would be required in almost all instances if he were a RME.

I believe the vast majority of qualifiers are legitimate; however, “renting” a license in the way you describe does happen. The CSLB is aware that some contractors are likely abusing the system and I believe they are investigating. You may want to pass this information on to the CSLB who can determine if the arrangement is allowed.

The CSLB Enforcement Committee met in Sacramento last week to discuss a wide variety of topics related to contractors and the construction industry.  Of particular note was their emphasis on increasing proactive enforcement aimed at the underground economy.

The Contractors Board will be stepping up partnering with other state agencies including the Employment Development Department (EDD) and Department of Industrial Relations (DIR), among others.  The focal point will be the newly created DIR Labor Enforcement Task Force (LETF), which was launched on January 1st.  According to the DIR, “this is a collaborative effort between state agencies to combat the underground economy and to improve California’s business environment where legitimate employers can thrive.”

The primary partners of the LETF include DIR, the Employment Development Department, Contractor’s State License Board, Board of Equalization, and the Bureau of Automotive Repair.  “The goal of LETF is to ensure fair and safe working conditions in all workplaces and promote a level playing field for employers through education and enforcement of state laws,” said Labor and Workforce Agency Secretary Marty Morgenstern. “Labor law violators endanger workers and have an unfair market advantage over law-abiding businesses”. The goals of the task force will be to:

1) Ensure workers receive proper payment of wages and are provided a safe work environment; 2) Ensure California receives all employment taxes, fees, and fines due from employers; 3) Make efficient use of state and federal resources in carrying out the mission of the Labor Enforcement Task Force; and 4) Eliminate unfair business competition by ‘leveling the playing field’ so that employers who comply with the law do not have to compete with employers who break the law.  According to DIR Director, Christine Baker, “By joining forces with other agencies conducting inspections, we can have a greater impact on stopping labor violations and the underground economy.  Collaboration will also save time and money by avoiding overlapping inspections and focusing our efforts on the egregious violators.”

According to the DIR, and echoed by the CSLB, businesses operating underground typically violate many laws designed to protect workers and our state’s economy. These include: not paying income taxes, unemployment insurance or disability insurance; not carrying (or under-reporting) Workers Compensation coverage; not paying proper wages; and not registering for required licenses or permits. These underground operators subsequently pay lower overhead costs, which give them an unfair competitive advantage over legitimate, law-abiding businesses.

In addition to discussing the goals of the LETF, the Enforcement Committee heard from the Chief of EDD’s Compliance Development Operations, Dan Kurttila, who emphasized their commitment to the construction industry and the Board’s strategic objective to combat the underground economy.

Like the ‘synching’ on your individual mobile, computer or server, State government networks are talking, ‘pushing’ data sharing and improving the odds unlicensed contractors will be caught in California.

Q:  Now that a LLC can be licensed, we would like to transfer our corporation number to the new LLC.  Can this be done?

I have received many questions during the past few weeks related to the new LLC license.  I am familiar with several corporations that were formed for the express purpose of doing business in CA until such a time as the state allowed LLC construction companies to become licensed.  The new law amended Section 7075.1 to allow the transfer of a corporate license “to a limited liability company that is formed by a corporation to continue the business of the corporation subsequent to the cancellation of the corporate entity’s license, provided the personnel listed for each entity are the same.”

A potential for problems with this transfer is the corporation will cease to exist and this may call into question ongoing contracts.

Q:  We are looking into the dissolution of our present corporation, and would like to know if we can transfer our contractor’s license to the new corporation.

A: According to B&P Code Section 7075.1, if forming a new corporation you’re only allowed to transfer the current license number to the new entity under the following conditions: “…when the parent corporation has merged or created a subsidiary, the subsidiary has merged into the parent corporation, or the corporation has changed its filing status with the Secretary of State from a domestic corporation to a foreign corporation or from a foreign corporation to a domestic corporation.”  For any of these scenarios the formation of the new entity must be to continue the business of the formerly licensed corporation.

