Contractor’s Limited Liability

There are no words that can encompass the human tragedy of the Southern California fires. Thousands of homes destroyed, lives lost and people impacted for the rest of their lives by the awesome power of fire and nature. We must all think of how we can help give our neighbors and fellow citizens of California our support in these days and months ahead. Unfortunately, while most of us will be focused on how to help, others will seek to profit at the expense of these victims.

As with any natural disaster, the fires throughout Southern California bring out the best and worst in people. The best are those public employees including police and firefighters and the many unnamed heroes and volunteers who instinctively help those in need. The worst: people who are drawn to these burned out and damaged areas for the sole purpose of making peoples lives even more miserable. These are unlicensed and unscrupulous contractors who rush to disaster scenes like moths to a flame.

In the Northridge Quake, Oakland Hills Fire Disaster, and recent fires in Lake Tahoe, agents of the Contractor’s License Board cited hundreds of illegal contractors. They were offering services, ranging from simple demolition to complete home rebuilding. When an unlicensed contractor is caught by the CSLB, or other law enforcement, they could go directly to jail. It is a felony to contract without a license in a declared disaster area and consumers can protect themselves by checking a contractor’s license status and history first thing.

Too often, in a tragedy of this kind – where there’s lots of destruction — people often look for somebody to remedy the damage so they can get back into their home as quickly as possible. When people get desperate to get something done, that increases the chances they’ll fall prey to an unlicensed contractor.

The Contractors State License Board (CSLB) has a standard warning for consumers about the dangers of hiring unlicensed contractors following a disaster, whether it is earthquake, fire, flood or mudslide. “Don’t let a natural disaster result in a man-made one by hiring the first contractor who comes along,” as noted on the CSLB website by Registrar Steve Sands. “Take your time and protect yourself against con artists who will take your money and run — Hire only licensed contractors and check them out with the Board.”

Q: Can a limited partnership get a contractor’s license in California? Based on our reading of the law, it should be able to get one. But, in real life will the CSLB issue a license to a limited partnership? (This is a classic limited partnership and not a limited liability partnership).

A: YES, a Limited partnership (LP) is an acceptable form of licensure; a limited liability partnership (LLP) is not.

Q: My corporation has ceased doing business. In fact, we have not done any business under this corporation for almost three years. Why would the FTB be requesting a tax return?

A: Even if your corporation has ceased doing business, you must formally dissolve or withdraw with the Office of the Secretary of State (SOS) to terminate its legal existence. In order to dissolve, the corporation must File tax returns for all delinquent tax years; pay all outstanding tax liabilities, penalties, interest, etc. and complete one or more forms required by the FTB and SOS.

There are about 100 reasons on why you should make sure the licensed entity you’re working under is the same as your license number. This is reason ‘#52’.

A recent Appellate Court case ruled against a sole owner who was trying to collect on a Payment Bond. Problem was that he was doing business as “a signed the contract as a” a corporation. If you have recently (or even not so recently) incorporated but are still conducing business as a sole owner, it’s time to straighten out your license.

Water Remediation Licensing…

If a company cleans up after a flood is it ‘construction’ requiring a license? An excellent question to get the answers started. Do you know what limits exist for general contractors who want to use their license for specialty work? Another contractor is ‘fed’ up with confusion over a public works bid…

Q: What is the correct license for “Water Damage Remediation” work? Essentially when you have a flood in your home we come in and clean up the mess. We remove damaged carpet, baseboards and other finish carpentry, ceramic tile etc. Often we need to remove drywall including the damaged insulation. We do not alter the “structure” of the home or office building. We are not involved in the reconstruction of the home only the clean up. Large companies that are involved in our business have a general class “B” license. We do not have framing experience and are not in the construction business so we really don’t need a class “B”. We have found a few companies that use the “C-21” license. Would we be able to operate under a “C-21” license?

A: The “C-21”, (Building Moving and Demolition) classification would be proper for the work you describe. A “B” license could handle this, however, you would likely have difficulty qualifying to sit for the general contractor exam. I am not aware of any other classification(s) that would allow you to handle this work unless you held several specialties (such as drywall, tile, flooring, etc.)

Q: On a public works project, can a “B” licensed general contractor perform his own electrical work without a “C-10”?

A: Yes, the work can be self-performed if the project involves electrical and at least one or more additional unrelated trades (other than carpentry). If the project were ONLY electrical, then it would not be proper for the “B” to handle this. If a general is bidding a public works project and does not intend on self-performing the work, the company should list a qualified sub-contractor.

Q: We have a bid next month and have formed a new corporation. We think we need a new contractor’s license; however, the public works project contains some federal funding? Our questions: Do we even need a license? If so, do we need it at the time our bid is submitted?

A: Yes, you’ll need a contractor’s license unless the project is 100% federally funded and fully on federal property. B&P Code 7028.15 addresses your second question. In most cases it is a misdemeanor to submit a bid to a public agency unless you’re a properly licensed contractor. However, there are a few exceptions including one circumstance that references Section 20103.5 of the Public Contract Code.

This states in part, “In all contracts where federal funds are involved, no bid submitted shall be invalidated by the failure of the bidder to be licensed in accordance with the laws of this state.” This section goes on to say, “however, at the time the contract is awarded, the contractor shall be properly licensed (and) the first payment for work or material under any contract shall not be made unless and until the Registrar of Contractors verifies to the agency that the records of the Contractors’ State License Board indicate that the contractor was properly licensed at the time the contract was awarded.

Failure of the bidder to obtain proper and adequate licensing for an award of a contract shall constitute a failure to execute the contract and shall result in the forfeiture of the security of the bidder.” To my readers if you have a doubt about whether a project includes federal funding, contact the awarding authority to clear up any question.

Contractor’s Expert Solution

Sometimes when it seems there are no options, it is often limited knowledge that causes this dire view. Someone with more experience might have an answer. Experience over time creates ‘experts’. An expert has a greater grasp of the ‘big’ picture than most individuals can ever acquire from outside the process. Two examples of why longevity in business is often a good clue to finding that elusive alternative solution.

Q: I have a “B” license and I want to branch out into the pool and spa business. I don’t have enough experience in that field to get the license but my friend does. However, he does not hold a contractor’s license.

He wants to work for me as an employee, and handle all the fieldwork, while I essentially own and run the company. Is there a way to do that under the law?

A: Yes, you can set this up as described without too much difficulty. By adding your friend as a Responsible Managing Employee (RME), he can sit for the exam and qualify for the “C-53” class. You would still be the owner and qualifier for the “B” while he would qualify the Swimming Pool portion of the license. If you do not presently have Worker’s Compensation, this will now be required as will a second $12,500 Bond (Of Qualifying Individual).

If you want to separate the two licenses, an alternative would be to form a new corporation with you as President and your friend as RME or RMO (Responsible Managing Officer). This would give you the option of conducting business under two business names: the existing sole owner “B” and the new corporate “C-53”.

Q: I am very involved in a family business and we are in the process of changing ownership from parent to son. It is presently a corporation and I have been listed on that license as an officer for over 30 years. I also have my own (inactive) corporate license with me as the RMO.

I purchased the corporation from my parents and want to keep the current license active. However, the way I interpret the license law, I need to have a sole proprietor license that is inactive to back up the corporate license.

I tried to do a name change on my corporate license to a sole owner, but received notice from the Contractor’s License Board that I couldn’t change the license name, as it is a corporation. Do I need to apply for a sole proprietor license? Thank you for any information you can give me.

A: Thank you for the email. You do not need an inactive (or any) sole proprietor license to take over the operation and qualification of this existing family business. The confusion may stem from a law that involves exam waivers when a family member (such as yourself) is taking over an existing “individual” license due to the death or absence of the present qualifier. This is a corporate license, so you can apply to replace your parent as the RMO and request a waiver since you already hold the two primary license classifications. You should qualify for a waiver of the remaining class since you have been working full time for this company for the past 5+ years.

If you want, the current family members can remain on the license as officers plus you can apply to change officer titles with you becoming the majority owner and CEO/President.

I hope this helps clear up the licensing situation. If you have any further questions please call me.

Contractor’s Experience Opens

Experience is often the key to unlocking new opportunity. That’s always the case when contractors seek to add a new classification, secure an exam waiver or apply for a new license. A caution for contractors in our final plea, that comes from a workman who is learning the hard way about unlicensed contracting…

Q: I’m a licensed general contractor (“B”). I am seeking to obtain a “C-33” painting license to start a new, separate, company. I am unclear as to which forms I am required to fill out. I do not want to add the additional classification to my existing license. Should I complete the Application for Original License, Application for Original License – Examination Waiver, or the Application for Additional Classification?

A: If you want to start a second business using a new business name, then file the “Application for Original License”. This is required since you’ll need to show 4 years experience in the “C-33” trade and pass the trade exam. The “Add Class” application would only be filed if you wanted to continue operating under one license with two classifications. The Original App with Exam Waiver could be filed if you already held this class or were hiring someone as the qualifying individual who is a licensed painting contractor.