Q:  We’re considering offering a gift card to any homeowner who signs up for new flooring during the month of February (amount to be determined).  Do you think this would be acceptable under CSLB rules?

A:  According to B&P Code 7157(b), A contractor or his or her agent or salesperson may give tangible items to prospective customers for advertising or sales promotion purposes if the gift is not conditioned upon obtaining a home improvement contract and does not exceed five dollars ($5).

Unless the offer involves a very minimal gift card, you may instead want to offer a rebate or reduction in contract price because it is not considered “tangible”.

This is based on an Attorney General opinion from 1985.  In response to a question from an Assembly member, the AG concluded, “as an inducement to contract, a home improvement contractor may offer a homeowner cash rebates or discounts on the purchase of products or services”.  This “non-tangible” rebate could include carpeting, painting, cabinetry, or any of several other ‘home improvement’ trades.

Construction News: According to the Associated General Contractors of California (AGC), Governor Jerry Brown’s recently released budget contained welcome news for transportation as it proposed a significant structural change to transportation agencies and continuation of Proposition 1B projects.  For years the AGC has contended that spending on infrastructure has been inadequate to allow for growth and business in CA.  However, according to the AGC’s chief Executive Officer Tom Holsman, “It appears the governor is moving in the right direction in putting California on a path to recovery.”

Q: As indicated in the attached CSLB notice, my son’s license will be suspended next month because of an issue involving my corporate license.  I understand that although a VP is an Officer and part of the corporation this position isn’t required to be listed with the Secretary of State or Contractors Board.  I am the Responsible Managing Officer (RMO)/President, Secretary & Treasurer and my son has no authority to control license events. Wouldn’t I be solely responsible for any CSLB actions…?

The basic question would be – What is the least painful way to remove him from the claim troubles on my license?  Please advise.
A:  I cannot say if you’re “solely responsible” for all CSLB actions.  However, I can tell you the CSLB is giving your son the opportunity to remove himself from your license so his Sole Owner license will not be suspended.  I recommend that he file a Notice of Disassociation with the CSLB effective immediately, which in turn will remove him from the corporate license and lift the pending suspension on his personal license.

Q:   I read in one of your columns months ago about a new law that will affect small contractors like myself.  It had to do with Worker’s Compensation.  Could you let me know which law this was and how I can get more information?

A: I believe I referenced Assembly Bill 397 a number of months ago.  This bill was passed by the Legislature and signed by the Governor in October and will impact all contractors large and small.  The new law which took effect January 1^st, requires a contractor who has previously certified that he/she has no employees and is exempt from carrying a Worker’s Compensation policy to submit a new certification, or proof of employee insurance coverage.

The new law states:  “At the time of renewal, all active licensees with an exemption for Worker’s Compensation insurance on file with the board, submitted pursuant to subdivision (b) of Section 7125, (of the Business and Professions Code) shall either recertify the licensee’s exemption by completing a recertification statement on the license renewal form, as provided by the board, or shall provide a current and valid Certificate of Worker’s Compensation Insurance or Certificate of Self-Insurance, whichever is applicable.”

There are many contractors who certified they were exempt from Worker’s Compensation when their license was first issued; however, some now have employees.  If a contractor, under penalty of perjury, must recertify they are exempt or produce the required Certification of Workers Comp, this will put them on record, either way.  With this new re-certification requirement, contractors will produce the necessary Worker’s Comp Certificate; obtain Worker’s Comp if required; or at least eliminate any questions should they be found in violation of this statute.

A second bill (AB 878), also signed into law last October, requires a Workers’ Compensation insurer to report to the Registrar of Contractors any licensee whose Worker’s Compensation insurance policy is canceled by the provider if the insurer has completed a premium audit or investigation.