Q: Does the Board still give waivers to add a “C-9” to a “C-35” license with a qualifying letter? I have over 10 years without a complaint.

A: Yes, Section 7065.3 allows the CSLB to consider a waiver request for a classification (such as the “C-9” drywall) for someone who has an existing classification (such as “C-35” plastering) that is closely related. However, to secure this waiver, takes much more than a qualifying letter. The Board also requires a comprehensive project list detailing your experience with the drywall trade. This must show that you have been actively licensed in good standing for 5 of the prior 7 years. Even so, there is no assurance the Board will approve the waiver request.

Q: I have a situation my friend asked me for help on. He does work for a licensed contractor and he is sometimes referred out to the contractor’s friends who also have licenses. However in one case he accepted to do a job for a contractor who he thought had a license and went in and placed the bid with the homeowner and completed the job.

After the job was paid ($5,300), the homeowners decided they were not happy with the work. The job was done to code and looked good but my friend still fixed the problem. Nevertheless, the homeowners said they still wanted to be reimbursed for the entire job so my friend gave them a check back for half the amount (they cashed the check the next day).

Now, two weeks later the homeowners are suing because he did not reimburse the entire amount stating that since he did not have a license he will have to pay them back. Is there anything he can do since neither he nor the contractor who hired him has a contractor’s license?

A: It does not appear your friend is working for these licensed contractors as an employee; and therefore, is working without the proper contractor’s license. As you describe it, your friend is acting in the capacity of a contractor since his jobs are more than $500.

In this case, the homeowners have the law on their side. The law allows them to sue unlicensed contractors for the entire money paid — regardless of the circumstances. An unlicensed contractor can even be sued if the job is perfect and still would likely lose in court. The law is that strict. I suggest that your ‘friend’ get his own contractor’s license before this type of problem strikes again.

Qualifier Back up for “A” Contractors

The Boy Scout’s motto is ‘Be Prepared’ and a contractor has taken that theme to heart in our question and answer session. If your license depends on a qualifier, what’s your ‘fall back’ plan if they leave? Should you be ‘alarmed’ if the person installing your security system is not a licensed contractor? Construction is a ‘family’ affair as one contractor’s son wants to know if he can be ‘grandfathered’ on his Dad’s license?…

Q: I have a “C-33” license. Can I do interior demolition of a bathroom and kitchen and install new drywall in addition to painting?

A: The “C-33” painting classification allows you to texture and repaint existing drywall and handle incidental repairs prior to applying the paint. It does not allow you to demolish the entire interior of the room and install new gypsum board. Demolishing a structure’s interior requires a “C-21” while drywall installation needs a “C-9”.

Q: Our current license in California is a “C-61” specialty. We want to add a back up qualifier onto that license allowing the company an alternative if our current qualifier quit or somehow becomes unable to qualify in the future. It appears that California may not allow a back up qualifier and if that is the case can we get a second license or what would your suggestion be? I appreciate any insight you can provide us with on the situation.

A: Thank you for the email. Since CA will not allow two people to qualify the same classification on the same license, obtaining a ‘back-up’ license is a good idea. Typically the ‘back-up’ qualifier would apply for an inactive sole owner license. With an inactive license no bond or Worker’s Comp is required. The license sits idle and the qualifier can quickly replace someone who “quits or somehow becomes unable to qualify in the future”. Note, rarely will the CSLB approve a second corporate license for the same company and identical classification.

Q: Does someone who installs alarm systems need to have a contractor’s license if they are registered with the State Security and Investigation Bureau?

A: Any person who performs installation, maintenance, alteration, or servicing of alarm systems would not require a contractor’s license if they hold a valid alarm company operator license issued by the Bureau of Security and Investigative Services (like the CSLB, this is another State Consumer Affairs agency).

Q: My father had an “A” license for several years and passed away about four years ago. I had heard that I can be “grandfathered” in to his license. I currently work with an Engineering firm and this would aid in some of our projects that require an “A” contractor’s license. Thanks in advance for your help.

A: The law, which allows an immediate member of the family to be “grandfathered” in, would not apply in this situation. You are referring to Code Section 7065.1, which would require that you have worked with your father full-time in the family business for 5 of the past 7 years immediately preceding your application for a new license. Since he passed away 4 years ago, the waiver (i.e. grandfathering) option is unavailable.