Q:  I’m the president of our company and we’ve had a “C-39” (Roofing) License for four years.  It will expire at the end of this month and my Responsible Managing Officer (RMO) is leaving the company.  We don’t have another RMO.  What will happen to the corporation?

A:  Once the RMO disassociates, your company will have 90 days to replace him.  Normally, during this time, the license would remain in good standing.  However, you may have problems renewing the license until the new Qualifier is officially on board since the current RMO cannot sign the renewal application.  Nevertheless, for a number of reasons I would suggest sending in the renewal prior to the end of the month.

Unless you have someone who already holds the “C-39” classification an Officer or supervising employee will need to sit for the exam.  Upon passing the law and trade test, and meeting the Board’s other licensing requirements, this person would become the new Responsible Managing Officer or Employee (RMO/RME).

Q: Is it your understanding that an organization (likely an LLC) that contracts with a public entity for a lease-leaseback project needs to hold a contractors license?

A: Based on my understanding of a “lease-leaseback” arrangement with a public agency (such as a school district), the contractor would be required to hold a CA contractors license. By year’s end the rush will be on to obtain contractor licensing for Limited Liability Companies or LLC’s in California. If you are considering this licensing avenue, getting in ‘line’ now is advised as a high volume of applications is expected. Capitol Services is already getting requests to help with this completely new application for LLC licensing.

Q:  I have asked you several questions previously regarding my current company and our pursuit in securing a contractors license.  You and your staff have been very helpful and I thank you for all the assistance.   A couple more questions have come up that I am hoping you can answer.

We are in preliminary talks with a couple firms for a Joint Venture (JV) arrangement on a pending project.  One of the entities is not a licensed contractor. They are a manufacturer and equipment supplier but have done some contracting.  My understanding is that all partners on a JV must be licensed contractors.  Is that accurate even if one of the proposed team members would not be involved in the “construction” activities, but only manufacturing and equipment supply?

My second question with regard to the license — is there any issue with applying for a JV license too soon after we secure our corporate license?

A: 1) You’re correct; all entities must have an active CA contractor’s license in good standing.  2) If the manufacturer were only a material supplier, they would not independently require a license.  If a company were both a supplier and “contractor” a license would be necessary.  Regardless, since the JV will be handling the actual construction their inclusion or exclusion as the “material supplier” is up to you. 3) Once your license # is issued, you can apply for the JV license the next day.  This application can be prepared ahead of time for your review and signatures and be ready to submit to the Contractors Board.

Finally, The Governor has lifted the CSLB hiring freeze so they can begin filling long-vacant positions in both Enforcement and Licensing Divisions. At a recent CSLB meeting the Board publicly thanked all those who may have played a part in securing this policy change.  Good work.

Q: I’m the president of our company and we’ve had a “C-39” (Roofing) License for four years. It will expire at the end of this month and my Responsible Managing Officer (RMO) is leaving the company. We don’t have another RMO. What will happen to the corporation?

A: Once the RMO disassociates, your company will have 90 days to replace him. Normally, during this time, the license would remain in good standing. However, you may have problems renewing the license until the new Qualifier is officially on board since the current RMO cannot sign the renewal application. Nevertheless, for a number of reasons I would suggest sending in the renewal prior to the end of the month.

Unless you have someone who already holds the “C-39” classification an Officer or supervising employee will need to sit for the exam. Upon passing the law and trade test, and meeting the Board’s other licensing requirements, this person would become the new Responsible Managing Officer or Employee (RMO/RME).

Q: Is it your understanding that an organization (likely an LLC) that contracts with a public entity for a lease-leaseback project needs to hold a contractors license?

A: Based on my understanding of a “lease-leaseback” arrangement with a public agency (such as a school district), the contractor would be required to hold a CA contractors license. By year’s end the rush will be on to obtain contractor licensing for Limited Liability Companies or LLC’s in California. If you are considering this licensing avenue, getting in ‘line’ now is advised as a high volume of applications is expected. Capitol Services is already getting requests to help with this completely new application for LLC licensing.

Q: I have asked you several questions previously regarding my current company and our pursuit in securing a contractors license. You and your staff have been very helpful and I thank you for all the assistance. A couple more questions have come up that I am hoping you can answer.

We are in preliminary talks with a couple firms for a Joint Venture (JV) arrangement on a pending project. One of the entities is not a licensed contractor. They are a manufacturer and equipment supplier but have done some contracting. My understanding is that all partners on a JV must be licensed contractors. Is that accurate even if one of the proposed team members would not be involved in the “construction” activities, but only manufacturing and equipment supply?

My second question with regard to the license — is there any issue with applying for a JV license too soon after we secure our corporate license?

A: 1) You’re correct; all entities must have an active CA contractor’s license in good standing. 2) If the manufacturer were only a material supplier, they would not independently require a license. If a company were both a supplier and “contractor” a license would be necessary. Regardless, since the JV will be handling the actual construction their inclusion or exclusion as the “material supplier” is up to you. 3) Once your license # is issued, you can apply for the JV license the next day. This application can be prepared ahead of time for your review and signatures and be ready to submit to the Contractors Board.

Finally, The Governor has lifted the CSLB hiring freeze so they can begin filling long-vacant positions in both Enforcement and Licensing Divisions. At a recent CSLB meeting the Board publicly thanked all those who may have played a part in securing this policy change. Good work.

Q: I have a client who is the sole Officer of a company that is going out of business due to some problem projects. My client is NOT the Qualifier for the company; however, he has his own Class “B” license. The company may file for bankruptcy (BK) protection but my client wants to be able to start a new company using his own license. Is there any need for him to disassociate as an Officer of the current company?

A: The only reason would relate to his current licensing issues. If his present license ends up with a judgment or any disciplinary action, it could impact your client’s ability to secure a new license (until the problem is resolved). If his new license was already issued, and the present license was suspended, the new license could be threatened with an “associated License suspension”.

The BK would likely resolve this but it adds one more layer to the process. If your client is off the license prior to any judgment, he can likely avoid this “associated” problem. Of course, the CSLB still retains jurisdiction over the contractor and could pursue him regarding the ‘problem’ projects.

Q: I was surfing the Internet and came across your web site and many of your prior columns. It was funny being told when I called your office that you were out all afternoon “attending a Contractors Board meeting”. This was after I had been watching the CSLB meeting streaming live for about 20 minutes.

My call was prompted by the Board’s brief mention of proposed legislation to regulate or license construction managers. This item went by very quickly. What can you tell me about the Board’s reasoning and discussion?

A: This is one of several legislative proposals discussed by the CSLB on December 6th at their bi-monthly meeting. Code Section 7026.1 defines the term “contractor”. An Appellate Court decision in 2009 found that someone acting in the capacity of a construction manager is not required to be licensed as a contractor. Therefore, to address what the Board views as overruling their related 2008 ‘Precedent-setting Decision’ they’re proposing to add Section (f) which would expand the definition of a contractor by adding: “provides a bid for a residential construction project; arranges for and sets up work schedules for subcontractors and maintains oversight of the project”. This would relate to home improvement contracts.

A second legislative proposal will seek to amend 7026.1. According to the Board’s Staff report, “It has become commonplace for contractors – licensed and unlicensed –to attempt to circumvent Contractors License Law and Public Contract Code requirements by asserting they are not subject to licensure as contractors because they are ‘Renters of Operated Equipment’”. An example would be a business that provides tractors, backhoes, or graders with a full crew to operate the equipment.

The proposed language would expand the definition of a contractor to include “vendors of operated equipment that exercise direction and control of work covered by this chapter”.

While on the subject of the CSLB meeting, there is BREAKING NEWS regarding Limited Liability Company (LLC) licensing. The Board has announced that LLC applications should be available on December 27th, four days prior to the statutory deadline. As I expect a rush, anyone interested in more information or assistance with newly created LLC applications should call me now.

Q: Due to a mix up a few years ago, our Partnership license shows me as the Qualifying partner. It was supposed to show my corporation as the Partner. I want to fix this problem by filing a new Partnership application. I called the State Board and they said I might not be able to since I am listed on other licenses. Do you think there will be any difficulties making this switch? If not, can you tell me why?

A: You bring up two important topics. The first relates to applying for a Partnership license; the second pertains to how many licenses you can Qualify during a one-year period.

I have talked to other contractors that have experienced the same “mix-up” you describe; however, I don’t believe it happens too often. When it does occur, it is usually due to a misunderstanding regarding what information the State is looking for- combined with a poorly constructed State application for some General or Limited partnerships. When applying for a Partnership license, completing the application can be confusing. For instance, if the “partners” are corporations or LLC’s, you must list these in addition to the Officers or members of each entity. How you list them and in what order is critical. My best guess is that when the Board processed your prior application they assumed you were the Qualifying partner rather than an Officer of the corporation.

Although you want to “switch” to the correct structure, you are going to encounter a problem. As we discussed, you presently qualify three licenses (including this Partnership). That means that even if you remove yourself from one of these licenses’ today, you’ll need to wait a full 12 months before the CSLB will allow you to act as a Qualifier on another license. Code Section 7068.1(d) states that a “qualifying individual may act as the qualifier for no more than three firms in any one year period. This “rule of three” often trips up legitimate contractors like you, although this was not its original intent.

The CSLB requested this rule about 20 years ago to deal with a few companies that were abusing the system. These companies were “hiring out” Qualifiers’ to get licenses, and sometimes used the same Responsible Managing Officer (RMO) on a dozen or more corporations over a short period of time.

Q: I’m looking to apply for a contractors’ license in Nevada. Do they have the same experience requirements as CA? I only got my license here a year ago, so I know I’ll need to take the test. I look forward to your answer.

A: Thank you for your correspondence. It’s nice to see that you used our new email Contact page at cutredtape.com.

As you know, CA requires 4 years full-time experience at a journeyman level or above. This experience must have been during the past 10 years. In NV, their web site also indicates “you must have at least four years of experience to qualify…at a journeyman level or as a foreman, supervising employee or contractor”. What is not evident is their requirement that this experience have been within the past ten years AND, as Capitol Services was just told by a Henderson, NV Contractors Board licensing analyst, obtained during a CONSECUTIVE four-year period. Since the Reno and Henderson offices have different processing standards, this “consecutive year” requirement may not be statewide. I’ll update you on this ‘new’ policy when we learn more.

Q: I am in the process of leaving my company. What steps do I need to take to remove myself from their license as I was the Responsible Managing Employee (RME) for the A & B. Being that I took and passed the tests is it possible for me to carry my own license forward into my next venture or do I need to re-test? Please let me know how to go about this. Thank you

A: The first step would be to complete and file a Notice of Disassociation to remove yourself from your present license. Since the license belongs to the corporation not you as the RME, you can take these classifications anywhere you want; however, you may not take the license number. If “your next venture” is to operate as a Sole owner, you’ll need to apply for a new original license. If you intend on qualifying as a RME on another corporation, you’ll need to file two applications for additional classifications. Either way there is no need to re-test.

Q: I have enjoyed reading your Q&A in the ‘California Builder & Engineer’ for many years.

About 10 years ago I was forced to bankrupt my Engineering Company. I also had an unrelated contracting company. One of the listed creditors was a bank. About the same time as I was making this filing, a company purchased what they thought was a recoverable obligation. They either did not know or did not care if they were violating an automatic stay.

Nevertheless, they failed to file a demand under a list of creditors and proceeded to secure a judgment from a Court. I knew nothing about the court action and was not served notice of the hearing. This is by way of background.

I am upset at the actions of the Contractors Board since they will not issue my ‘pocket card’, even though my fees are paid, and I requested ‘inactive’ status. After the Contractors License Board had deposited my renewal check, they sent me a letter saying they could not issue my pocket license, which is required when contracting.

Section 7071.17 of the B & P Code regarding judgments states “construction related”. What does a credit card issued to Engineering Company have to do with my contractor’s license? Any suggestions on what to do?

A: Your license has been renewed Inactive until 2013 but is suspended due to “an outstanding civil judgment”. I do not know why the Board would hold back issuing a pocket card with an “inactive” license. Conversely, with an Inactive license the pocket card is not critical since you cannot do any contracting.

I would suggest providing the CSLB with a copy of your BK, which lists the applicable bank creditor? Often this is the only thing the Board looks for. I do not believe it matters that someone else purchased the asset; however, I would consult with a bankruptcy attorney to see if this is an issue.

If this doesn’t work you might try making the argument that “a credit card issued to an Engineering Company” is not “construction related” however, it’s up to the CSLB to determine what does and does not fall into this category.

CONTRACTOR ALERT: If you have called or emailed the Governor’s Office regarding the CSLB hiring freeze, please contact me with the response you have received. Hardest hit are the Board’s enforcement efforts against the underground economy and the “phone units” ability to respond to everyday calls from contractors and consumers.

Q: We have the General “B” license and mostly do landscape and ‘hardscape’ work. We would like to know if we need the “C-27” additional class. We mostly handle different trades like: concrete and landscape, tile, outdoor kitchen, retaining walls, water features, and design by landscape architects. Can our company advertise that we do landscape and state we’re a General contractor that specializes in outdoor construction? Can we get a waiver of the trade exam?

A: It’s very unlikely the CSLB would grant you a waiver of the trade exam with a “B” license. However, if you held the “A”, they would at least consider granting such a request.

Regarding your next question, NO you cannot advertise that you do landscaping unless you hold the “C-27” classification. For the most part outdoor tile, hardscapes, water features, walls and landscaping are not covered by the General (“B”) contractors license. Installing an outdoor kitchen is one thing you could handle with your present class and you can contract for landscaping, etc., if this is part of an overall general building project like constructing or remodeling a home. A “B” can also take a landscaping contract and sub out all the work to a licensed “C-27”.

I would recommend applying for a “C-27” license classification, which is very broad. According to an associate, there is very little that a “C-27” contractor can’t do, executed as a single trade, if the work “aesthetically, architecturally, horticulturaly, or functionally…” improves a property. As I indicated, an exam would be required; however, once this class is added to your license you can advertise and perform all the trades referenced in your question.

Q: My son is looking to get his own contractor’s license. He has worked a couple of years for our family business and has a college degree. I read on the Contractor Board’s web site that they will consider education in place of experience qualification. How many years credit will they give for someone who has a four-year degree in Business Administration? He intends on applying for a General building license.

A: The CSLB will give 2 years credit for a Business degree towards the 4-year experience requirement. The same would apply to someone who has a ‘degree’ in Economics, Industrial Technology, Finance, Math, Public Administration, and several other major fields of study. This 2 year “in-lieu of experience” credit should apply to General building (“B”) and all other contractor license classifications.

For anyone applying for the “B” classification with a degree in Civil Engineering, Construction Management or Architecture you likely be granted 3 years credit.

Anyone who has a 4-year (or advanced) degree and is looking to apply for a new contractor’s license or qualify for an additional classification, may want to contact the CSLB or my office to find out how much credit to expect for a given degree and specific classification. For instance, apply for the “A” class with a degree in Mechanical Engineering — expect 3 years credit. Go for a “C-10” with Electrical Engineering – 3 years. Want to apply for the “C-27” with Horticulture – 3 years credit! If you are a graduate still seeking opportunity in employment, maybe this is another income source to seriously consider for your future.